Research & Projects

Working Papers

Value-Destroying Activism (Job Market Paper)

Main finding: Existing shareholders can mitigate the activism risk by reducing deferred compensation and replacing performance pay with increased monitoring following poor performance.

Abstract: I develop a dynamic agency model to study how activism affects firms' governance. I show that while activism enhances shareholder value ex-post, it destroys value ex-ante by undermining shareholders' ability to commit. Existing shareholders respond to the threat of activism by replacing performance pay with monitoring after poor performance and by relying less on deferred compensation. When the threat of activism is low, a rise in activism levels results in increased ex-post interventions and CEO turnover, while a high threat of activism leads to such stringent monitoring that interventions become unnecessary and the need for CEO turnover is redundant. The non-monotonic relationship between ex-ante and ex-post intervention frequencies suggests that the maximal level of deferred compensation, rather than observed interventions, is the appropriate proxy for measuring the threat of shareholder activism.

Presented at: VSE Micro Theory Lunch 2024 (Vancouver), Inter-Finance PhD Seminar 2024, NFA 2024 (Montreal, PhD student poster session)

Award: Canadian Securities Institute Research Foundation PhD Scholarship 

A Dynamic Agency Model of ESG Investment and Managerial Compensation

Main finding: ESG-concerned shareholders who own brown firms with clear ESG measures should hire brown managers instead of green ones.

Abstract: I build a dynamic agency model where ESG-concerned shareholders delegate both financial and abatement investments to a manager and use pay-for-performance sensitivities (PPS) to capital growth, short-term financial performance, and ESG performance (net emission) to discipline the manager. With low ESG performance opacity where net emission can be clearly measured, firms often engage in high financial investment and abatement following strong past performance, accompanied by high PPS. With high ESG performance opacity, abatement can be non-monotonic in past performance, especially under the management of a green manager. Surprisingly, I show that a firm may exhibit higher pollution levels under the operation of a green manager compared to a brown one. My model proposes that shareholders prioritizing ESG considerations who own a brown firm with low ESG performance opacity should hire a brown manager over a green one.

Presented at: CEMA 2024 (Boston), UBC Sauder Finance Department 2023 (Vancouver), UBC VSE Micro Theory Lunch 2023 (Vancouver)

How Nonbank Mortgage Lenders Shaped Bank Small Business Lending? 

(With Xiyue (Ellen) Li and Keling Zheng)

Main finding: Banks reallocate lending from mortgages to small business loans when facing competition from nonbank mortgage lenders.

Abstract: We investigate the impact of nonbank expansion in the mortgage market on bank’s lending portfolios. Employing a difference-in-differences approach based on regulatory changes that reduce nonbank lending costs, we find: 1) Nonbank expansion decreases bank mortgage market share amid no changes in total mortgage lending. 2) Diversified banks increase credit supply and offer lower rates to small business lending in counties with more nonbank expansion. 3) Within bank and county credit reallocation increases local small business entry and employment in the tradable sector. We develop a conceptual framework to show frictions in cross-county capital allocation drive the results. Our results highlight the distributional consequences of nonbank expansion in the small business lending market.

Presented at: Sydney Banking and Financial Stability Conference 2024 (Scheduled)

Work in Progress

Motivating Innovation with Uncontractible Capital Allocation

Open Innovation, Network Formation, and Efficient Collaboration (with Xiyue (Ellen) Li and Xing Liu)