Caught with the Hand in the Cookie Jar: Firm Growth and Labor Reallocation after Exposure of Corrupt Practices.

with Spyridon Lagaras and Jacopo Ponticelli

Abstract: Corrupt practices in the assignment of government contracts are largely diffused and can generate misallocation of resources across firms. We study how disclosure of such practices affects firm growth and labor reallocation. We exploit exogenous variation in the exposure of corrupt firms using random municipality audits by a large anti-corruption government program in Brazil. Firms exposed by the auditing program experience a decline in employment growth relative to their peers. We document that young, less-educated workers that do not occupy a managerial position have higher probability to leave the exposed firms. Released workers tend to reallocate to smaller firms in the same sector and municipality. Our evidence indicates that the exposure of corrupt practices reduces misallocation of labor.



Drivers of Effort: Evidence from Employee Absenteeism.

with M. Bennedsen and D. Wolfenzon


Abstract: We use detailed information on individual absent spells of all employees in 2,600 firms in Denmark to document large differences across firms in average absenteeism. Using employees who switch firms, we decompose absent days into an individual component (e.g., motivation, work ethic) and a firm component (e.g., incentives, corporate culture). We find that the firm component explains a large fraction of the difference in absenteeism across firms. We present suggestive evidence of the mechanisms behind the firm effect. After controlling for selection of employees into firms, family firm status and concentrated ownership are strongly correlated with decreases in absenteeism. Taken together the evidence supports the importance of firm level mechanisms in eliciting effort from existing employees.


Family Control and the Cost of Debt: Evidence from the Great Recession.

with Spyridon Lagaras

Abstract: The purpose of the paper is to examine the effect of founding family control on the cost of bank debt. We examine the cost of accessing the syndicated market and we use the financial crisis and the unexpected nature of Lehman Brother's collapse as a laboratory in order to tease out the effect of family ownership. We find that the increase in loan spreads around the Lehman crisis was by at least 24 basis points lower for family firms. Furthermore, the gap in spreads among family and non-family firms becomes wider among firms that had pre-crisis relationships with lenders with higher exposure to the shock. The evidence are consistent with family ownership lowering the cost of accessing debt financing especially when lenders are constrained. We further investigate potential channels that drive the effect of family ownership. We provide novel evidence that for 17% of the family firms creditors impose explicit restrictions in private credit agreements that require the founding family to maintain a minimum percentage of ownership or voting power. Thus creditors value the presence of the family. Furthermore, the impact of family control on lowering the cost of bank debt is higher when family CEOs run the firms and among firms with higher ex ante agency conflicts.



PUBLISHED and accepted Papers

Do Director Election Matter?

with Vyacheslav Fos and Kai Li, Forthcoming Review of Financial Studies

Abstract: Using a hand-collected sample of more than 30,000 directors nominated for election over the period 2001–2010, we construct a novel measure of director proximity to elections—Closeness-to-election. We find that the closer a director is to her next election, the higher is CEO turnover–performance sensitivity. Each year closer to director elections is associated with a 23% increase in CEO turnover–performance sensitivity. Three tests support a causal interpretation of the results. First, when we require directors to have a minimum tenure of three years, there is no material change in the results, suggesting that the timing of when directors join their boards is unlikely to drive the results. Second, we find similar results when we use director Closeness-to-election on other boards as a measure of proximity to elections. Third, when we restrict the analysis to firms with unitary boards, there is no material change in the results, suggesting that director self-selection into firms with staggered boards does not drive the results. Cross-sectional tests suggest that, when other governance mechanisms are in place, CEO turnover–performance sensitivity is affected to a lesser extent by Closeness-to-election. We conclude that director elections have important implications for corporate governance.

Coverage: Harvard Law School Corporate Governance Forum


Measuring Income Tax Evasion using Bank Credit: Evidence from Greece
with Nikolaos Artavanis and Adair Morse

Quarterly Journal of Economics, May 2016 131 (2)


Winner of the Wharton School-WRDS Award for the Best Empirical Finance Paper, WFA 2013

Featured in The Wall Street Journal, The NY Times, The WashingtonPost, The Financial Times, The Economist Free Exchange and Kathimerini


Abstract:We show that in semiformal economies, banks lend to tax-evading individuals based on the bank's perception of the individual's true income. This observation leads to a novel approach to estimate tax evasion using the adaptation of the private sector to the norms of semiformality. We use bank microdata on household credit, and replicate the bank model of credit capacity decision to infer the bank’s estimate of individuals’ true income. We estimate a lower bound of 28.2 billion euros of unreported income for Greece. The foregone government revenues amount to 32% of the deficit for 2009. Primary tax-evading industries are medicine, law, engineering, education, and media. We provide evidence that tax evasion persists not because the tax authorities are unaware, but because of a lack of paper trail and political willpower. Finally, we speak to the reproducibility and applicability of our method in other semiformal settings.



The Effect of Succession Taxes on Family Firm Investment: Evidence from a Natural Experiment

Journal of Finance, April 2015 issue (70:2)

Winner of the Trefftzs Award, WFA 2010

Abstract:This paper provides causal evidence on the impact of succession taxes on firm investment decisions and transfer of control. I exploit a 2002 policy change in Greece that substantially reduced the tax on intra-family transfers of businesses and show that succession taxes lead to more than a 40% decline in investment around family successions, slow sales growth, and depletion of cash reserves. Furthermore, succession taxes strongly affect the decision to sell or retain the firm within the family. I conclude by discussing implications of my findings for firms in the United States and Europe.



Shareholder Democracy in Play: Career Consequences of Proxy Contests

with Vyacheslav Fos

Journal of Financial Economics 114 (2014), pp. 316-340

Abstract:This paper shows that proxy contests have a significant adverse effect on careers of incumbent directors. Following a proxy contest, directors experience a significant decline in number of directorships not only in the targeted company, but also in other non-targeted companies. The results are established using the universe of all proxy contests during 1996-2010. To establish that this effect of proxy contests is causal, we use within-firm variation in directors' exposure to proxy contests and exploit the predetermined schedule of staggered boards that only allows a fraction of directors to be nominated for election every year. We find that nominated directors relative to non-nominated ones lose 45% more seats on other boards. We discuss that this pattern can be expected if proxy contest mechanism imposes a significant career cost on incumbent directors.


Coverage: Harvard Law School Corporate Governance Forum, IR magazine, Activism Monthly


Beyond Austerity: Reforming the Greek Economy

with Haliassos M, G Hardouvelis, and D Vayanos (2015). Prepared for an MIT Press volume on reforms in Greece, edited by C Meghir, C Pissarides, D Vayanos and N Vettas.



 Work in progress

"Zombie Lending and Cross-Subsidization in a Lending Crisis" with N. Artavanis and S. Panageas

"The Greek Walk", with N. Artavanis, D.Paravisini and A.Seru


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