Publications:

1. "Culture and R2" with Cheol S. Eun and Steven C. Xiao, Journal of Financial Economics, 115 (2015): 283-303. [SSRN Link]

  • Summarized in The CFA Digest

Culture - "Software of the Mind", "it is the collective programming of the mind which distinguishes the members of one group or category of people from another." - Geert Hofstede


We find that stock prices co-move more (less) in culturally tight (loose) and collectivistic (individualistic) countries. Culture influences stock price synchronicity by affecting correlations in investors’ trading activities and a country’s information environment. Trade and financial openness weakens the effect of domestic culture on stock price comovements.


2. "International Sourcing and Capital Structure" with Cheol S. Eun, Review of Finance, 20(2016): 535-574. [SSRN Link]

  • Best Paper Award, the 4th Intl. Conference on Asia-Pacific Financial Markets, Seoul, 2009

The total value of international purchases of goods by U.S. firms increased from 498 billion dollars in 1990 to 2,745 billion dollars in 2012. Over the same period, the number of countries and areas that U.S. firms buy from increased from 76 to 236. - Based on the trade data from the U.S. Census Bureau


We use the IO tables to construct international sourcing level for over 500 disaggregate industries industries from 1993 to 2006 and find that international sourcing has a significant negative influence on financial leverage. The negative influence is stronger in industries that have high R&D intensities and are financially constrained. However, the negative relation is mitigated when suppliers are from countries with strong legal environments and when the supplier markets are more competitive. We rely on supplier countries' WTO accessions and supplier countries' natural trade openness to establish causality.

3. “Executive Compensation Incentives Contingent on Long-term Accounting Performance” with Zhi Li, Review of Financial Studies, 29 (2016): 1586-1633. [SSRN LINK]

  • Summarized in Harvard Law School Forum on Corporate Governance and Financial Regulation

The percentage of S&P 500 firms that adopt multi-year accounting-based performance (MAP) incentives increased from 16.6% in 1996 to 43.3% in 2008. The average annualized target payout from the plans is around $2.2 million, roughly two times a CEO’s base salary and exceeds the payout of a bonus plan. Expected payouts from MAP incentives have now exceeded those of option grants and become the most significant component of CEO compensation for firms that grant MAP incentives.


We analyze both cross-sectional determinants and time-series trend of MAP plan adoption and design. We find that the use and design of MAP incentives depend on the signal quality of stock vs. accounting performance, shareholder horizons, strategic imperatives, and board independence. The recent shift toward MAP incentives are related to several non-mutually exclusive events that are onset at the beginning of 2000s, including the technology bubble, accounting rule changes, and the option backdating scandals. These events increased the perceived costs of option grants and benefits of using MAP incentives. Subsequently, firms started to use stock-based MAP plans to replace option grants, resulting in changes in pay design but not level. While firms respond to the changes in the contracting environment, they rationally consider firm characteristics and do not blindly follow the trend.

4. “Outside Employment Opportunities, Employee Productivity, and Debt Discipline" with Jayant Kale and Chip Ryan. Journal of Corporate Finance, 59 (2019): 142-161.[SSRN LINK]


To what extent "Joe" puts up with his needy boss depends on whether he can easily find another job. This is pretty much our hypothesis in this paper and we find empirical evidence consistent with it.


Using a sample of over 99,000 firm year observations encompassing more than 13,800 firms from 1978 to 2007, we analyze how changes in labor market conditions influence the disciplining effect of debt on employee productivity. We document that better (worse) outside employment opportunities weaken (strengthen) the disciplinary effect of debt on employee output. The influence of outside employment options on leverage-output relation is robust to various controls for endogeneity, including using instrumental variables, a quasi-natural experiment, both firm and industry-level analysis, alternative model specifications, and controls for employees’ work conditions and changes in work efficiencies. Altogether, our findings highlight the importance of labor market conditions on the efficacy of corporate financial policies and our understanding of how these policies influence economic outcomes.

5. “Accounting-based Compensation and Debt Contracts" with Zhi Li and Karen Wruck. Contemporary Accounting Research, 37 (2020): 1475-1511.[SSRN LINK]

  • Semi-finalist for the Best Paper Award in Corporate Finance at the FMA Annual Meetings, 2017

The recent trend of adding accounting performance to CEO compensation contracts is welcomed by debtholders and helps reduce the cost of debt for firms.


We examine how accounting‐based compensation plans influence a firm's contracts with its creditors. After granting long‐term accounting‐based compensation plans (LTAPs) to CEOs, firms pay lower spreads and have fewer restrictive covenants in new bank loans. Mechanisms leading to lower borrowing cost include improvements in debt repayment ability, reduced shareholder‐debtholder conflicts, and reduced risk‐taking incentives. Creditors view LTAPs as a substitute for monitoring, adjust covenant design based on LTAP features, and value plans with concave performance‐payout functions and reasonable performance targets. A firm's credit rating improves and CDS spread declines after LTAP grants, suggesting that LTAPs help reduce firms' credit risk.

6. “Pay for Outsiders: Incentive Compensation for Nonfamily Executives in Family Firms" with Zhi Li and Chip Ryan. Contemporary Accounting Research, 2021 forthcoming. [SSRN LINK]

  • Included in the first CAR virtual issue on corporate governance

Family firms pay nonfamily executives less total and incentive pay, but provide the outsiders with safer pay and higher job security than nonfamily firms.


We use a hand‐collected sample of 1,628 S&P 1500 firms and more than 12,000 executives to examine how family firms compensate nonfamily executives. Family firms comprise a large percentage of firms around the world, and most of their executives are not members of the founding family. Moreover, the founding family's engagement in the firm alters agency conflicts, which in turn should influence the design of incentive compensation. However, there is no empirical evidence on whether and how the incentive compensation of nonfamily executives differs between family and nonfamily firms. Our study provides the first evidence. Consistent with our predictions, nonfamily executives in family firms receive significantly less performance‐based pay and equity‐based pay. Family monitoring, risk aversion, and a reluctance to dilute family ownership all contribute to the pay differences. Although incentive pay and total pay are lower in family firms, nonfamily executives receive safer pay and enjoy greater job stability. An analysis of executives' moves across firms suggests that ownership structure, not executives' preferences, is more likely the driver of pay differences between family and nonfamily firms.


7. "House Price Growth Synchronization and Business Cycle Alignment" with with Cheol Eun and Teng Zhang. Journal of Real Estate Finance and Economics, 2021 Accepted. [SSRN LINK]


One of the most notable trends in the U.S. housing market in the recent decades is the increasing house price growth (HPG) synchronization across regions.

Using four decades of data, we provide novel evidence that the increasing HPG synchronization leads to higher business cycle alignment across U.S. states. One standard deviation increase in HPG synchronization is associated with a 15%, 12%, and 10% increase in the alignment of the states’ gross state product, employment, and income growth, respectively. The relation is stronger between states with similar banking development and in non-tradable sectors. Supporting both the collateral and direct wealth effect channels, we find more aligned house-secured borrowing activities and consumption growth between states with more synchronized house price growth. Results also hold at the MSA level and are robust to various endogeneity controls, including a Bartik-type instrument. Overall, our findings suggest that the housing market integration can lead to amplified business cycles associated with an increased systemic economic risk at the country level.

8. “Automatic Trend Detection: Time-Biased Document Clustering" with Sahar Behpour, Mohammadmahdi Mohammadi, Mark Albert, Zinat Alam, and Ting Xiao. Knowledge-Based Systems 220 (2021).

  • KBS journal statistics: 2020 SSCI impact factor – 8.038. According to the SJR ranking, KBS is ranked in the top 10% of journals in the areas of Management Information Systems or Artificial Intelligence

Using the abstracts from all JFE publications from 1974 to 2020, we show that adding the time of publication to standard topic clustering models (which do not have a time dimension) can significantly improve the models' predictivity of trends in research topics.