Picking Up the PACE: Loans for Residential Climate-Proofing, with Cameron LaPoint, Francesco Mazzola, Guosong Xu
Residential Property Assessed Clean Energy (PACE) loans are a new class of financial contract whereby homeowners borrow to fund green residential projects and repay the loan via their local property tax payments. We assess equity-efficiency trade-offs of PACE using loan-level data merged to property transaction, tax, and permitting records. Consistent with the program's objectives, borrowers are more likely to obtain permits related to disaster-proofing homes, and loan takeup is concentrated in areas with higher ex ante and ex post natural hazard risk. Such investments are capitalized into home values, but expansions of the property tax base are partially offset by an uptick in tax delinquency rates among borrowers. Although PACE loans are super senior to other debt, lenders expand their provision of mortgage credit in PACE-enabled counties. Enabling PACE loans increases the fiscal income of participating local governments while closing the investment gap in projects which improve the climate resiliency of the housing stock.
Selected Presentations (including scheduled ones): Pre-WFA Real Estate Workshop, Philly Fed Mortgage Market Research Conference, AREUEA National Conference, Utah Public Finance (UPFIN), Federal Housing Finance Agency, UEA Copenhagen, 2024 LAPE-FINEST Spring Workshop
The Real Effects of Bankruptcy Forum Shopping, with Samuel Antill
Many non-Delaware firms strategically file for bankruptcy in Delaware. For decades, policy makers and academics have debated whether this “forum shopping” is efficient. This debate has motivated six congressional bill proposals on forum shopping. We inform this debate using a natural experiment and Census-Bureau microdata. Within a Delaware-adjacent state, we show that firms are more likely to file in Delaware if they are physically closer to the state border. Combining this plausibly exogenous variation with extensive observable control variables, we show that filing in Delaware causally lowers liquidation rates, shortens bankruptcies, and increases post-bankruptcy employment. The effects are driven by characteristics of Delaware judges, which challenges alternative explanations.
Selected Presentation: RCFS Winter Conference 2024
Draft available on request
Pollution-Shifting vs. Downscaling: How Financial Distress Affects the Green Transition, with Yasser Boualam
Polluting practices can reduce costs in the short term at the expense of exposing firms to significant environmental liability risk. Using novel granular pollution measures from the oil and gas industry, we show that firms increase their pollution intensity as they become more financially distressed, akin to a risk-taking motive. We then calibrate a rich dynamic model featuring endogenous default, clean and dirty capital, and financing frictions. Our counterfactuals point to the limited impact of blanket divestment campaigns, as firms may scale down and pollution-shift their assets simultaneously. Tilting strategies, however, are more effective at taming pollution.
Selected Presentations (including scheduled ones): University of Toronto, McGill, Auburn, USC, UNC, UIUC, 2023 Minnesota Junior Finance Conference, SFS Cavalcades, Junior Finance Conference at Harvard Business School, HEC Paris “Banking in the Age of Challenges” Conference 2024
The Secular Decline in Private Firm Leverage, with Christine L. Dobridge, Erik P. Gilje, Andrew Whitten
Using firm-level administrative tax data, we document dramatic reductions in private leverage since the Global Financial Crisis, while leverage among public firms rose during this period. Changing firm characteristics are unable to account for this pattern. Younger and smaller private firms experience large declines in leverage. Reduced leverage among private firms is correlated with lower investment. The decline in private firm leverage and investment is strongly related to plausibly exogenous increases in local area bank capital requirements. Our findings suggest that banks’ credit supply plays a prominent role in explaining the leverage pattern of private firms.
Selected Presentations (including scheduled ones): MFA, 2023 University of Oregon summer finance conference
Fresh Start or Fresh Water: The impact of Environmental Lender Liability
Revise and Resubmit at The Journal of Finance
UNPRI Conference Best PhD Paper Award (2021)
Finalist, BlackRock Applied Research Award (2021)
ETF Global® “Thought Leadership in Corporate Governance Award” (2022)
Brattle Group WFA PhD Candidate Award for Outstanding Research (2022)
Top prize in the 2nd Annual FIASI-Gabelli School Student Research Competition on ESG (2022)
I study the impact of lenders’ environmental responsibility. My empirical setting exploits the U.S. Lender Liability Act of 1996, which reduced lenders' exposure to the environmental clean-up costs attached to some of their debtors’ collateral. I find that affected debtors increase toxic releases, commit 17.54% more environmental regulatory violations, and reduce investment in pollution reduction activities. High polluters incur lower borrowing costs and use longer debt maturity after the shock. The paper supports the view that stricter environmental liability rules lead lenders to increase borrowing costs in response to poor environmental practices conducted by their debtors.
Selected Presentations: EFA, WFA, FIRS, SFS Cavalcade, Drexel Conference on Corporate Governance, Meeting of the Society for Environmental Law and Economics (NYU), MFA doctoral symposium, PRI Academic, 2nd PhD Student Symposium at the University of Texas at Austin
Does Private Equity Ownership Make Firms Cleaner? The Role of Environmental Liability Risks
Revise and Resubmit at The Review of Financial Studies
This paper shows that private equity (PE) ownership reduces pollution when the target company faces high environmental enforcement or political risks. Conversely, PE-backed firms increase pollution when environmental liability risks are low, as shown by a novel natural experiment that reduced these risks for projects located on Native American land. Exploiting specific private equity deals within the energy industry, I find that PE governance mainly drove the results. Overall, maximizing shareholder value may benefit environmental outcomes when the potential liabilities of polluting are high.
Selected Presentations: Institute for Private Capital’s AMRA Research Symposium in New York, 2022 University of Oklahoma Energy and Climate Finance Research Conference, NFA, 7th IWH-FIN-FIRE Workshop, Owners As Strategists, Northeast Workshop on Energy Policy and Environmental Economics, CICF, Drexel Corporate Governance Conference, FMCG, WEFI - Student Workshop, AFA poster session, UNC-PERC, SHoF-ECGI Conference On Sustainable Finance and Corporate Governance, 2020 PRI Academic, CAFM, Wharton-INSEAD Doctoral Consortium, EMCON, GRASFI 2020, PhD Student Symposium - UT Austin, Oxford-PERC (canceled), Wharton Risk Center Research Seminar
Mediating Financial Intermediation with Louis-Marie Harpedanne and Noémie Pinardon-Touati
(Work in Progress)
We study the resolution of disputes between firms and their lenders through external mediators, using novel administrative data and plausible exogenous variation in eligibility to public mediators across French counties for identification. Credit, employment and investment increase following the mediation, causing an overall reduction in firms’ liquidation of 34.6%. Additional tests support the view that mediators solve coordination problems between lenders.
Selected Presentations: 2022 SFS Cavalcade, Paris December Finance Meeting*
Personal Wealth, Self-Employment, and Business Ownership with Anthony Cookson, Erik Gilje and Rawley Heimer, Review of Financial Studies (August 2021)
We study the effect of personal wealth on entrepreneurial decisions using data on mineral payments from Texas shale drilling to individuals throughout the United States. Large cash windfalls increase business formation by 0.8 to 2.1 percentage points, but do not affect transitions to self-employment. By contrast, cash windfalls significantly extend self-employment spells, but do not affect the duration of business ownership. Our findings help reconcile contrasting findings in prior work: liquidity constraints have different effects on entrepreneurial activity that may depend on the entrepreneur’s motivations.
Selected Presentations: NBER Entrepreneurship, HEC Paris Entrepreneurship Workshop, ITAM Finance Conference, Yale-RFS Conference on Real and Private-Value Assets, FIRS Conference (canceled), KWC Conference on Entrepreneurial Finance, MFA, WINDS