Research Lab

The authors present empirical evidence that borrowers, consciously or not, leave traces of their intentions, circumstances, and personality traits in the text they write when applying for a loan. This textual information has a substantial and significant ability to predict whether borrowers will pay back the loan above and beyond the financial and demographic variables commonly used in models predicting default.

What does it take for success in the media business? Creativity, innovation, and performance, of course. Plus experience and good judgment. However, it also requires an understanding of the principles and tools of management. This book summarizes the major dimensions of a business school curriculum and applies them to the entire media, media-tech, and digital sectors. Its chapters cover—in a jargonless, non-technical way—the major management functions.

Shadow bank market share in residential mortgage origination nearly doubled from 2007 to 2015, with particularly dramatic growth among online "fintech" lenders. We study how two forces, regulatory differences and technological advantages, contributed to this growth.

The modern notion of an international currency involves use in areas of international finance and trade that extend well beyond central banks' coffers. In addition to their important roles as foreign exchange reserves, international currencies are most frequently used to denominate corporate and government bonds, bank loans, and import and export invoices. These currencies offer unrivaled liquidity, constituting large shares of the volume on global foreign exchange markets, and are commonly chosen as the anchors targeted by countries with pegged or managed exchange rate regimes.

This paper studies how hedge fund activism impacts corporate innovation. Firms targeted by activists improve their innovation efficiency over the five-year period following hedge fund intervention. Despite a tightening in research and development (R&D) expenditures, target firms increase innovation output, as measured by both patent counts and citations, with stronger effects among firms with more diversified innovation portfolios. Reallocation of innovative resources, redeployment of human capital, and change to board-level expertise all contribute to improve target firms' innovation.

Experts and popular beliefs suggest that it pays to engage in financial misconduct due to lax enforcement and punishment after 2003. We focus on the most serious cases of financial reporting misconduct and hand collect data on three subsamples of severe misconduct cases, between 2003 and 2015: a sample of 37 (100) SEC enforcement actions (class action lawsuits) that explicitly allege fraud and a sample of 100 restatements with the most negative market reaction in which investors presumably suspect fraud.

We develop a theory of banking that explains why banks started out as commodities warehouses. We show that warehouses become banks because their superior storage technology allows them to enforce the repayment of loans most effectively. Further, interbank markets emerge endogenously to support this enforcement mechanism. Even though warehouses store deposits of real goods, they make loans by writing new "fake" warehouse receipts, rather than by taking deposits out of storage.

In “The Intelligent Investor in an Era of Autonomous Learning”, Jeffrey Tarrant delineated the concept of Autonomous Learning Investment Strategies (ALIS), the new AI and data-driven strategies he argued would disrupt today’s fundamental and quantitative managers.  This was followed by an article I wrote, “What a long strange trip it’s been...on ALIS”, which explained the best and worst traits of ALIS managers.  This brief article is called “Think Twice, It Ain’t Alright...ALIS Clarified”, repurposing the title of Bob Dylan’s 1963 song, “Don’t Think Twice, It’s Alright”. 

We examine the effects of financial reporting regulation on firms' banking. Exploiting discontinuous public disclosure and auditing requirements assigned to otherwise similar small and medium-sized private firms, we document that financial reporting regulation reduces firms' reliance on concentrated and local bank relationships and increases banks' reliance on firms' financial reporting, consistent with a shift in firms' banking from relationship toward transactional approaches.