Working Papers

Knowing is Power: The Value of Judge-Lawyer Familiarity

Revise and resubmit: Review of Financial Studies(with Josh Madsen and Wei Wang)
Does familiarity matter? We exploit a setting where lead counsel lawyers are selected before judge assignment in corporate bankruptcies and find that cases resolve 25% faster when a judge-lawyer connection exists. The most effective connections arise through previous in-court interactions where lawyers gain first-hand knowledge of judges' preferences. Firms also incur lower legal fees and their creditors recover more when a connection exists. Judges exhibit no preferential bias toward connected firms. Given restricted private communication between lawyers and judges, our paper highlights a new mechanism whereby connections create value: non-transferable knowledge of idiosyncratic preferences.

Index Creation, Benchmarking, and External Finance

Revise and resubmit: Journal of Accounting Research (with Daniel Urban and Wenting Zhao)
We study the impact of index additions on firm financing by constructing a worldwide sample of new index launches and changes to index methodologies. Index additions improve the credit quality of firms and reduce yield spreads. Firms respond by issuing public debt and increasing their leverage. Index firms do not increase their equity issuances, but when they do issue equity, their announcement returns are significantly more positive. Furthermore, firms' equity issuances are more responsive to increases in distress risk once they are in an index. Our results support the view that changes in inelastic demand for a firm's shares reduce distress risk and contribute to more significant debt issuances.

Life Expectancy and Corporate Debt Markets

(with Zhanhui Chen, Pingyi Luo, and Wenjun Zhu)
Longevity shocks shift life insurers' demand for bonds of specific maturities. We show that these shifts have real consequences for a firm's financing and investment policies. Life insurance companies increase purchases of long-term bonds when longevity increases. Consequently, long-term bond yields fall. The corporate sector absorbs these shocks by shifting to long-term debt issuances while increasing investments in long-term assets. The effects are particularly marked where life insurers are the primary holders of a firm's debt. The response is also more pronounced for firms that rely on long-term financing and those that are financially unconstrained.