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 Asia-Pacific '24, 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.
Integrating Credit and Equity Markets: A Novel Benefit of Convertible Bonds
with Alexey Ivashchenko
(draft available upon request)

Abstract: 
​We show empirically that convertible bonds act as a bridging mechanism, facilitating the integration between a firm's debt and equity markets. While theoretical models predict a strong co-movement between corporate bond and stock returns, empirical evidence offers little support for this prediction, suggesting substantial segmentation between the two markets. We find that the issuance of new convertible bonds improves cross-market integration, whereas the pre-determined maturity of non-callable convertible bonds increases segmentation, above and beyond what can be explained by changes in default risk and other firm characteristics. Consistent with the idea that convertible bonds attract investors who seek exposure to both markets, we provide evidence that convertible bond investors are more likely to hold other securities from the same issuing firm. This suggests an increased presence of cross-market arbitrageurs, and aligns with the limits-to-arbitrage explanation for the initial segmentation between debt and equity markets. 
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Firm-level stock-bond market segmentation increases again following the maturity of convertible bonds.
Green Preferences: Evidence from the Greenium in Green Bonds
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
(Previously circulated under "ESG Investing Beyond Risk and Return")
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's Negative Externalities? 
with Marco Ceccarelli
(draft available soon)

Abstract: 
​We study this question by examining stock market reactions to the launch of ChatGPT--a pivotal event that sharply increased awareness of AI's transformative potential. Using ESG ratings as a proxy for firms' ability and willingness to adopt AI responsibly, we find that stocks with low ESG ratings underperformed those with high ratings by four percentage points during the two weeks following ChatGPT's release, especially among firms with prior AI investments. A key driver of this underperformance appears to be investors pricing in AI-related risks, such as data privacy issues and human labor concerns. Our findings highlight investors' attention to AI's societal implications and the role of ESG ratings in identifying firms that are likely to utilize AI more responsibly.
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Stocks in the bottom ESG rating quintile underperformed those in the top quintile by four percentage points during the two weeks following ChatGPT's release on November 30, 2022.
Work in Progress

Poison Bonds 2.0
with Shuo Xia

More about Poison Bonds, Dual Ownership, Convertible Bonds...
Published/Accepted Papers
Cross-Extrapolative Beliefs: Evidence from ​Equity Analysts
with Patrick Verwijmeren​
(Previously circulated under "News/Noise from Other Industries: Overgeneralization and Analyst Beliefs")
Management Science, Accepted.

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