Finance

- February 2023
- Article
Disruption and Credit Markets

By: Bo Becker and Victoria Ivashina

We show that over the past half century innovative disruptions were central to understanding corporate defaults. In a given year, industries experiencing abnormally high VC or IPO activity subsequently see higher default rates, higher segment exits by conglomerates, and higher yields on bonds issued by the firms in these industries. Overall, we find that disruption is a broad phenomenon, negatively affecting incumbent firms across the spectrum of age, valuation, and levers, with the exception of very large and low-leverage firms, which confirms our central hypothesis.
- February 2023
- Article
Disruption and Credit Markets

By: Bo Becker and Victoria Ivashina

We show that over the past half century innovative disruptions were central to understanding corporate defaults. In a given year, industries experiencing abnormally high VC or IPO activity subsequently see higher default rates, higher segment exits by conglomerates, and higher yields on bonds issued by the firms in these industries. Overall, we...
- February 2023
- Article
OTC Intermediaries

By: Andrea L. Eisfeldt, Bernard Herskovic, Sriram Rajan and Emil Siriwardane

We study the effect of dealer exit on prices and quantities in a model of an over-the-counter (OTC) market featuring a core-periphery network with bilateral trading costs. The model is calibrated using regulatory data on the entire U.S. credit default swap (CDS) market between 2010-2013. Prices depend crucially on the risk-bearing capacity of core dealers, yet unlike standard models featuring a dealer sector, we allow for heterogeneity in dealer risk-bearing capacity. This heterogeneity is quantitatively important. Depending on how well dealers share risk, the exit of a single dealer can cause credit spreads to rise by 8 to 24%.
- February 2023
- Article
OTC Intermediaries

By: Andrea L. Eisfeldt, Bernard Herskovic, Sriram Rajan and Emil Siriwardane

We study the effect of dealer exit on prices and quantities in a model of an over-the-counter (OTC) market featuring a core-periphery network with bilateral trading costs. The model is calibrated using regulatory data on the entire U.S. credit default swap (CDS) market between 2010-2013. Prices depend crucially on the risk-bearing capacity of core...
- January 2023
- Case
Lupoli Companies: Riverwalk - Making an Impact

By: Richard S. Ruback, Marco Di Maggio, Dave Habeeb and Ruth Page
- January 2023
- Case
Lupoli Companies: Riverwalk - Making an Impact

By: Richard S. Ruback, Marco Di Maggio, Dave Habeeb and Ruth Page

About the Unit

Our strategy is to assemble and nurture a faculty whose interests and skills complement each other, and who work well together:

a) to produce a broad range of finance-related research that is published in top-tier scientific and practitioner journals, and that addresses issues of present and future importance to managers (including regulators and policy makers);

b) to develop highly-relevant and intellectually rigorous MBA and executive education courses; and

c) to mentor future academics through the Business Economics doctoral program.

Our applied focus and access to business organizations are major advantages which are reinforced by our students and our case-based approach. We have a faculty with broad expertise, and we have resources, field contacts, and institutional support, all of which we can leverage to do richer work and be more productive than we could at other institutions.

Recent Publications

Disruption and Credit Markets

By: Bo Becker and Victoria Ivashina

February 2023 |
Article |
Journal of Finance

We show that over the past half century innovative disruptions were central to understanding corporate defaults. In a given year, industries experiencing abnormally high VC or IPO activity subsequently see higher default rates, higher segment exits by conglomerates, and higher yields on bonds issued by the firms in these industries. Overall, we find that disruption is a broad phenomenon, negatively affecting incumbent firms across the spectrum of age, valuation, and levers, with the exception of very large and low-leverage firms, which confirms our central hypothesis.

Keywords: Default; Corporate Bonds; Disruption; Corporate Finance; Bonds

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OTC Intermediaries

By: Andrea L. Eisfeldt, Bernard Herskovic, Sriram Rajan and Emil Siriwardane

February 2023 |
Article |
Review of Financial Studies

We study the effect of dealer exit on prices and quantities in a model of an over-the-counter (OTC) market featuring a core-periphery network with bilateral trading costs. The model is calibrated using regulatory data on the entire U.S. credit default swap (CDS) market between 2010-2013. Prices depend crucially on the risk-bearing capacity of core dealers, yet unlike standard models featuring a dealer sector, we allow for heterogeneity in dealer risk-bearing capacity. This heterogeneity is quantitatively important. Depending on how well dealers share risk, the exit of a single dealer can cause credit spreads to rise by 8 to 24%.

Keywords: OTC Markets; Intermediaries; Dealers; Credit Default Swaps; Risk Sharing; Financial Markets; Networks; Price; Risk and Uncertainty

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Purchase

Lupoli Companies: Riverwalk - Making an Impact

By: Richard S. Ruback, Marco Di Maggio, Dave Habeeb and Ruth Page

January 2023 |
Case |
Faculty Research

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Educators

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Too Many Managers: The Strategic Use of Titles to Avoid Overtime Payments

By: Lauren Cohen, Umit Gurun and N. Bugra Ozel

2023 |
Working Paper |
Faculty Research

We find widespread evidence of firms appearing to avoid paying overtime wages by exploiting a federal law that allows them to do so for employees termed as “managers” and paid a salary above a pre-defined dollar threshold. We show that listings for salaried positions with managerial titles exhibit an almost five-fold increase around the federal regulatory threshold, including the listing of managerial positions such as “Directors of First Impression,” whose jobs are otherwise equivalent to non-managerial employees (in this case, a front desk assistant). Overtime avoidance is more pronounced when firms have stronger bargaining power and employees have weaker rights. Moreover, it is more pronounced for firms with financial constraints and when there are weaker labor outside options in the region. We find stronger results for occupations in low-wage industries that are penalized more often for overtime violations. Our results suggest broad usage of overtime avoidance using job titles across locations and over time, persisting through the present day. Moreover, the wages avoided are substantial - we estimate that firms avoid roughly 13.5% in overtime expenses for each strategic “manager” hired during our sample period.

Keywords: Wages; Organizational Design; Job Design and Levels; Compensation and Benefits

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Hidden Alpha

By: Lauren Cohen, Manuel Amman, Alexander Cochardt and Stephan Heller

2022 |
Working Paper |
Faculty Research

Using the setting of financial agents, we explore the importance of hidden connections relative to all other network connections. We find that hidden connections are those associated with the largest and most significant abnormal returns accruing to fund managers—on average 135 basis points per month (over 16% alpha per year, t-stat = 3.54) across the universe of mutual funds and public firms. This is relative to insignificant abnormal returns accruing on average to all other trades, including those to trades of “visible” connections. The hidden connection premium does not appear to be driven by endogenous selection or familiarity, as fund managers seem to be correctly timing when to hold (and when to avoid) the firm officers to whom they are tied. Further, the more hidden the connection is, the more valuable the information that appears to be associated with the trading across it. This hidden connection premium exists across industries, styles, time periods, and firm types; remaining strong and significant through the present day. More broadly, our findings highlight the importance of missing nodes and hidden edges when attempting to understand the true nature of shock propagation in complex network systems.

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