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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.
 
We examine how cross-country differences in capital regulations affect the structure of global lending syndicates. Using globally syndicated loans extended by banks from 44 countries, we find evidence consistent with a regulatory arbitrage incentive of participant banks. Strictly regulated banks participate more in syndicates originated by lead lenders facing less stringent capital regulations. By joining less-regulated lead lenders, strictly regulated banks can invest in riskier loans and earn higher spreads. The regulatory arbitrage incentive of syndicated lending facilitates the access to credit by risky borrowers. However, it also exposes both participant banks and lead arrangers to greater systemic risk.

            with Isil Erel, Bernadette Minton, and Mike Weisbach
          R & R from Journal of Financial Quantitative Analysis

This paper evaluates how the relation between firms’ cash holdings and their acquisition decisions changes over macroeconomic cycles using a sample of 47,378 acquisitions from 36 countries between 1997 and 2014. Higher cash holdings and stronger macroeconomic conditions each increase the likelihood that a firm will make 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. 
with Xue Wang and Xiaoyan Zhang

Using monthly returns of 37,854 firms in 23 developed markets over 1990-2015, we document that multinational companies earn higher returns than domestic companies by 24 basis points per month. This finding is further confirmed by using a sample of 18,996 U.S. firms over 1973-2015. We find that the multinational return premium cannot be fully explained by well-known asset pricing anomalies. We explore three potential channels explaining the magnitude of the multinational premium: foreign operational costs, information processing costs, and investor preference. The return premium is more concentrated in multinationals operating in countries with lower GDP growth, lower private credit, lower R&D export, or higher labor cost, and countries that are more distant to their home countries. Moreover, the return difference is more pronounced in countries with less stringent disclosure requirements and when investors exhibit stronger demand for stocks in a specific country. Our findings suggest that firms’ international activities carry relevant information to investors and can predict stock returns. 

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.