My research is in empirical corporate finance, with a focus on financial intermediation, capital structure, capital formation, and entrepreneurial finance. I am particularly interested in how information frictions affect the ability of small start-ups to raise external financing.
I study broker intermediation in entrepreneurial financing. Brokers intermediate 15% of startup offerings, but 20% of these brokers are unregistered "finders." Issuers using finders are 30% and 20% less likely to have successful post-funding outcomes than issuers in registered-broker and direct offerings. These outcome gaps are larger when state-level regulatory oversight, which only applies to registered brokers, is stronger and when finders are expelled brokers. These findings are consistent with adverse selection in finder-intermediated offerings. I also show that finder-intermediated offerings more often place with retail (non-accredited) investors and rarely involve VC participation, also amplifying the gap in post-funding performance.
- 2019: SEC (DERA), FINRA, University of Michigan, Indiana University, Purdue, Virginia Tech, Southern Methodist University, University of Iowa, Baruch College, University of South Carolina, University of Oklahoma, Kent State University, Rice University
Bank Loans and Bond Prices (with James Weston)
We test whether bank loans change public bond yields. A 10% increase in bank debt raises bond yields by 15bps, reflecting a trade-off between the benefits of bank cross-monitoring and higher bond risk. The effect is smaller for firms with no CDS and junk debt, where bank monitoring is most valuable. It is unlikely that firms with bank debt are riskier because they are less likely to be downgraded and have lower loan spreads. We find similar results using a natural experiment around the 2014 oil shock. Our results highlight how bond yields depend on the incentive conflicts among creditors.
- 2018: Rice University Seminar Series, Financial Management Association, Midwestern Finance Association
- 2019: Southwestern Finance Association
Effects of Offering Speed and Liquidity on Pricing (with Tarik Umar and Rustam Zufarov)
When the SEC allowed small firms to sell preregistered shares using shelf offerings, the firms' offering discounts fell by eight percentage points. However, discounts did not fall for firms conducting public offerings, even though they could now sell shares 60 days faster. Discounts fell only for small firms conducting private placements, whose investors could now sell shares 60 days faster. This improved liquidity increased post-offering trading by 30%, greatly benefiting firms with high information asymmetry, and changed the composition of investors. Overall, our findings suggest that shelf offerings lowered offering discounts by improving investors' liquidity, not by improving offering speed.
- 2019: Rice University Seminar Series, Lone Star Finance Conference
- 2020: Southwestern Finance Association