Office: 4411 Van Munching Hall
Ph.D. (Finance) June 2002, Kellogg School of Management, Northwestern University
B.S. (Managerial Economics) 1994, University of California, Davis
Associate Professor of Finance (with tenure), RH Smith School of Business, University of Maryland, 2012 - present.
Director, Masters in Finance Program, RH Smith School of Business, University of Maryland, 2012 - present.
Assistant Professor of Finance, RH Smith School of Business, University of Maryland, 2008 - 2012.
Visiting Assistant Professor of Finance, Kellogg School of Management, Northwestern University, 2007 - 2008.
Marcile and James Reid Professor, Olin School of Business, Washington University in St. Louis, 2006 - 2007.
Assistant Professor of Finance, Olin School of Business, Washington University in St. Louis, 2002 - 2008.
Fellow, Center for Financial Research, FDIC, 2004 - 2005.
Empirical corporate finance: capital structure, risk management, corporate
liquidity , executive compensation
, executive compensation
"Hedging or Market Timing? Selecting the Interest Rate Exposure of Corporate Debt"
Journal of Finance, April 2005. Nominated for 2005 Brattle Prize.
ABSTRACT: This paper examines whether firms are hedging or timing the market when selecting the interest rate exposure of their debt. I use a more accurate measure of the interest rate exposure chosen by firms by combining the initial exposure of newly issued debt securities with their use of interest rate swaps. The results indicate that the final interest rate exposure is largely driven by the slope of the yield curve at the time the debt is issued. These results suggest risk management practices are primarily driven by speculation or myopia, not hedging considerations.
"Does the Source of Capital Affect Capital Structure?" with Mitchell Petersen
Review of Financial Studies, Spring 2006.
Recipient of Barclays Global Investors / Michael Brennan Best Paper Award Runner Up (2006)
ABSTRACT: Prior work on leverage implicitly assumes capital availability depends solely on firm characteristics. However, market frictions that make capital structure relevant may also be associated with a firm's source of capital. Examining this intuition, we find firms which have access to the public bond markets, as measured by having a debt rating, have significantly more leverage. Although firms with a rating are fundamentally different, these differences do not explain our findings. Even after controlling for firm characteristics which determine observed capital structure, and instrumenting for the possible endogeneity of having a rating, firms with access have 35 percent more debt.
"Corporate Financial Policy and the Value of Cash" with Rong Wang
Journal of Finance, August 2006.
ABSTRACT: We examine the cross-sectional variation in the marginal value of corporate cash holdings that arises from differences in corporate financial policy. We begin by providing semi-quantitative predictions for the value of an extra dollar of cash depending upon the likely use of that dollar, and derive a set of intuitive hypotheses to test empirically. By examining the variation in excess stock returns over the fiscal year, we find that the marginal value of cash declines with larger cash holdings, higher leverage, better access to capital markets, and as firms choose cash distribution via dividends rather than repurchases.
"Executive Compensation: An Overview of Research on Corporate Practices and Proposed Reforms" with Dalida Kadyrzhanova, N. Prabhala, and Lemma Senbet
Journal of Applied Corporate Finance, Winter 2010.
ABSTRACT: Two landmark episodes of the last decade, the 2001 dot-com crisis and the 2008 bursting of the housing bubble, have drawn attention to the size and structure of executive pay plans and their possible role in propagating or worsening the crises. In this policy-oriented piece, the authors discuss the key issues in the debate on executive pay and express their support for a number of reform proposals that have been advanced in academic and policy circles. The article begins by dividing the compensation debate into four key issues: First, while public outrage has focused on the size of the pay packages at failed financial institutions, it is perhaps more important to focus on the structure of compensation and the process of setting compensation to prevent future crises. An effective pay package is not necessarily the one most laden with equity incentives. Too much equity exposure can cause excessive risk-taking, manipulation, and shift executive attention away from true value creation. Second, incentive structures should incorporate indexing and clawbacks to guard against the possibility that performance benchmarks are rewarding luck more than sustainable, long-run performance. Third, the compensation-setting process should be placed in the hands of shareholders, boards, and advisors who are not only independent but also possess ample expertise in the financial instruments used to incentivize pay. Fourth and finally, any proposals for changes in compensation design or the taxation of compensation should anticipate how executives will alter their behavior in response to the changes, and evaluate the effect of the changes net of such offsetting responses.
"Inside the Black Box: The Role and Composition of Compensation Peer Groups" with Jun Yang.
Journal of Financial Economics, May 2010.
ABSTRACT: This paper documents the features of the newly disclosed compensation peer groups and demonstrates their significant role in explaining variations in CEO compensation beyond that of other benchmarks such as the industry-size peers. After controlling for industry, size, visibility, CEO responsibility and talent flows, we find that firms appear to select highly paid peers to justify their CEO compensation and this effect is stronger in firms where the compensation peer group is smaller, where the CEO is the Chairman of the Board of Directors, where the CEO has longer tenure, and where directors are busier serving on multiple boards.
"The Two Sides of Derivatives Usage: Hedging and Speculating with Interest Rate Swaps"* with Sergey Chernenko.
Journal of Financial and Quantitative Analysis, December 2011.
ABSTRACT: Existing cross-sectional findings on non-financial firms use of derivatives are consistent with both hedging and speculative interpretations. An examination using panel data can distinguish between derivatives practices that endure over time, and are therefore more likely to result from hedging, and those that are more transient, thus more consistent with speculation. Our decomposition results indicate that hedging of interest rate risk is concentrated among high investment firms, consistent with the presence of costly external finance. Simultaneously, firms appear to use interest rate swaps to speculate when their executive compensation contracts are more performance sensitive and to manage earnings.
*Funded by a grant from the Center for Financial Research, FDIC
"Cash Flows and Leverage Adjustments" with Mark Flannery, Jason Smith, and Kristine Watson Hankins.
Journal of Financial Economics, forthcoming
Journal of Financial Economics, forthcoming
ABSTRACT: Recent research has emphasized the impact of transaction costs on firm leverage adjustments. We show here that a firm's cash flow realization affects how quickly it moves toward a leverage target, consistent with the hypothesis that large (positive or negative) operating cash flows provide an opportunity to adjust leverage at relatively low marginal cost. Accounting for this fact produces adjustment speeds that are significantly faster than previously estimated in the literature. Firms that can spread the costs of market access across their cash flow needs and their deviation from target actually adjust very quickly toward their targets. The fact that these speeds do not reach unity implies that movement toward the target also has a variable cost component. We analyze how both financial constraints and market timing variables affect adjustments toward a leverage target.
"Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act" with Mitchell Petersen.
Review of Financial Studies ,
ABSTRACT: The American Jobs Creation Act (AJCA) significantly lowered US firms' tax cost when accessing their unrepatriated foreign earnings. Using this temporary shock to the cost of internal financing, we examine the role of capital constraints in firms' investment decisions. Controlling for the capacity to repatriate foreign earnings under the AJCA, we find that a majority of the funds repatriated by capital constrained firms were allocated to approved domestic investment. Contrary to other examinations of the AJCA, we find little change in leverage and equity payouts. These findings demonstrate the importance of understanding finance theory when designing optimally targeted tax incentives.
"Is Disclosure an Effective Cleansing Mechanism? The Dynamics of Compensation Peer Benchmarking" with Jun Yang.
Revising for 3rd Round Review at Review of Financial Studies
ABSTRACT: Firms regularly justify their CEO compensation by referencing companies with highly paid CEOs with whom they claim to compete for managerial talent. This paper examines whether the 2006 regulatory requirement of disclosing compensation peers has mitigated firms' opportunistic peer benchmarking of CEO compensation. Our evidence shows that benchmarking manipulation became more severe after enhanced mandatory disclosure, particularly at firms with substantial shareholder complaints about compensation practices, low institutional and director ownership, busy Boards, and large Boards. The effect is the strongest at firms with new CEOs. These findings call into question whether mere disclosure can remedy potential executive compensation abuses.
"The Market Reaction to the Strategic Use of Interest Rate Swaps" with Nicole Thorne Jenkins and Sergey Chernenko.
ABSTRACT: We investigate the market's response to earnings generated from changes in current interest rate swaps. In general, we find that firms experience significantly negative market reactions when using swaps in steep term structure environments to meet expectations. Upon closer inspection we find that firms that meet expectations and use income decreasing swaps arrangements are responsible for the majority of the apparent penalty. Firms that swap floating for fixed rates-pay more interest expense today and less in the future-receive a significantly larger market premium then those firms that swap fixed for floating-pay less interest expense today and more in the future. Our results indicate that even though swaps are arranged as zero NPV transactions, there are specific structures that affect firm value in predictable ways. Overall, the market appears to appropriately identify and price the strategic use of swaps to hedge cash flow risk versus meeting market expectations.
Co-Organizer of NBER Corporate Finance Summer Workshop, July 2010.
Program Committee Member: 2008 and 2010 Western Finance Association Meeting, 2007, 2008, and 2009 European Finance Association Meeting, 2006 and 2008 Financial Intermediation Research Society Meeting
Member, American Finance Association
Member, Western Finance Association
Member, Society for Financial Studies
Ad hoc referee for
Journal of Finance,