Disagreement and security design

We study optimal security design when the issuer and market participants agree to disagree about the characteristics of the asset to be securitized. We show that pooling assets can be optimal because it mitigates the effects of disagreement between issuer and investors, whereas tranching a cash-flow stream allows the issuer to exploit disagreement between investors. Interestingly, pooling and tranching can be complements. The optimality of debt with or without call provisions can be derived as a special case. In a model with multiple financing rounds, convertible securities naturally emerge to finance highly skewed ventures

Unionization, Cash, and Leverage

What is the effect of unionization on corporate financial policies? The average unionized firm responds with lower cash and higher leverage to a unionization election than the average firm escaping unionization. However, using a regression discontinuity design I find that the causal effect of unionization is close to zero on average, but heterogeneous across firms. For the subset of large and financially unconstrained firms, the causal effect is positive on leverage and negative on cash; the opposite is true for small and financially constrained firms. These results help reconcile controversially discussed views on how corporate finance and labor interact

(Why) Do Central Banks Care About Their Profits?

We document that central banks are significantly more likely to report slightly positive profits than slightly negative profits. The discontinuity in the profit distribution is (i) more pronounced amid greater political or public pressure, the public’s receptiveness to more extreme political views, and agency frictions arising from governor career concerns, but absent when no such factors are present, and (ii) correlated with more lenient monetary policy inputs and greater inflation. These findings indicate that profitability concerns, while absent from standard theoretical models of central banking, are both present and effective in practice, and inform a theoretical debate about monetary stability and the effectiveness and riskiness of non-traditional central banking

Confidence Cycles

We provide a model that rationalizes variations in confidence of rational agents, both in the time-series and the cross-section. Combining horizon-dependent risk aversion (“anxiety”) and selective memory, we show that over- and underconfidence can arise in the Bayesian equilibrium of an intra-personal game. In the time-series, overconfidence is more prevalent when actual risk levels are high, while underconfidence occurs when risks are low. In the cross-section, more anxious agents are more prone to biased confidence and their beliefs fluctuate more, leading them to buy in booms and sell in crashes. Lastly, fluctuations in confidence can amplify boom-bust cycles

Horizon-Dependent Risk Aversion and the Timing and Pricing of Uncertainty

We address two fundamental critiques of established asset pricing models: that they (1) require a controversial degree of preference for early resolution of uncertainty; and (2) do not match the term structures of risk premia observed in the data. Inspired by experimental evidence, we construct preferences in which risk aversion decreases with the temporal horizon. The resulting model implies term structures of risk premia consistent with the evidence, including timevariations and reversals in the slope, without imposing a particular preference for early or late resolutions of uncertainty or compromising on the ability to match standard moments in the returns distributions

Ultimate Ownership and Bank Competition

We use a uniquely extensive branch-level dataset on deposit account interest rates, maintenance fees, and fee thresholds, and document substantial time-series and cross-sectional variation in these prices. We then examine whether variation in bank concentration helps explain the variation in prices. The standard measure of concentration, the HHI, is not correlated with any of the outcome variables. We then construct a generalized HHI (GHHI) that captures both common ownership (the degree to which banks are commonly owned by the same investors) and cross-ownership (the extent to which banks own shares in each other). The GHHI is strongly correlated with all prices. We use the growth of index funds as an arguably exogenous source of cross-sectional variation of county-level common ownership growth to suggest a causal link from the GHHI to higher prices for banking products

Common Ownership, Competition, and Top Management Incentives

When one firm’s strategy affects other firms’ value, optimal executive incentives depend on whether shareholders have interests in only one or in multiple firms. Performance-sensitive contracts induce managerial effort to reduce costs, and lower costs induce higher output. Hence, greater managerial effort can lead to lower product prices and industry profits. Therefore, steep managerial incentives can be optimal for a single firm and at the same time violate the interests of common owners of several firms in the same industry. Empirically, managerial wealth is more sensitive to performance when a firm’s largest shareholders do not own large stakes in competitors

Financing Payouts

We study the extent to which firms rely on the capital markets to fund their payouts. We find that 42% of firms that pay out capital also initiate debt or equity issues in the same year, resulting in 32% of aggregate payouts being externally financed. Most firms that simultaneously raise and distribute capital do not generate enough free cash flow to fund their payouts internally. Firms devote more external capital to finance share repurchases than to avoid dividend cuts. Payouts financed by debt, which allow firms to jointly manage their capital structure and liquidity, are by far the most common

Mesostructured ZnO/Au nanoparticle composites with enhanced photocatalytic activity

Ease of catalyst separation from reaction mixtures represents a significant advantage in heterogeneous photocatalytic wastewater treatment. However, the activity of the catalyst strongly depends on its surface-to-volume ratio. Here, we present an approach based on cylindrical polybutadiene-block-poly(2-vinylpyridine) polymer brushes as template, which can be simultaneously loaded with zinc oxide (ZnO) and gold (Au) nanoparticles. Pyrolytic template removal of the polymer yields in mesostructured ZnO/Au composites, showing higher efficiencies in the photocatalytic degradation of ciprofloxacin and levofloxacin (generic antibiotics present in clinical wastewater) as compared to neat mesostructured ZnO. Upscaling of the presented catalyst is straightforward promising high technical relevance