Financial Intermediation, Asset Pricing, Information Economics.
Hub-and-spoke regulation, where a central regulator with legal power over firms delegates monitoring to local supervisors, can improve information collection, but can also lead to agency problems and capture. In a new paper with Yadav Gopalan and Ankit Kalda, we document that following the closure of a US bank regulator's field offices, the banks they previously supervised distribute cash, increase leverage, and increase their risk of failure, more than similar banks in the same time and place.
How much would investors pay to receive valuable informational signals slightly before they are released publicly? In a new paper coauthored with Ohad Kadan, we derive a general expression for the value of information to an investor and provide a framework for its estimation from index options. We apply this framework and estimate that a consumer-investor with commonly-used preference parameters would pay 1 to 4 percent of his wealth to preview and act on key macroeconomic indicators (GDP, unemployment, etc.).
Presentations: IDC Herzliya, CBOE Conference on Derivatives and Volatility, WashU
Regulation is often funded with fees paid by regulated firms, potentially creating incentive problems. In a new paper with Roni Kisin, we use this feature to study the incentives of regulators and their ability to affect firm behavior. Our identification approach uses multiple kinks in fee schedules of federal bank regulators as a source of exogenous variation. Using a novel dataset on fees and regulatory actions, we find that firms that pay higher fees face more lenient regulation, which leads to a buildup of risk.
Presentations: FDIC, HBS, IDC Herzliya, UCSD, U Washington, Washington U, Notre Dame Conference on Financial Regulation, FTG Summer School in Financial Intermediation