This paper studies how firms deal with business-unfriendly regulations that limit their operations. I first exploit a natural experiment to show that the ownership structure of a firm affects its degree of compliance with regulations, with publicly listed firms complying more than privately held ones. Then I show that this differential compliance imposes a burden on listed firms that helps explain the patterns of M&A activity in emerging markets. When the level of market regulations increases, private firms acquire listed ones and when market regulations decrease the results are reversed. I find that this effect is stronger for listed firms that are subject to stricter auditing and enforcement standards, suggesting that scrutiny plays an important role. Taken together, these results uncover an additional cost faced by listed companies, identify a new driver of M&A transactions in emerging markets, and show evidence that high levels of regulation lead to opaque corporate structures.
“Depositors’ Attention and Bank Risk: Evidence from UK offshore deposits”, joint with Matthieu Chavaz (Bank of England)
Despite the importance of understanding the effect of deposit insurance on market discipline, empirical evidence is limited mainly due to identification issues. We exploit the political relationship between the United Kingdom and its Crown Dependencies and a novel dataset to test this effect in a close to ideal environment, where the same group of banks offer similar deposit products in jurisdictions with similar institutional framework but different insurance coverage. Tracking the price paid for thousands of deposit products between 2007 and 2015, we find that deposit insurance deters discipline. In addition, we provide the first direct test of the interaction between attention, deposit insurance, and market discipline. We find that banks with higher liquidity risk offer higher rates to uninsured (offshore) depositors, but not to insured (onshore) depositors. Second, risky banks offer higher rates onshore and offshore when attention increases, but this effect is higher offshore. These results suggest that discipline is imposed even in the presence of deposit insurance, but only when information becomes salient.
“Currency Composition of Firm Debt: Evidence from Peru”, joint with Charles Calomiris (Columbia), Mauricio Larrain (Columbia), and Daniel Wolfenzon (Columbia)