Research

Research Interest: corporate governance, institutional investor, and investor behavior, ESG.

Published and Accepted Papers

Does Money Talk? Divestitures and Corporate Environmental and Social Policies, with Nickolay Gantchev and Mariassunta Giannetti, Review of Finance, Volume 26, Issue 6, November 2022, Pages 1469–1508, https://doi.org/10.1093/rof/rfac029.

CEO Succession Roulette, with Dragana Cvijanovic and Nickolay Gantchev, Management Science, forthcoming,  https://doi.org/10.1287/mnsc.2022.4572.

Move Fast and Break Things! Innovation-Intensive Strategy, Organizational Permissiveness, and Corporate Wrongdoing, with William Grieser, Ryan Krause, Richard Priem, and Andrei Simonov, Long Range Planning, 56, no. 2 (2023): 102294, https://doi.org/10.1016/j.lrp.2023.102294

Working Papers

Sustainability or Performance? Ratings and Fund Managers' Incentives, with Nickolay Gantchev and Mariassunta Giannetti

Revise & Resubmit:  Journal of Financial Economics

Abstract: We show that in the aftermath of the Morningstar’s sustainability ratings (the “globe” ratings) introduction mutual funds attempt to improve their globe ratings by increasing their demand for sustainable stocks. This trading behavior creates buying pressure, making stocks with high sustainability ratings overvalued. As a consequence, a tradeoff between sustainability and performance arises and the performance of funds improving their globe ratings deteriorates. Since performance appears to be more important in attracting flows than sustainability, a new equilibrium emerges in which the globe ratings stop affecting funds’ flows and funds do not trade any longer to improve their globe ratings. Our results highlight the issues arising when funds are evaluated along two different dimensions that create conflicting incentives for fund managers who compete for flows.

Product Market Similarity, Benchmarking, and Corporate Fraud, with Audra Boone, William Grieser and Parth Venkat

Revise & Resubmit:  Journal of Financial and Quantitative Analysis

Abstract: We document a strong negative relation between firms' product market similarity to their rivals and their observed fraud rate. This disciplining effect is larger than most documented fraud predictors and remains virtually unchanged after controlling for those predictors and traditional measures of competition. By exploiting variation from rivals' newly available public disclosures, as well as cross-sectional variation in firm complexity, institutional ownership, and analyst coverage, we show that the effect is most likely driven by firms' external information environment. Our analyses suggest that greater product similarity enhances the external information environment, which improves external monitoring and disciplines manager reporting behavior.

Personal Convictions and ESG Investing, with Charlie Costello, Sugata Ray, and Parth Venkat

Abstract:  We study whether fund managers’ personal convictions regarding environmental causes relate to their investment decisions and performance, using vehicle purchases and charitable donations as proxies for managers’ convictions. We find that environmentally committed managers hold more of their portfolios in green stocks and perform significantly better among those holdings. This outperformance can be explained by superior characteristic selectivity, higher active share, and avoidance of large negative returns in green stocks. As such, environmentally committed mutual fund investors could consider managers’ personal convictions in addition to conventional fund-level environmental measures (e.g. disclosures, prior holdings, etc.) in selecting funds.

Investor Heterogeneity and Market Discipline: Evidence from Mutual Fund Adviser Misconduct

Abstract:  Does investor heterogeneity affect the power of market discipline in mutual fund adviser misconduct? We show a significant difference in flow sensitivity to misconduct disclosures between institutional and retail investors. Market discipline is particularly weak among retail investors with limited attention. The effectiveness of discipline by investors in fact predicts misconduct likelihood. Investors' differential ability to impose market discipline also affects fund management profitability and turnover along with subsequent fund performance. Overall, our study highlights the real effects of investor heterogeneity on market discipline and casts doubt on the safety of retail investments under the current regulatory and market environment.

Shareholder Satisfaction with Overlapping Directors, with Miriam Schwartz-Ziv

Abstract: We find that mutual fund shareholders are particularly supportive of directors who serve simultaneously on a corporate board and a mutual fund board (overlapping directors). Such support is observed both for connected funds, which share a director with a company, and for non-connected funds, which do not share a director with the company. Our results imply that the benefits overlapping directors offer to all fund shareholders exceed the costs. Mutual funds are particularly supportive of overlapping directors when monitoring is needed. Our results suggest overlapping directors are more valuable to fund shareholders than to other types of shareholders.

* Presented by coauthor or invited

Work in Progress

To the Moon! How mutual fund investors react to shocks to retail stock demand (With Clemens Sialm and Parth Venkat)

Socially Responsible Lending (with Josh Pierce and Paul Obermann)