Abstract: Trade secret theft, and more broadly intellectual property (IP) theft, have resurfaced to the public attention amid the U.S.-China geopolitical conflict. In this paper, we document the detrimental effects of IP theft on innovation at the targeted firms whose trade secrets are stolen. Following the theft, targeted firms display a persistent drop in innovation outcomes, including the number of patents, patent value, and patent impact. These firms experience a decline in profitability, indicating that IP theft hurts their economic prospects. Importantly, the adverse effects of trade secret theft also spill over to the business partners of the targeted firms.
Semifinalist for Best Paper in Corporate Finance, Financial Management Association, 2022
Abstract: We study the impact and propagation of economic policy uncertainty (EPU) via subsidiary networks of U.S. multinational corporations (MNCs). We find that increases in host-country EPU lead to significant decreases in MNC valuations. We document heterogeneous effects across important firm- and country-level dimensions such as intangible capital intensity, financial constraints, and country institutional quality. Higher EPU in host countries is associated with a decline in the growth of local MNC subsidiary assets and employment. We find no significant average spillover effects of host-country EPU on MNC subsidiaries in other countries and some evidence of negative spillover effects among vertically linked subsidiaries.
Abstract: Using detailed U.S. data, we find that host-country financial market development attracts more subsidiary operations of multinational corporations (MNCs). The roles of credit and stock markets are distinct. Credit markets are a robust driver of the documented effect, while stock markets play a diminished and sometimes insignificant role. Consistent with these findings, we then show MNCs that operate subsidiaries in countries with more developed credit markets have higher firm-level investment, an effect that is more pronounced for firms relying on external financing sources. Overall, our results are consistent with a "credit channel", whereby developed credit markets attract MNC operations and enhance firm-level investment by improving firms’ access to external finance.
Outstanding Paper in Financial Institutions, Southern Finance Association, 2020
Abstract: Little is known about fraud in the financial services sector. Using a rich supervisory dataset, this study dissects fraud at large U.S. banking organizations. We examine the different categories of fraud and their materiality, the recovery from fraud, the time from fraud occurrence to fraud discovery and accounting. We quantify exposure to fraud and study the determinants of fraud at the banking organization level. Lastly, we document a significant effect of fraud on bank credit intermediation. Overall, our analysis provides new, detailed evidence on fraud in the U.S. financial services industry, and its costs and consequences.
Abstract: This study documents that financial innovation is associated with adverse operational risk externalities. Using supervisory data on operational losses from large U.S. bank holding companies (BHCs), we show that organizations with more financial patent innovation suffer higher operational losses per dollar of assets and more severe tail risk events. Matching estimations, instrumental variable regressions, and event studies around influential patents provide consistent evidence. There is significant heterogeneity in the effect across different innovation types and operational loss types. The result is more pronounced for BHCs with weaker risk management. Our findings have important implications for banking supervision and risk management in an environment of rapid technology adoption.
Abstract: Using supervisory data from large U.S. bank holding companies (BHCs), we document that BHCs suffer more operational losses during episodes of extreme storms. Among different operational loss types, losses due to external fraud, BHCs' failure to meet obligations to clients and faulty business practices, damage to physical assets, and business disruption drive this relation. Event study estimations corroborate our baseline findings. We further show that BHCs with past exposure to extreme storms reduce operational losses from future exposure to storms. Overall, our findings provide new evidence regarding U.S. banking organizations' exposure to climate risks with implications for risk management practices and supervisory policy.
Abstract: The stock market typically reacts negatively to the announcements of operational losses at U.S. financial institutions. We find significant evidence of opportunistic insider trading, with insiders saving an average of $67,357 through timely selling in the two months before the announcement of an operational loss. The results are concentrated among top executives and directors. Opportunistic behavior is muted for insiders with legal expertise. The results have implications for the U.S. Security and Exchange Commission’s goal of tightening restrictions on insider trading in an environment of intensifying operational risks from cyber threats and new financial technologies.
Abstract: This paper provides causal evidence that a firm's operating cost structure is an important determinant of its leverage. We design a quasi-natural experiment exploiting the implementation of Sarbanes-Oxley Act Section 404 to provide us with exogenous variation in the proportion of a company's fixed to variable costs. The results from our 2SLS estimations indicate a strong negative relation between cost inflexibility and firm debt levels: our main specification implies that a one percentage point increase in the ratio of fixed to total operating costs reduces a firm's leverage ratio by approximately 0.66 percentage points.