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.
Biodiversity Protection Policy and Housing Markets: Supply, Demand, and Speculation
with Maxwell Sacher
[ Abstract ]
Government financing and regulatory actions have been pledged to address biodiversity loss, yet their economic impacts remain unclear. We construct a county-level measure of exposure to potential conservation efforts. Exploiting the 30×30 initiative as a plausibly exogenous shock, we find that a one standard deviation increase in regulatory risk increases house prices by 0.6%. Effects are weaker in counties reliant on nature-intensive industries, but stronger in land-abundant counties, where supply is more elastic and demand for nature amenities is high. Speculative behavior magnifies the price increase. Overall, conservation policies satisfy nature demand but entail trade-offs for growth and housing affordability.
Canaries in the Coal Mine: Firm Response to Biodiversity Policy Risk
with Ricardo Peña
[ Abstract ]
We study whether firms respond to local biodiversity policy risk and whether those adjustments spill over to other regions through their plant networks. Using a novel measure that links endangered species habitats to firm establishments, we find that a conservation-oriented policy announcement leads exposed firms to cut toxic releases and reduce presence in ecologically sensitive areas. Importantly, these changes improve local vegetation and bird diversity. However, firms reallocate production and toxic releases to non-sensitive areas, though this reallocation is imperfect. Thus, while conservation policy improves priority habitats, it may simultaneously intensify environmental harm in regions not covered by protections.
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.