Working Papers
Working Papers
How should regulators treat corporate projections? SPAC mergers used to allow firms to share projections with lower legal liability than IPOs, until the SEC’s January 2024 rule. Using transcripts from 709 SPAC mergers, I show that forward-looking statements are pervasive, accounting for about 10% of all sentences in merger-stage transcripts. I estimate a dynamic learning model of U.S. going-public attempts (2010--mid-2023) to quantify the rule’s equilibrium trade-off. The counterfactual avoids $5.75B in investor losses but reduces firm value by $9.80B, for a net cost of $4.05B.
with Gaurab Aryal, Zhaohui Chen, and Chris Yung
Securities issuance through intermediaries is subject to agency problems and informational frictions. We examine these effects using SPAC data. We identify ``premium'' investors whose participation is linked to lower liquidation risk, higher returns, and lower redemption rates, consistent with both informational rents and agency frictions. In contrast, ``non-premium'' investors engage in non-agency quid pro quo relationships. Specifically, they receive high returns from an intermediary (quid) in exchange for a tacit agreement to participate in weaker future deals (quo). These relationships serve as insurance for issuers and intermediaries, enabling more issuers to access markets.
with Michael Gofman
We construct a director network for 972 SPACs that raised $271 billion from investors. First, we show that SPAC's investors receive lower returns and redeem more shares when directors sit on the board of another SPAC that IPOed later but found a target earlier. Second, we show that conflicted directors inefficiently allocate some targets to younger SPACs. Third, we study theoretically and empirically how new SPACs use compensation to compete for existing SPACs’ directors. Overall, decisions of SPACs' investors, directors, and sponsors raise serious corporate governance concerns and suggest that there is a need for stronger legal protection of investors.
with Zhaohui Chen, Alan D. Morrison, William J. Wilhelm
The relational contract at the heart of an investment banking relationship is valuable because it engenders and requires mutual trust in a setting where conflicts of interest are significant and are not easily resolved through formal contract. But a bank’s ability to commit to a relational contract depends on internal governance mechanisms that align the interests of individual bankers with those of the bank. We argue that increasing complexity in investment banks weakens internal governance and estimate a causal model that indicates that the likelihood of a relationship being broken is increasing in bank complexity.
with Gaurab Aryal
In this paper, we develop a Bertrand-Nash equilibrium model that features both competition and cooperation among lenders in the syndicated loan market. Lenders compete for loans and price discriminate against borrowers in a setting where both adverse selection and moral hazard exist. Meanwhile, lenders have cooperative incentives that arise from multi-loan contacts, which may decrease competition. At equilibrium, the interest rate set by each lender can be decomposed into three components: the marginal cost, the markup under oligopoly, and the cooperative effect.