Working Papers

The secular rise of "zombie" borrowers, insolvent firms sustained by continued extension of credit by complicit banks, has been a source of concern for mature and emerging economies alike. Using supervisory data on the universe of large bank-borrower relationships in India, we introduce a novel method for identifying zombies. Although there was widespread non-disclosure of zombies in India in 2014, the beginning of the sample period, there have been major improvements since. We examine changes in zombie reporting around two key policy changes: an overhaul of the bankruptcy code and a regulatory intervention removing lender discretion in bad loan recognition. Increases in reporting were modest after the bankruptcy reform but there was a sizable jump in the recognition of zombies after the regulatory intervention. Post-intervention results show that lending has been reallocated to large, healthy borrowers. However, under-reporting still exists, particularly among public-sector banks. Overall, our results indicate that regulatory action might be necessary, above and beyond bankruptcy reform, to target "zombie" lending.

Acquiring Failed Banks [Paper]

Banks create value by issuing deposits and making loans, yet little is known about the relative importance of these two functions. I study this question in the setting of failed bank auctions. This allows me to obtain causal estimates by comparing outcomes for the winning bank to those of the second highest bidder. Consistent with a positive value effect from the acquisition, the winning bank experiences a large positive abnormal return upon announcement of the auction result. I show that this increased value is mainly due to deposits, not loans. After the acquisition, the winning bank sharply cuts lending to the failed bank’s borrowers, including those who were not responsible for the bank’s failure. However, the winning bank retains almost all of the failed bank’s deposits, despite shutting down some of its branches. It does not channel these deposits into lending in other areas, indicating that the value of deposits is separate from their role in financing loans. Rather, it lowers deposit rates throughout its network, reflecting increased deposit market power. Overall, my results show that the deposit franchise is the main source of value in these acquisitions, and hence likely a principal source of bank value more broadly.

Foreign Currency Borrowing of Corporations as Carry Trades: Evidence from India (with Viral V. Acharya) [Paper]

We study the causes and consequences of the rise in foreign currency borrowing by non-financial corporates in an emerging market over the last decade. Using detailed firm-level issuance data from India, we show that issuance propensity for the same firm is higher when the difference in short-term interest rates between India and the US are higher i.e. when the dollar ‘carry trade’ is more profitable; a phenomenon that is driven by the period after the global financial crisis. In contrast, most standard firm-level variables, on their own, are not predictive of issuance. Consistent with the carry trade motive, we find that firms with low leverage are most likely to take advantage of these favorable funding conditions; firm cash holdings rise more after a foreign currency debt issue than after an equivalent amount raised through other sources; and firm exposure to foreign exchange risk rises after an issuance implying that the currency risk is not fully hedged. Using the ‘taper tantrum’ episode of Summer 2013 as an unexpected shock to foreign exchange volatility, we find that a market-based measure of FX exposure does a better job in capturing firm exposures than accounting measures. Firms with high FX exposure and a propensity to issue in more favorable funding environments are the hardest hit during the taper tantrum episode. Finally, we also present suggestive evidence that risks spill over to local banks from foreign currency borrowers with whom they have relationships.

Lending to Influence Politicians: County-Level Evidence [Paper]

Using changes in the composition of the US House Financial Services Committee as a shock to a region’s political importance, I provide evidence that financial institutions alter lending patterns depending on whether a county is represented by a member of the committee. The effects are asymmetric – on gaining a member, counties see no immediate change but on losing a member, there is a decline in home mortgage loans originated. This asymmetry is consistent with models that emphasize reputation building in the market for political favors. Effects are greater where the politician receives less direct contributions suggesting that these indirect contributions might be substitutes for direct giving. In the presence of limits on campaign contributions, these results emphasize alternate channels that firms may employ to influence politicians.


UGA Terry

Corporate Finance Theory (UG) – Fall 2018, Fall 2019 [Syllabus]

NYU Stern

Corporate Finance (UG) – Summer 2015 [Syllabus]
  • Awarded Commendation for Teaching Excellence