Assistant Professor of Finance
Vrije Universiteit Amsterdam & Tinbergen Institute CV Email: [email protected] |
What's new?
- My recent research shows that poison bonds are on the rise, entrenching incumbent managers and destroying shareholder value. This has important implications for the agency theory of debt: (i) more debt may not discipline the management; and (ii) managerial entrenchment can lead to conflicts of interest between shareholders and creditors, even when firms are not under financial distress.
- Another recent paper shows that investors are willing to sacrifice wealth for environmental and social benefits.
- I am co-organizing the 5th edition of Research in Behavioral Finance Conference, which will take place on 17 and 18 October 2024 in Amsterdam.
Working papers
Poison Bonds
(with Shuo Xia) WFA (Scheduled), SGF '24, NYU/Penn Conference on Law & Finance '24, Finance Down Under '24, FMA Consortium on Asset Management '24, Venice Finance Workshop '23 Abstract: This paper documents the rise of "poison bonds"--corporate bonds that allow bondholders to demand immediate repayment in a change-of-control event. The share of poison bonds among new issues has grown significantly in recent years, from below 20% in the 90s to over 60% after 2005. This trend is predominantly driven by investment-grade issues. We provide causal evidence that the pressure to eliminate poison pills has led firms to issue poison bonds as an alternative. Our analysis suggests that this practice entrenches incumbent managers and destroys shareholder value. Holding a portfolio of firms that remove poison pills but promptly issue poison bonds results in negative abnormal returns of -7.3% per year. Our findings have important implications for the agency theory of debt: (i) more debt does not necessarily discipline the management; and (ii) even without financial distress, managerial entrenchment can lead to conflicts between shareholders and creditors. Coverage: Harvard Law School Forum on Corporate Governance, Institutional Investor, FT Alphaville (2x) |
ESG Investing Beyond Risk and Return
(with Shuo Xia) CICF (Scheduled), CSR Düsseldorf '23, ESSFM-Gerzensee '23 (Evening Session), SoFiE Seoul '23, FMA Europe '23 Abstract: Are investors willing to sacrifice wealth for social benefits? We study green bonds to empirically disentangle nonpecuniary motivations from pecuniary benefits behind socially responsible investing. We propose a new method to estimate the premium of a green bond, the so-called "greenium'', by comparing the green bond to an equivalent synthetic non-green bond that is constructed using a yield curve bootstrapped from the same issuer' conventional bonds. In contrast to recent studies of green bonds, we find an economically sizable greenium both at issuance and after trading. Our analyses show that previous studies underestimate the greenium because of the green halo effect. Our greenium estimates also increase when investors are less concerned about greenwashing or become more aware of climate change. Overall, this paper provides direct evidence of investors' nonpecuniary preferences for green assets. Coverage: Vuurwerk Jubileum Editie |
Cross-Extrapolative Beliefs: Evidence from Equity Analysts
(with Patrick Verwijmeren) (Previously circulated with the title "News/Noise from other industries") AFBC (PhD forum), Paris December Meeting, SFS Cavalcade, CICF Abstract: This paper shows that multi-tasking agents form extrapolative beliefs not only within tasks but also across tasks, overweighting recent experiences with one task when forming beliefs about other tasks. The key evidence is that analysts disagree about the same firm at the same time when they experience different news from other coverage firms. In particular, bad news about other coverage firms makes analysts overly pessimistic about the focal firms. This cross-extrapolation has significant effects on the stock market: the resulting analyst disagreement increases trading volumes and return volatilities, and the resulting analysts' pessimism leads to temporary underpricing. |
Work in progress
Frozen IPOs and Fueled M&As
(with Lingtian Kong and Shuo Xia)
More about Poison Bonds, Dual Ownership, Convertible Bonds...
Frozen IPOs and Fueled M&As
(with Lingtian Kong and Shuo Xia)
More about Poison Bonds, Dual Ownership, Convertible Bonds...
Publications
The Corporate Investment Benefits of Mutual Fund Dual Holdings
(with Patrick Verwijmeren and Shuo Xia) Journal of Financial and Quantitative Analysis, forthcoming. Summary: The increasing dual ownership of mutual fund families allows firms to increase valuable investments, especially when families encourage cooperation among their fund managers. Coverage: Harvard Law School Forum on Corporate Governance |
How Do Options Add Value? Evidence from the Convertible Bond Market
(with Inmoo Lee and Patrick Verwijmeren) Review of Finance, 2023; 27: 189-222. Summary: The availability of stock options helps security issuers attract more buyers and reduces issuers' cost of financing. |
Director Attention and Firm Value
(with Patrick Verwijmeren) Financial Management, 2020; 49: 361-387 Summary: Firm value drops significantly when board members are distracted. Coverage: Harvard Law School Forum on Corporate Governance and Financial Regulation |