Research
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Published and Accepted Papers
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Defunding Controversial Industries: Can Targeted Credit Rationing Choke Firms?, joint with K. Sachdeva, A. Silva, and B. Xu
Journal of Financial Economics, 2025This paper examines whether targeted credit rationing by banks can disrupt the operations of firms likely to generate negative externalities. We exploit a major regulatory initiative in the United States -Operation Choke Point- which targeted bank relationships with firms in industries with a high risk for fraud and money laundering. Using supervisory loan-level data, we find that targeted banks reduce lending and terminate relationships with affected firms. However, these firms fully compensate by substituting lending from non-targeted banks at similar terms, resulting in no changes in total debt, investment, or profitability. Our results suggest that targeted credit rationing fails to promote change.
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Drug money and bank lending: The unintended consequences of anti-money laundering policies, joint with Mauricio Villamizar-Villegas and Tomas Williams
Accepted for Publication, Journal of Law, Economics, and OrganizationWe examine how anti-money laundering (AML) policies affect banks and credit provision. Exploiting a Colombian regulation aimed at controlling the flow of drug trafficking proceeds into the financial system, we find that bank deposits decline in high drug-trafficking municipalities. This liquidity shock affects credit availability in other municipalities: banks sourcing deposits from high drug-trafficking areas reduce lending compared to other banks. Leveraging a proprietary database on bank-firm relationships, we also show that small firms relying on credit from these affected banks experience reduced sales, investment, and profitability. Finally, using night lights data, we find that these results do not reflect a shift in activity across firms or between the formal and informal sectors. Our findings reveal a hidden cost to be considered when implementing AML policies.
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The Financial Consequences of Pretrial Detention, joint with Sheng-Jun Xu
Review of Financial Studies, 2025In the United States, a significant portion of inmates in local jails are detained awaiting trial. Given the direct and indirect costs associated with pretrial detention, detained individuals and members of their households may find it difficult to meet their financial obligations. Matching individual case-level data from the criminal justice system to household-level data on foreclosures, bankruptcies, and lien judgments, we examine how pretrial detention affects household solvency. Exploiting the quasi-random assignment of court commissioners to cases for identification, we find that pretrial release results in lower rates of household insolvency. This effect is driven by a reduction in the incidence of foreclosures during periods of decreasing house prices and by a reduction in the incidence of Chapter 7 bankruptcies. Subsample analyses show that the overall insolvency effects are more pronounced among younger defendants, suggesting spillovers to older household members. Lastly, we provide suggestive evidence that the insolvency effects are exacerbated when defendants borrow funds from commercial bail bondsmen.
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Organized Crime and Firms: Evidence from Anti-Mafia enforcement actions, joint with Stefan Zeume
Management Science, 2024We exploit staggered municipality-level anti-mafia enforcement actions over the period 1995–2015 in Italy to study the effect of organized crime on firms. Following anti-mafia enforcement actions, we find increases in competition among firms, innovation activity, and competition for public procurement contracts. Firms that do not exit after a weakening of organized crime shrink in size and experience a reduction in profitability, particularly subsequent to higher enforcement intensity. These results are more pronounced among firms founded during the heyday of the mafia and operating in the non-tradable sector. Our findings are consistent with accounts of organized crime groups acting as a barrier to entry and affecting economic growth.
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Do Banks Worry about Attentive Depositors? Evidence from Multiple-Brand Banks, joint with Matthieu Chavaz
Review of Finance, 2024
- Review of Finance's Pagano and Zechner Award finalist (2024)Panic-based (non-fundamental) spikes in depositors’ attention can be a source of bank fragility in theory, but separating such spikes from underlying fundamentals is challenging empirically. Using online search data, we show that during the Global Financial Crisis, UK banks facing surges in attention respond by increasing retail deposit rates, but only for instant withdrawal deposits. Exploiting variation across brands owned by the same bank (and thus sharing the same fundamentals), we find that banks respond even when surges are not justified by fundamentals. In addition, comparing onshore and offshore deposits by the same brand, we show that bank response is substantially stronger when the lack of deposit insurance and a larger presence of wholesale depositors magnifies potential losses to depositors.
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The Hidden Costs of Being Public: Evidence from Multinational Firms operating in an Emerging Market
Journal of Financial Economics, 2021This 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.
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Working Papers
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The Weight of Compliance: Anti-Money Laundering Enforcement, Bank Composition, and Lending, joint with Ş. Ağca and S. Zeume
Revise and Resubmit, Journal of Financial and Quantitative AnalysisWe exploit a tightening of anti-money laundering (AML) enforcement that imposed disproportionate costs on small banks to examine the effects of a change in bank composition towards larger banks on real economic outcomes. Following intensified AML enforcement at the end of 2012, counties prone to high levels of criminal activity in the form of money laundering experience a withdrawal of small banks and increased activity by large banks. Large banks expand lending to small businesses through CRA and SBA programs and to households through secured lending, compensating for the reduced lending by small banks and ultimately maintaining overall credit supply. This change in bank composition results in an increase in the number of small establishments and real estate prices in low income areas.
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A Dark Side to Experience? Firm Age and Policy Uncertainty, joint with Jim Goldman and Stefan Zeume
We examine whether firm experience, measured by age, enhances or constrains corporate responses to uncertainty. Experience presents competing effects: accumulated knowledge and established routines may foster resilience, yet they can also create organizational rigidities that impede adaptation when established strategies become obsolete. Using data on 600,000 public and private firms across 64 countries over the 2004 to 2022 period, we show that older firms contract significantly more than younger firms during periods of high uncertainty. This result holds for country-specific uncertainty shocks and the 2016 Brexit referendum, when firms with older UK subsidiaries suffered larger valuation declines. The negative effect on older firms is weaker in high-R\&D industries, where the dynamic environment continually forces adaptation, limiting the accumulation of organizational rigidities. The results are not explained by firm size, financial constraints, or corporate complexity. Overall, our findings suggest that experience creates rigidities that hinder adaptation when uncertainty disrupts established corporate routines.
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Consumption Data and the Geography of Hidden Populations
Accurate demographic measurement is fundamental to economic research, yet many populations are systematically undercounted in official data. We develop a new approach that uses market-generated consumption data to measure the geography of hard-to-count populations. We apply the approach to construct a proxy for Hispanic immigrant presence across U.S. counties from 2006 to 2022 using local expenditures on Hispanic-distinctive food products. The measure closely tracks Census and school-enrollment benchmarks and responds to immigration-enforcement shocks. For Venezuelan immigrants, it expands geographic coverage from 21 ACS-reported counties to over 600. The framework can be applied to other undercounted populations and can facilitate research when official local demographic data are incomplete.
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Capital Controls and Credit Reallocation: Evidence from Informal Dollar Liquidity
We study how changes in Chinese households’ effective capital outflow constraints may transmit to U.S. credit markets through bank funding and portfolio choice. Our empirical design uses time variation in an informal U.S.-dollar liquidity channel available to some Chinese households, proxied by national fentanyl seizure volumes. We compare the responses of Chinese-affiliated community banks, which disproportionately serve Chinese-American depositors, with those of other banks. We find that increases in the liquidity proxy are associated with larger deposit inflows at Chinese-affiliated banks. These inflows are accompanied by expansion in residential mortgage lending and a decline in commercial small business lending. Taken together, the results are consistent with a mechanism in which changes in access to offshore dollar liquidity are associated with shifts in the composition of bank credit in destination communities, shifting lending toward residential mortgages and away from small businesses.
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Work in Progress
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Strategic Deposit Allocation, joint with Agustin Hurtado