I am currently a finance Ph.D. student at Stanford Graduate School of Business. I will be on the 2021/2022 academic job market.
- corporate finance
- microeconomic theory
- information economics
Job Market Paper
An entrepreneur makes offers to multiple investors to fund a project. The project is implemented only if the investment committed exceeds a threshold. Concerned about the project quality and others' decisions, investors share information through strategic communication. When having conflicts of interest, those with contractually stronger incentives to invest persuade others, which induces a cascade causing more investors to invest and persuade. The entrepreneur's choice of contracts affects whether investors have conflicts of interest and thus how they communicate strategically. When the project has high ex ante profitability, the entrepreneur is concerned about investors' information rent and employs a hierarchical structure to differentiate investors, create conflicts of interest, and impede information sharing. When the project has low ex ante profitability, the entrepreneur is concerned about investors' miscommunication and employs a flat structure to homogenize investors, align their interests, and facilitate information sharing. The two structures and their underlying logic are consistent with empirical observations regarding investor syndicates.
We find that disclosing bank-specific information reallocates systemic risk, but whether it mitigates systemic bank runs depends on the information disclosed. Disclosure reveals banks' resilience to adverse shocks, and shift systemic risk from weak to strong banks. Yet, only disclosure of banks' exposure to systemic risk can mitigate systemic bank runs because it shifts systemic risk from more vulnerable banks to those less vulnerable. Optimal disclosure thus maximally differentiates such exposure, provided that banks experience runs simultaneously, if inevitable. Disclosure of banks' idiosyncratic factors does not differentiate such exposure, rendering the resulting reallocation of systemic risk ineffective in mitigating systemic runs. In the context of disclosing stress-test results, when the quality of the banking system deteriorates, the regulator may have to face a sudden run on a huge mass of banks rather than gradually abandoning weak banks.
We study SPACs in a continuous-time delegated investment model. Our model is built upon three unique features of SPACs: the sponsor and the investor are only partially aligned, a SPAC has a short time horizon, and the investor has the final control over investment approval. Due to the misalignment in incentives, the sponsor has an increasing incentive to propose unprofitable projects to the investor; in response, the investor exerts more stringent screening based on her information. Although the screening helps curb the sponsor’s moral hazard, it also dampens the disciplining effect of partial alignment in incentives. When the investor’s information is sufficiently noisy, the second effect dominates, so giving the investor control over investment approval reduces everyone’s welfare. This adverse effect is more pronounced if entrepreneurs’ strategic choices of SPAC or the sponsor’s strategic choice of effort are considered. We find that introducing public assessment and making the investor’s control right contingent on it may benefit both parties. We also explore whether a SPAC should be allowed to continue after the current project is disapproved by the investor.
A principal owns a project whose value depends on the state and agents' participation. To motivate agents' participation, the principal offers contracts backed by the project value. Miscoordination arises because agents observe only noisy signals about the state. We study the principal's optimal contract design in this coordination game with incomplete information. We find that the impact of miscoordination is the product of agents' perception of miscoordination and their payoff sensitivity to miscoordination. To minimize the product, the principal should differentiate agents in both dimensions and match them properly. Consequently, the optimal contract contains a tranching structure in which senior-tranche holders, who are more robust to miscoordination, bear more miscoordination and help alleviate junior-tranche holders’ fear of miscoordination. Our analysis highlights the role of differentiating agents' payoff structures in mitigating miscoordination.
Much of corporate managers’ incentive is related to the stock price, so a firm can design the corporate information environment to tackle its manager’s moral hazard problem. We analyze a model in which the manager needs to exert costly effort to start a risky, long-term project and the project gives the manager opportunities to make credible disclosure. The optimal disclosure to motivate effort is the manager’s strategic disclosure because it protects the manager from the downside of the project and induces the rational stock market to punish nondisclosure. A more transparent information regime is not always preferred because it may reduce the manager’s discretion on disclosure. We also derive the optimal disclosure when both the effort and the project choice are considered.