Job Market Paper
Abstract: This paper examines how investors’ uncertainty about firms’ monetary policy exposures shapes managers' earnings guidance decisions, as well as the resulting effect of that guidance on the heterogeneity in firms' equity return sensitivity to monetary policy surprises. I use the unexpected changes in implied volatility around monetary policy announcements to measure firm-level exposure uncertainty. Employing a weekly difference-in-differences design, I find that in response to a higher unexpected change in implied volatility, managers are more likely to issue earnings guidance in the weeks following the monetary policy announcement. Consistent with the theory that a firm's disclosure facilitates investors’ learning about factor exposures, I find that guidance mitigates investors' uncertainty about a firm's exposure to monetary policy. This reduced uncertainty reduces the agency frictions between managers and investors, and consequently affects the firm's monetary policy sensitivity—it moderates the decline in the firm's value when interest rates rise while amplifying the positive effect of rate cuts. These effects are concentrated among the firms whose earnings are more sensitive to policy surprises and are more financially constrained, further suggesting that earnings guidance drives the information friction channel of the monetary policy transmission.
Publications
(with Adrien Auclert, Matthew Rognlie, and Ludwig Straub)
NBER Macroeconomics Annual 2022
Abstract: We study the effects of debt-financed fiscal transfers in a general equilibrium, heterogeneous-agent model of the world economy. In the long run, increases in government debt anywhere raise the world interest rate and increase private wealth everywhere. In the short run, a country with a larger-than-average fiscal deficit experiences both a large increase in private savings (“excess savings”) and a small but persistent current account deficit (a slow-motion “twin deficit”). These patterns are consistent with the evolution of the world’s balance of payments since the beginning of the Covid pandemic.
Working Papers
Abstract: This paper examines the role of costly information acquisition for the allocative efficiency of capital in the economy. I develop a dynamic general equilibrium model of firm investment where the information sets of firms are endogenously determined. I show that only the firms for which the fixed costs of information acquisition are relatively a smaller fraction of their operating profits choose to acquire information and hence enjoy lower residual uncertainty. Due to this differential uncertainty across firms, capital gets allocated towards less risky and away from more productive firms. The result, in equilibrium, is more capital misallocation. The quantitative analysis for US public firms reveals that information acquisition costs are small relative to an average firm’s operating revenues. Combined with a substantial reduction in residual uncertainty conditional on acquiring information in the data, the informational frictions account for 3.2% of observed capital misallocation. However, more than half of this contribution comes solely from costly information acquisition leading to a reduction in aggregate productivity by 0.4% and output by 0.6%.
Abstract: This paper develops a model of firm voluntary disclosure and investment dynamics to examine the effect of inter-temporal incentives on investment efficiency. Two forces play a key role in driving the interactions between disclosure and investment policies. First, firms who strategically withhold their private information, in equilibrium, necessarily distort investment to retain their informational advantage. Second, the dynamic forces, that incentivize managers to build a reputation of a less asymmetric information environment and alter their disclosure policy, remain unchanged with the level of investment. This is because investment only has a scale effect on firm value. The implication is that investment behaves as if chosen by fully myopic managers whereas disclosure does not—leading to a further reduction in investment efficiency.
Abstract: Financial markets convey useful decision-making information to corporations’ management through asset prices. Managers, who seek to maximize their company’s value, can trigger investors’ information acquisition and obtain decision-relevant information from the market by voluntarily disclosing their own private information. At the same time, managers who are also concerned about short-term stock prices may not "ask" the market for feedback if they expect a negative investor reaction upon disclosure. We build a model to explain this tension and study the real efficiency implications of managers’ voluntary disclosure decisions. We find that managers’ concern about short-term prices can hurt real efficiency, but also can improve it if investors are better at acquiring information when no disclosure is provided.