Assistant Professor of Finance, Purdue University
Journal of Financial Economics 106(2), November 2012, pages 427-446.
Previously titled “Product market competition and capital structure: Evidence from import penetration”
Abstract: I find that firms experiencing increases in import competition significantly reduce their leverage ratios by issuing equity and selling assets to repay debt. Using import tariffs and foreign exchange rates as instrumental variables for import penetration, I show that these results are not manifestations of endogenous relations between import competition and leverage. The results are consistent with traditional tradeoff models of capital structure that predict a positive relation between book leverage and future expected profitability. Further evidence suggests that import competition affects leverage through changes in the tradeoff between the tax benefits of debt and the costs of financial distress.
Journal of Accounting Research 51(3), June 2013, pages 631-671.
Previously titled “Paying for risk or shareholder rip-off? An analysis of ex-ante severance pay contracts”
(Semi-finalist for the Best Corporate Governance Paper Award in 2010 FMA)
Abstract: We analyze a sample of over 3,600 ex ante explicit severance pay agreements in place at 808 firms and show that firms set ex ante explicit severance pay agreements as one component in managing the optimal level of equity incentives. Younger executives are more likely to receive explicit contracts and better terms. Firms with high distress risk, high takeover probability and high return volatility are significantly more likely to enter into new or revised severance contracts. Finally, ex post payouts to managers are largely determined by the ex ante contract terms.
Journal of Accounting and Economics 56(1), July 2013, pages 91-112.
Abstract: The use of equity incentives is significantly greater in countries with stronger insider trading restrictions, and these higher incentives are associated with higher total pay. These findings are robust to alternative definitions of insider trading restrictions and enforcement, and to panel regressions with country fixed effects. We also find significant increases in top executive pay and the marginal use of equity-based incentives in the period immediately following the initial enforcement of insider trading laws. We conclude that insider trading laws are one channel through which cross-country differences in pay practices can be explained.
Journal of Financial and Quantitative Analysis, forthcoming
Abstract: We use nearly 500 shifts in statutory corporate and personal income tax rates as natural experiments to assess the effect of corporate and personal taxes on capital structure. We find both corporate and personal income taxes to be significant determinants of capital structure. Based on ex-post observed summary statistics, across OECD countries, taxes appear to be as important as other traditional variables in explaining capital structure choices. The results are stronger among corporate tax payers, dividend payers, and companies that are more likely to have an individual as the marginal investor.