I am an Assistant Professor at the University of Texas McCombs School of Business. My research is in the areas of regulations, biodiversity and artificial intelligence.
Please download my CV here.
Research
Regulatory Costs and Market Power
[ Abstract ]
Market power in the US has been rising over the last 40 years. However, the causes remain largely unknown. This paper uses machine learning on regulatory documents to construct a novel dataset on compliance costs to examine the effect of regulations on market power. The dataset is comprehensive and consists of all significant regulations at the 6-digit NAICS level from 1970-2018. We find that regulatory costs have increased by $1 trillion during this period. Moreover, small firms face higher costs than large firms despite attempts from regulators and politicians to limit the burden on small firms. We document that an increase in regulatory costs results in lower (higher) sales, employment, markups, and profitability for small (large) firms. Regulation driven increase in concentration is associated with lower productivity and investment after the late 1990s. We estimate that increased regulations can explain 31-37% of the rise in market power. Finally, we uncover the political economy of rulemaking. While large firms are opposed to regulations in general, they push for the passage of regulations that have an adverse impact on small firms.
Capital Requirements, Market-Making, and Liquidity
with Peter Feldhütter, Rainer Haselmann, Thomas Kick and Vikrant Vig
Revise & Resubmit, Journal of Financial Economics
[ Abstract ]
We employ a proprietary transaction-level dataset in Germany to examine how capital requirements affect the liquidity of corporate bonds. Using the 2011 European Banking Authority capital exercise that mandated certain banks to increase regulatory capital, we find that affected banks reduce their inventory holdings, pre-arrange more trades, and have smaller average trade size. While non-bank affiliated dealers increase their market-making activity, they are unable to bridge this gap - aggregate liquidity declines. Our results are stronger for banks with a higher capital shortfall, for non-investment grade bonds, and for bonds where the affected banks were the dominant market-maker.
Impact of Biodiversity Regulatory Risk on House Prices
with Maxwell Sacher
[ Abstract ]
Biodiversity loss has prompted ambitious policies like the “30-by-30” initiative, aiming to protect 30% of land by 2030. To study the impact of biodiversity regulatory risk on house prices, we develop a county-level measure using species data. We validate the measure, showing it predicts conservation actions. Difference-in-difference analysis shows that one standard deviation increase in risk increases house prices by 0.7%. The increase is 2.1% in areas with high land availability and high demand for nature amenities. Increased park visits, no restrictions in urban land supply, and media attention to amenity value show the price effect is driven by demand.
Do Equity Markets Reflect Biodiversity Regulatory Risk?
with Ricardo Peña and Zirui Wang
[ Abstract ]
We construct a novel firm-level measure of biodiversity regulatory risk. We combine endangered species data with establishment locations to identify firm exposure to Areas of Unprotected Biodiversity Importance (AUBI)—areas likely to be targeted by future conservation policy. Between 2020 and 2023, firms in nature- and location-dependent sectors earned 5.53% lower annual returns per standard deviation increase in AUBI exposure. Returns for high-exposure firms in these sectors were negative following Biden’s 2021 “30 by 30” executive order and positive after the 2024 election. These effects are distinct from carbon risk, suggesting biodiversity regulation is increasingly being priced into equity markets.
The Political Economy of Financial Regulation
with Rainer Haselmann, Arkodipta Sarkar and Vikrant Vig
[ Abstract ]
Using the negotiation process of the Basel Committee on Banking Supervision (BCBS), this paper studies the way regulators form their positions on regulatory issues in the process of international standard-setting and the consequences on the resultant harmonized framework. Leveraging on leaked voting records and corroborating them using machine learning techniques on publicly available speeches, we construct a unique dataset containing the positions of banks and national regulators on the regulatory initiatives of Basel II and III. We document that the probability of a regulator opposing a specific initiative increases by 30% if their domestic national champion opposes the new rule, particularly when the proposed rule disproportionately affects them. We find the effect is driven by regulators who had prior experience of working in large banks - lending support to the private-interest theories of regulation. Meanwhile smaller banks, even when they collectively have a higher share in the domestic market, do not have any impact on regulators’ stand - providing little support to public-interest theories of regulation. Finally, we show this decision-making process manifests into significant watering down of proposed rules, thereby limiting the potential gains from harmonization of international financial regulation.
Supranational Supervision
with Rainer Haselmann and Vikrant Vig
[ Abstract ]
We exploit the establishment of a supranational supervisor in Europe (the Single Supervisory Mechanism) to learn how the organizational design of supervisory institutions impacts the enforcement of financial regulation. Banks under supranational supervision are required to increase regulatory capital for exposures to the same firm compared to banks under the local supervisor. Local supervisors provide preferential treatment to larger institutes. The central supervisor removes such biases, which results in an overall standardized behavior. While the central supervisor treats banks more equally, we document a loss in information in banks’ risk models associated with central supervision. The tighter supervision of larger banks results in a shift of particularly risky lending activities to smaller banks. We document lower sales and employment for firms receiving most of their funding from banks that receive a tighter supervisory treatment. Overall, the central supervisor treats banks more equally but has less information about them than the local supervisor.