Peer Effects in Corporate Governance Practices: Evidence from Universal Demand Laws (with Alan Marcus, Vinh Nguyen, and Hassan Tehranian), 2021, Review of Financial Studies, 35(1), 132-167.
-Midwest Finance Association Outstanding Paper Award, MFA annual meeting, 2019
-Semifinalist for Best Paper Award in Corporate Finance, FMA annual meeting, 2016
-Media Coverage: Harvard Law School Forum on Corporate Governance - May 3, 2021
Investor Protection and the Long-Run Performance of Activism (with Namho Kang, Gideon Ozik, and Ronnie Sadka), 2019, Journal of Financial and Quantitative Analysis, 54(1), 61-100.
-WFA Cubist Systematic Strategies Ph.D. Candidate Award for Outstanding Research, WFA annual meeting, 2017
-Best Paper Award in Honor of Stuart I. Greenbaum, Olin School of Business at Washington University in St. Louis, 2016
Abstract: This paper studies connections and information flows between activist hedge funds and other institutional investors and shows them as prominent factors in the success of activist campaigns. Using manager turnovers in connected mutual funds as exogenous shocks to activists’ connectivity, I identify a positive causal effect of connections with other investors on the short-run and long-run performance of activists’ campaigns. I also show that the two likely mechanisms through which activists benefit from their relationships with other institutions are information flows between institutional shareholders and well-connected activists before campaign announcements and higher support from other shareholders during the campaign.
Corporate Pensions and Financial Distress (with Ying Duan, Edith S. Hotchkiss, and Yawen Jiao)
Abstract: We examine the role of corporate pension plans in determining how firms restructure in financial distress. Both defined benefit (DB) and defined contribution (DC) plans can have significant exposures to the company’s own stock, imposing significant losses on employees if the firm defaults and/or files for bankruptcy. We find that firms with DB plans typically have little exposure to the stock prior to default; the degree of underfunding increases significantly as firms near default, but is not related to restructuring types (bankruptcies versus out of court restructurings). In contrast, large exposures to company stock in DC plans often are not reduced prior to default. High levels of own-company stock ownership are positively related to default and bankruptcy probabilities. Our evidence suggests a link between employee-ownership related managerial entrenchment and default risk.
Hedge Funds are on the Ball When Insiders Trade (with Jerry Parwada, Yixuan Rui and Jianfeng Shen)
Abstract: This study examines the use of insider trading information by hedge funds. We find that hedge funds tend to trade in the same direction as insiders when insider trading is likely driven by information, but do not respond to likely liquidity-driven insider trades. This finding is consistent with hedge funds being able to decipher insider trading information and trade accordingly. In contrast, mutual funds, pension funds and other institutional investors (mostly banks and insurance companies) are more likely to trade in the opposite direction as insiders, acting as liquidity providers regardless of the trading motives of insiders. Further, there is evidence that a hedge fund’s ability to exploit insider trading information helps improve its performance. Our study contributes to the literature on hedge fund skills by showing their ability to exploit insider information and linking such ability to performance.
Does a Mutual Fund’s Exposure to Pollution Influence Its Environmental Engagements? (with Alan Marcus and Vinh Nguyen)
Abstract: This paper studies the relationship between mutual fund management's direct experience with air pollution and the fund's engagements with portfolio companies on environmental issues. We find that higher air pollution in a mutual fund's headquarter county increases the propensity of the fund to vote in support of shareholders' environmental proposals and to liquidate its holdings of portfolio firms with lower environmental ratings. We also find that greater air pollution exposure of a mutual fund predicts better environmental performance at its portfolio companies. To establish causality, we use elevated air pollution produced by large wildfires in a mutual fund's headquarter county as an instrument and identify similar effects on the outcome variables. These results suggest that a mutual fund's direct exposure to pollution can inform its environmental engagements at its portfolio companies.
The Hidden Cost of Going Green: Evidence from Firm-Level Violations & Employee Reviews (with Arshia Farzamfar, Lilian Ng, and Linyang Yu)
-Best Paper Award at Asia-Pacific Financial Markets (CAFM) annual meeting, 2022
-Media Coverage: Forbes - Sep 06, 2022
Abstract: This paper explores whether corporations resort to cutting social investments when responding to pressures from environmental authorities and various stakeholders to adopt pro-environmental policies. Our study documents the first evidence of a robust negative relationship between firm environmental and social responsibilities, as measured by the penalties imposed on the firm’s social violations and Glassdoor employee reviews. We use the engagement by large institutional investors on the environmental performance of their portfolio firms to reinforce our findings that when a firm goes green, it reduces emissions but at the expense of its social responsibility. This phenomenon, which results in more efficient asset utilization, higher profitability, and firm value, becomes more severe when management is under pressure from external and internal forces.