Associate 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.
Working Papers
Poison Bonds
with Shuo Xia
SFS Cavalcade APAC '24 (Scheduled), WFA '24, SGF '24, Finance Down Under '24, NYU/Penn Conference on Law & Finance '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 change-of-control events. The share of poison bonds among new issues has grown significantly in recent years, from below 20% in the 90s to over 60% since the mid-2000s, predominantly driven by investment-grade issues. We show that a key factor behind this rise is shareholders' aversion to poison pills, leading 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 generates 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)
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The rise of poison bonds coincides strikingly with the fall of poison pills.
ESG Investing Beyond Risk and Return
with Shuo Xia
OU-RFS Climate and Energy Finance Research Conference '24, CICF '24, CSR Düsseldorf '23, ESSFM-Gerzensee '23 (Evening Session), SoFiE Seoul '23, FMA Europe '23
Invited for Dual Submission at Review of Financial Studies
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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 analysis shows that previous studies likely 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
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Our estimates show that the greenium varies over time and closely with investors' green sentiment. For example, the greenium peaked in 2016Q1, just after the Paris Agreement.
Do Investors Care about AI Externalities? (draft available soon)
with Marco Ceccarelli

Abstract: 
​We answer this question by examining stock market reactions to the launch of ChatGPT—a systematic shift in the awareness of AI’s potential. Stocks with high ESG ratings outperformed those with low ESG ratings by 4 percentage points during the two weeks following ChatGPT’s release, with a stronger effect for firms that ex-ante invested more in AI. The outperformance appears driven by investors pricing in AI-related risks, like data privacy concerns. Overall, our findings highlight the role that ESG considerations play in both shaping financial markets’ expectations of AI’s productivity potential and identifying which firms are better positioned to benefit from AI adoption.
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Stocks in the top ESG rating quintile outperformed those in the bottom quintile by 4 percentage points during the two weeks following ChatGPT's release on November 30, 2022.
Work in Progress

Integrating Credit and Equity Markets: A Novel Benefit of Convertible Bonds
with Alexey Ivashchenko

More about Poison Bonds, Dual Ownership, Convertible Bonds...
Published/Accepted Papers
Cross-Extrapolative Beliefs: Evidence from ​Equity Analysts
with Patrick Verwijmeren​
(Previously circulated with the title "News/Noise from other industries")
Accepted at Management Science

Summary: Muti-tasking agents form non-rational beliefs not only by extrapolating from experiences within a specific task but also by cross-extrapolating from experiences with other contemporaneous tasks.
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