Finance

- June 2023
- Article
Why Is Dollar Debt Cheaper? Evidence from Peru

By: Bryan Gutiérrez, Victoria Ivashina and Juliana Salomao

In emerging markets, a significant share of corporate loans are denominated in dollars. Using novel data that enables us to see currency and the cost of credit, in addition to several other transaction-level characteristics, we re-examine the reasons behind dollar credit popularity. We find that a dollar-denominated loan has an interest rate that is 2% lower per year than a loan in Peruvian Soles. Expectations of exchange rate movements do not explain this difference. We show that this interest rate differential for lending rates is closely matched by the differential in the deposit market. Our results suggest that the preference for dollar loans is rooted on the local household preference for dollar savings and a banking sector that is closely matching its foreign assets and liabilities. We find that borrower competitive pressure increases the pass-through of this differential.
- June 2023
- Article
Why Is Dollar Debt Cheaper? Evidence from Peru

By: Bryan Gutiérrez, Victoria Ivashina and Juliana Salomao

In emerging markets, a significant share of corporate loans are denominated in dollars. Using novel data that enables us to see currency and the cost of credit, in addition to several other transaction-level characteristics, we re-examine the reasons behind dollar credit popularity. We find that a dollar-denominated loan has an interest rate that...
- 2023
- Working Paper
Cryptocurrency Investing: Stimulus Checks and Inflation Expectations

By: Darren Aiello, Scott R. Baker, Tetyana Balyuk, Marco Di Maggio, Mark J. Johnson and Jason Kotter

We provide a first look into the factors that affect retail investing in cryptocurrencies. We use consumer transaction data to examine how borrower characteristics, liquidity shocks, and hedging requirements shape crypto investment decisions of millions of U.S. individuals. We find that – similar to traditional investing – crypto investing responds to wealth, risk attitude, and liquidity constraints. Yet, crypto investing is more responsive than after-tax traditional investment flows to overall markets conditions. We then show that investors’ budget constraints affect crypto investing, in line with portfolio choice theories. We find that relaxing the budget constraint through receiving stimulus payments increases crypto investing. Tighter future budget due to higher expected inflation also increases crypto investing, consistent with hedging motives. Our findings are important for understanding this new high-risk, high-return asset class and designing effective regulations in this rapidly evolving space.
- 2023
- Working Paper
Cryptocurrency Investing: Stimulus Checks and Inflation Expectations

By: Darren Aiello, Scott R. Baker, Tetyana Balyuk, Marco Di Maggio, Mark J. Johnson and Jason Kotter

We provide a first look into the factors that affect retail investing in cryptocurrencies. We use consumer transaction data to examine how borrower characteristics, liquidity shocks, and hedging requirements shape crypto investment decisions of millions of U.S. individuals. We find that – similar to traditional investing – crypto investing...
- May 2023
- Article
Political Ideology and International Capital Allocation

By: Elisabeth Kempf, Mancy Luo, Larissa Schäfer and Margarita Tsoutsoura

Does investors' political ideology shape international capital allocation? We provide evidence from two settings—syndicated corporate loans and equity mutual funds—to show ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Ideological alignment on both economic and social issues plays a role. Our empirical strategy ensures direct economic effects of foreign elections or government ties between countries are not driving the result. Ideological distance between countries also explains variation in bilateral investment. Combined, our findings imply ideological alignment is an important, omitted factor in models of international capital allocation.
- May 2023
- Article
Political Ideology and International Capital Allocation

By: Elisabeth Kempf, Mancy Luo, Larissa Schäfer and Margarita Tsoutsoura

Does investors' political ideology shape international capital allocation? We provide evidence from two settings—syndicated corporate loans and equity mutual funds—to show ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Ideological alignment on both economic and social...

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

Why Is Dollar Debt Cheaper? Evidence from Peru

By: Bryan Gutiérrez, Victoria Ivashina and Juliana Salomao

June 2023 |
Article |
Journal of Financial Economics

In emerging markets, a significant share of corporate loans are denominated in dollars. Using novel data that enables us to see currency and the cost of credit, in addition to several other transaction-level characteristics, we re-examine the reasons behind dollar credit popularity. We find that a dollar-denominated loan has an interest rate that is 2% lower per year than a loan in Peruvian Soles. Expectations of exchange rate movements do not explain this difference. We show that this interest rate differential for lending rates is closely matched by the differential in the deposit market. Our results suggest that the preference for dollar loans is rooted on the local household preference for dollar savings and a banking sector that is closely matching its foreign assets and liabilities. We find that borrower competitive pressure increases the pass-through of this differential.

Keywords: Emerging Market Corporate Debt; Currency Mismatch; Liability Dollarization; Carry Trade; Currency; Emerging Markets; Borrowing and Debt; Interest Rates; Peru

Citation

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Ava Labs: Navigating the Next Blockchain

By: Marco Di Maggio and Wenyao Sha

May 2023 |
Teaching Note |
Faculty Research

Teaching Note for HBS Case No. 223-027.

Keywords: Blockchain; Decentralized Finance; Alternative Assets; Financial Instruments; Assets; Decisions; Financing and Loans; Technology Industry; Financial Services Industry

Citation

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Cryptocurrency Investing: Stimulus Checks and Inflation Expectations

By: Darren Aiello, Scott R. Baker, Tetyana Balyuk, Marco Di Maggio, Mark J. Johnson and Jason Kotter

2023 |
Working Paper |
Faculty Research

We provide a first look into the factors that affect retail investing in cryptocurrencies. We use consumer transaction data to examine how borrower characteristics, liquidity shocks, and hedging requirements shape crypto investment decisions of millions of U.S. individuals. We find that – similar to traditional investing – crypto investing responds to wealth, risk attitude, and liquidity constraints. Yet, crypto investing is more responsive than after-tax traditional investment flows to overall markets conditions. We then show that investors’ budget constraints affect crypto investing, in line with portfolio choice theories. We find that relaxing the budget constraint through receiving stimulus payments increases crypto investing. Tighter future budget due to higher expected inflation also increases crypto investing, consistent with hedging motives. Our findings are important for understanding this new high-risk, high-return asset class and designing effective regulations in this rapidly evolving space.

Keywords: Consumer Finance; Cryptocurrency; Fintech; Inflation; Portfolio Choice; Stimulus; Consumer Behavior; Risk and Uncertainty; Investment

Citation

Read Now

Political Ideology and International Capital Allocation

By: Elisabeth Kempf, Mancy Luo, Larissa Schäfer and Margarita Tsoutsoura

May 2023 |
Article |
Journal of Financial Economics

Does investors' political ideology shape international capital allocation? We provide evidence from two settings—syndicated corporate loans and equity mutual funds—to show ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Ideological alignment on both economic and social issues plays a role. Our empirical strategy ensures direct economic effects of foreign elections or government ties between countries are not driving the result. Ideological distance between countries also explains variation in bilateral investment. Combined, our findings imply ideological alignment is an important, omitted factor in models of international capital allocation.

Keywords: Capital Flows; Syndicated Loans; Mutual Funds; Partisanship; Polarization; Elections; Political Ideology; Banks and Banking; Institutional Investing; Behavioral Finance; Decision Choices and Conditions

Citation

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Project Helios: Harvesting the Sun

By: Mark Egan and Scott Mayfield

April 2023 |
Supplement |
Faculty Research

Citation

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Twitter: The Freedom to Speak Freely and Be Heard

By: Randolph B. Cohen, Carin-Isabel Knoop and Mel Martin

April 2023 |
Case |
Faculty Research

In April 2022, serial entrepreneur Elon Musk announced that he would be interested in purchasing the social media site Twitter for $44 billion. With more than 100 million twitter followers, Musk had historically leveraged the site to engage with the customers of his many businesses such as Tesla and Space X. He also openly shared his beliefs on business, culture, and politics worldwide. In previous years, Musk had commented thought that Twitter’s content moderation was too strict and criticized the company’s leadership for banning users such as former President Donald Trump and censoring unverified information regarding the COVID-19 vaccine. He also thought the company could be more profitable if it made different business decisions such as offering subscription to users wanting more access and influence on the platform. When Musk announced his interest in Twitter, a debate about all such issues the platform erupted. Twitter users argued the ethics of a privately-owned public square, the merits of Elon Musk’s claims about the platforms content moderation, and the potential impact such a sale could have on public discourse. After the deal closed, Musk made it clear that he would make dramatic changes to the platform.

Keywords: Values and Beliefs; Technology Industry; Communications Industry; Public Relations Industry; United States

Citation

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