Krannert School of Management
403 W. State Street
West Lafayette, IN 47907
Tel: (614) 292-4412
NBER Working Papers and Publications
|October 2017||Mutual Funds as Venture Capitalists? Evidence from Unicorns|
with Josh Lerner, Yao Zeng: w23981
Using novel contract-level data, we study the recent trend in open-end mutual funds investing in unicorns—highly valued, privately held start-ups—and the consequences of these investments for corporate governance provisions. Larger funds and those with more stable funding are more likely to invest in unicorns. Compared to venture capital groups (VCs), mutual funds have weaker cash flow rights and are less involved in terms of corporate governance, being particularly underrepresented on boards of directors. Having to carefully manage their own liquidity pushes mutual funds to require stronger redemption rights, suggesting contractual choices consistent with mutual funds’ short-term capital sources.
|July 2016||Liquidity Transformation in Asset Management: Evidence from the Cash Holdings of Mutual Funds|
with Adi Sunderam: w22391
We study liquidity transformation in mutual funds using a novel data set on their cash holdings. To provide investors with claims that are more liquid than the underlying assets, funds engage in substantial liquidity management. Specifically, they hold substantial amounts of cash, which they use to accommodate inflows and outflows rather than transacting in the underlying portfolio assets. This is particularly true for funds with illiquid assets and at times of low market liquidity. We provide evidence suggesting that mutual funds’ cash holdings are not large enough to fully mitigate price impact externalities created by the liquidity transformation they engage in.
|December 2014||The Rise and Fall of Demand for Securitizations|
with Samuel G. Hanson, Adi Sunderam: w20777
Collateralized debt obligations (CDOs) and private-label mortgage-backed securities (MBS) backed by nonprime loans played a central role in the recent financial crisis. Little is known, however, about the underlying forces that drove investor demand for these securitizations. Using micro-data on insurers’ and mutual funds’ bond holdings, we find considerable heterogeneity in investor demand for securitizations in the pre-crisis period. We argue that both investor beliefs and incentives help to explain this variation in demand. By contrast, our data paints a more uniform picture of investor behavior in the crisis. Consistent with theories of optimal liquidation, investors largely traded in more liquid securities such as government-guaranteed MBS to meet their liquidity needs during the cris...
|April 2010||Agency Costs, Mispricing, and Ownership Structure|
with C. Fritz Foley, Robin Greenwood: w15910
Standard theories of corporate ownership assume that because markets are efficient, insiders ultimately bear agency costs and therefore have a strong incentive to minimize conflicts of interest with outside investors. We show that if equity is overvalued, however, mispricing offsets agency costs and can induce a controlling shareholder to list equity. Higher valuations support listings associated with greater agency costs. We test the predictions that follow from this idea on a sample of publicly listed corporate subsidiaries in Japan. When there is greater scope for expropriation by the parent firm, minority shareholders fare poorly after listing. Parent firms often repurchase subsidiaries at large discounts to valuations at the time of listing and experience positive abnormal returns whe...
Published: With Sergey Chernenko and Robin Greenwood, “A gency Costs, Mispricing, and Ownership Structure,” Financial Management Vol. 41, No. 4, pp. 885-914, 2012.