** Click the title for the SSRN link of the paper

Publication
with Isil Erel and Michael S. Weisbach
The Journal of Finance, Vol. 70 (February 2015), pp. 289-328.
 
Managers often claim that target firms are financially constrained prior to being acquired and that these constraints are eased following the acquisition. Using a large sample of European acquisitions, we document that the level of cash that target firms hold, the sensitivity of cash to cash flow, and the sensitivity of investment to cash flow all decline, while investment increases following the acquisition. These effects are stronger in deals that are more likely to be associated with financing improvements. Our findings suggest that acquisitions relieve financial frictions in target firms, especially when the target firm is relatively small.

Review of Financial Studies, Vol. 30 (December 2017), pp. 4133-4178. 
 
If the location of firm operations is relevant for financing, multinationals should have easier access to different foreign sources of funding relative to domestic firms. I document that
U.S. multinationals are more likely to borrow from a foreign bank and to issue international bonds than are U.S. domestic firms. Multinationals are less affected than domestic firms
by capital market dislocations because of greater funding flexibility. Using the 2007–2009 financial crisis as a capital supply shock, I find that multinationals relied more on foreign
funding sources in bank loans and consequently reduced domestic investment less than did domestic firms.
 

Working Papers
            with Janet Gao
         Invited for submission to Review of Financial Studies with dual submission option  

The syndicated lending market is highly globalized. This study examines how bank regulations affect the decision of lead arrangers and participant banks to form global lending syndicates. Using a sample of loans syndicated by banks from 44 countries and bank regulation indices introduced by Barth, Caprio, and Levine (2004), we find that stringent capital regulations increase banks' participation into syndicates led by banks in less regulated countries. Global syndicates that involve strictly regulated participants issue loans with higher spreads and higher credit risk. Regulations that provides little deposit insurance or limit competition in the banking sector have the opposite effects on syndication patterns. Overall, our findings are consistent with a regulatory arbitrage incentive of participant banks.

            with Isil Erel, Bernadette Minton, and Mike Weisbach

Firms hold liquid assets to enhance their ability to invest efficiently when external financing costs are high, especially during poor macroeconomic conditions. Using a sample of 47,378 acquisitions from 36 countries between 1997 and 2014, we study how the relation between firms’ cash holdings and their acquisition decisions changes over macroeconomic cycles. We find that higher cash holdings increase the likelihood a firm will make an acquisition. Better macroeconomic conditions, which lower the cost of external finance, also increase the likelihood of an acquisition. However, larger cash holdings decrease the sensitivity of acquisitions to macroeconomic factors, suggesting that cash holdings lower financing constraints during times when the cost of external finance is high. Announcement day abnormal returns for acquirers follow a consistent pattern: they decrease with acquirer cash holdings and with better macroeconomic conditions. The results are consistent with the view that firms choose liquidity levels to insure against poor macroeconomic conditions.
with Xue Wang and Xiaoyan Zhang

Using monthly returns of 18,996 U.S. stocks over 1973-2015 and 23,965 stocks in 22 countries over 1990-2015, we find that multinational companies earn significantly higher monthly returns than domestic companies by 23bps per month. We further investigate whether the return difference is driven by risk factors or known asset-pricing anomalies, and we find that none of them can fully explain the return premium of multinationals. The magnitude of the multinational return premium depends on the location of foreign operations. The return premium is more prominent for multinationals operating in countries with lower GDP growth, lower private credit, lower R&D export, higher labor cost, and greater geographic distance.

with Kyung Yun Lee

This paper studies how the investment horizon of institutional investors affects firms’ earnings management strategies. We find that firms largely held by long-term investors are more likely to manage earnings through adjusting operational decisions than through manipulating accruals. The impact of an investor’s trading horizon on real activities manipulation is stronger when long-term investors face high performance pressures with low fund flows and high market uncertainty and when they have strong influence on managers with large holdings. We further document that adverse future consequences of operational adjustment are relatively less severe for the firms with long-term investors than for those with short-term investors. Overall, the evidence suggests that firms choose earnings management methods to meet earnings expectations of institutional investors who have different earnings target windows. Our identification strategy exploits the Russell 2000 Index inclusions as an instrumental variable for the investor horizon and confirms our results are robust to endogeneity concerns.

with Natalia Reisel
 
We examine motives to sell private firms and provide insights into the sources of value creation from acquisitions of private targets. Using a novel dataset, we document that less profitable, highly leveraged private firms that tend to underinvest are likely to be sold. Further, these firms experience a high level of top management turnover around the period of the acquisitions and this turnover is sensitive to poor firm performance. Additionally, we find significant improvement in firm performance such as profitability and sales growth following the acquisitions. These firms also adjust their capital structure towards lower leverage. By and large, our results suggest that sales of private firms facilitate the transition of assets to a more efficient use.