Financial Strength and Trade Credit Provision: Evidence from Trucking Firms
Job market paper
When customers value trade credit, financial strength confers a comparative advantage in the product market. To test this idea and its implications, I consider an exogenous restriction on the trade credit supplied by French trucking firms enacted in 2006. Using a difference-in-differences approach, I find that, following the restriction, financially constrained firms experience a significant reduction in their probability of default, without any offsetting drop in profits. Additionally, the entry of small businesses increases. The results suggest that financially constrained firms are unable to pass on to prices the excess default risk they take by extending trade credit. As a result, trade credit demand impedes the entry, expansion, and survival of constrained yet efficient firms.
Investment Horizon and Innovation: Evidence from Private Equity Funds
Winner, Coller Institute (LBS) Prize for Private Equity Research 2012
On the 2013 ASSA/AFA meetings program
Investments exploring new ideas typically take more time to payoff than investments exploiting existing ones. Hence, investors with a short horizon may be tilted towards the latter. I consider investments made by private equity funds, which generally have a limited investment horizon contractually fixed ex ante. I use between and within-fund variations in investment horizon to show that funds with a longer horizon select younger companies at an earlier stage of their development, stage investment more and hold on to their investments for a longer period of time. Moreover, companies which receive funding from funds with a longer horizon increase their patent stock significantly more than companies which receive funding from investors with a shorter horizon. Altogether, these results provide new evidence on the behaviour of private equity funds throughout their life cycle and suggest that investor horizon matters to an important extent for the funding of corporate innovation.
Work in progress
Hetereogeneity in Investor Behavior: Evidence from the Financial Crisis
with Ron Kaniel (Unversity of Rochester) and David Sraer (Princeton University)
We use detailed brokerage account data to provide a quantitative exploration of the behavior of retail investors during the financial crisis of 2008. We identify ex ante dimensions of heterogeneity based on trading frequency, amount invested or type of securities traded that are associated with different trading behavior ex post. We show that investors who appear more sophisticated on these dimensions in the pre- crisis period were, in the post-crisis period, less likely to flee to safety, more likely to engage in liquidity provisions and to earn higher returns. Our analysis thus extend our understanding of retail investors' behavior and provide a new light on one particular mechanics of the financial crisis. [draft available upon request]
Households Learning in the Dark: Evidence from French Retail Investors
This paper develops the idea that households have an imprecise knowledge of their portfolio's exposure to systematic risk and that this leads them to make investment mistakes. This idea is tested in the context of the decision to actively trade rather than passively invest in the stock market. I show that the trading activity of individual investors increases (decreases) following high (low) gross performance. I carefully split individual investors performance into its systematic and residual components and show that their trading activity reacts to both. To account for these results, I contrast a story based on overconfidence against a three period trading model where individual investors have an imprecise knowledge of both their ability and systematic exposure ex ante, and learn about them as they trade. This model generates predictions consistent with the above evidence as well as additional predictions that are borne out by the data. [draft available upon request]
Performance Monitoring, Systematic Risk Adjustment and Mutual Fund Flows
with Yang Sun (MIT Sloan)