The Risk, Reward, and Asset Allocation of Non-Profit Endowment Funds, with Andrew Lo and Stefan Zeume, February 2021.

Abstract: We collect tax return data from all 311,222 public NPOs in the United States over the 2009-2017 period to study the asset allocation choices and investment returns of their endowment funds. One in nine public NPOs have endowment funds. The majority of funds allocate their assets conservatively to low-risk assets, and as a result, earn an average annual return of 5.3%. There is substantial heterogeneity in investment returns across funds. Large funds significantly outperform small funds across all return measures and nonprofit sectors. Endowments in NPO sectors devoted to public and societal benefit, the environment, and the arts are among the top performers. High returns among higher education endowments are explained by size, while hospital endowments significantly underperform. Higher investment returns are associated with better governance, more highly paid management, lower discretionary spending, and lower investment management fees. Lastly, when faced with volatile contributions, endowment funds hold more cash and invest more conservatively.

Sorting in the U.S. Corporate Executive Labor Market, October 2017.

Abstract: This paper measures the degree of sorting by skill in the U.S. labor market for senior managers. I utilize both wage data and a comprehensive dataset that contains education information on 10,517 executives. I present evidence of a high degree of within-firm positive sorting: better managers are matched with better coworkers. Sorting significantly contributes to variation in productivity across firms and explains a large portion of observed differences in TFP. In addition, sorting explains 20% of variation in compensation. I consider several explanations and suggest that the findings are most easily explained by complementarities in production within executive teams.

Labor Market for Corporate Directors, December 2016.

Abstract: This paper empirically analyzes the labor market for corporate directors and the role compensation plays in this market. Since salaries are not individually negotiated with directors, preferences of directors and firms, rather than wages, determine market outcomes. I estimate preferences from a two-sided matching model and use them in counterfactual experiments. Increasing director pay by $150,000 a year per director allows less desirable firms to attract a better pool of directors. This result suggests that firms can effectively use compensation to build better boards. The framework developed here is used to analyze other important market segments, such as the market for CEO directors.

Good and Bad CEOs, with Dirk Jenter and Lukas Roth, July 2023. New draft.

Abstract: This paper analyzes changes in firm value, performance, and behavior caused by CEO deaths. Many deaths trigger large stock price changes—shareholders believe that some CEOs add shareholder value, but others are seen as not optimally matched or overpaid. These value changes are correlated with CEO and firm characteristics (e.g., deaths of old CEOs tend to add value), but much of the variation remains unexplained. The stock price reactions predict changes in operating performance, indicating that shareholders know which CEOs improve performance and which do not. The evidence suggests that CEOs are important, but also that many reduce shareholder value.

The Effects of Spending Rules and Asset Allocation on Non-Profit Endowments, with Andrew Lo, Zachery Halem, and Sarah Quraishi, Journal of Portfolio Management, Volume 49, Issue 1, November 2022. Earlier version (PDF). 

Abstract: We examine the long-run impact and implications of an endowment’s spending policy and asset allocation decisions. Using a dynamic model, we explore how different endowment spending rules influence the dynamics of an endowment’s size and future spending. We find that different parameters within each spending rule have significant long-term impact on wealth accumulation and spending capacity. Using Merton's (1993) endowment model and compiled asset allocation data, we estimate the intertemporal preferences and risk aversion of several major endowments. We find significant variation across endowments in their propensity to increase portfolio risk in response to increased spending needs.

Optimal Capital Structure with Imperfect Competition, with Alexei Zhdanov, Review of Corporate Finance Studies, Volume 11, Issue 2, May 2022. Earlier version (PDF). 

Abstract: We develop a model of optimal capital structure in imperfectly competitive markets by focusing on a duopoly. The model endogenizes both the financing and investment decisions of firms. We show that in equilibrium the industry leader uses debt conservatively, while the follower uses debt more aggressively and, as the result, defaults first. The model generates novel predictions about the leverage choices of the leader and the follower, their default likelihood, and the degree of leverage dispersion between competing firms. These predictions are strongly supported by the data.

Does the Market Correctly Value Investment Options?, with Evgeny Lyandres and Alexei Zhdanov, Review of Finance, Volume 24, Issue 6, November 2020. Editor's Choice. Earlier version (PDF).  

Abstract: This paper shows that the stock market misprices firms’ investment options. We build a real options model of optimal investment under uncertainty to estimate the value of firms’ investment options. We show that firms with valuable investment options have a higher likelihood of being mispriced. Importantly, this mispricing is not one-sided, as such firms are equally likely to be undervalued or overvalued. Our paper adds to the debate on whether public equity markets are myopic and systematically undervalue innovative firms. We show that this is not necessarily the case.