Research Statement

I am a Financial Economist with research interests spanning IO-Finance, Unconventional Monetary Policy, and Corporate Finance. Methodologically, I like to answer policy-related questions using structural models and rich microdata. My approach is to leverage my institutional knowledge and keen interest in the financial press to identify discrepancies between theoretical predictions, observed outcomes, and practitioners’ beliefs.

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Current research

During my PhD, my principal area of interest went from corporate governance to the impact of unconventional monetary policy on financial intermediation and banking. I will discuss each in detail, starting with my JMP, then outline my research agenda for the next few years.

Financial intermediation, banking, and unconventional monetary policy

Following the Great Financial Crisis, central banks engaged in unconventional monetary policy to curtail the economic impact of the crisis. While these policies were greatly successful in addressing market turmoil, their broader outcome remains debatable.

The core argument of my research in this area is that unconventional monetary policy entails hidden costs and complex ripple effects that decision-makers should consider. Proper policy evaluation necessitates careful structural modeling. In the context of this research, I have been granted access to confidential Banque de France data on securities holdings, bank balance sheets, as well as to the French credit registry.

My Job Market Paper, written jointly with Paul Rintamaki, a PhD student at Aalto University, explores how Basel III regulation interacts with excess liquidity resulting from Large Scale Asset Purchases. These asset purchases have significantly increased the reserves held by banks, which, in the Eurozone, cannot be drained from the banking system. This situation creates a crowding-out effect, where banks are compelled to sell securities and reduce loan issuance due to balance sheet constraints imposed by Basel III. Such an outcome undermines the intended expansionary impact of Quantitative Easing.

The paper makes several key contributions:

1. Our model of bank competition quantifies the trade-offs that excess reserves impose on the banking system, specifically how they influence interest rates and credit availability. This allows us to estimate counterfactual scenarios and provide optimal policy recommendations tailored to different Central Bank objectives.
2. We estimate the shadow cost of Basel III regulation for banks by developing a structured cost function inspired by the work of Lé, Fraisse, and Thesmar (2020). This approach makes it possible to study how regulation drives the behavior of banks in equilibrium.
3. We model the entire balance sheets of banks by combining large regulatory datasets on balance sheets, securities holdings, the French credit registry, and the BankFocus database. This allows us to compute the trade-offs between different asset types as banks optimize their investment portfolios. This comprehensive approach is crucial as European banks are not subject to the Volcker Rule: lending and market activities are not segregated.

While my JMP explores the banks’ balance sheet side of Asset Purchases, I am also currently working on quantifying the impact of Asset Purchases on the European bond market. Building on Gabaix and Koijen’s inelastic market hypothesis, I examine how the reduction in aggregate bond supply affected the price level and the role of inelastic demand in amplifying that process. As investors adjust their portfolios, the impact of asset purchases spreads beyond targeted markets. Crucially, the success of asset purchases hinges on inelastic demand and limited substitution between different asset markets. However, these characteristics enable arbitrageurs to extract significant surplus from Central Bank policies and make the transmission of asset purchases to the broader economy difficult to target. I borrow the methodology from Koijen and Yogo (2019) to characterize the demand function of bond market investors and outline how sophisticated investors can exploit arbitrage opportunities by pre-empting Central Bank actions. Given the relatively low substitution between market segments, I argue that Central Banks should target asset purchases more narrowly in terms of time and scope.

Corporate Governance

Corporate governance has been the subject to significant regulatory oversight since the late 1990s, with the 2002 Sarbanes-Oxley Act serving as a keystone. My research explores two main areas of modern corporate governance regulation: board appointments and executive compensation. I will detail them in turn.

Regulation has been put in place to ensure that directors are independent at nomination, the implicit assumption being that management will try to stack the board with friendly faces. In my project Networks in the Board of Directors, I challenge the prevailing assumption that pre-existing relationships favor candidates in the board recruitment process. Candidates with prior associations to current board members are actually less likely to be appointed, though they are more likely to be considered. Indeed, the traits that increase a candidate’s visibility to recruiters–such as industry experience–are often correlated with connections to the board. This correlation introduces significant bias, leading to misleading conclusions in past research.

Pay transparency is another critical element of the Sarbanes-Oxley Act and similar regulations worldwide. This policy is based on the assumption that disclosing executive compensation would allow shareholders to exert control and curb the explosion of executive pay. In What you see is what you get paid, I argue that pay transparency regulations may have inadvertently increased it by shifting the bargaining power in favor of executives. This finding calls into question the effectiveness of transparency as a tool for controlling executive pay. This outcome is not entirely surprising, given that pay transparency has been used in other contexts to increase the bargaining power of salaried workers.

Research Agenda

Financial intermediation

Moving forward, I intend to build on my current projects to further the understanding of unconventional monetary policy. I expect to work on the following gaps in the literature:

• Assessing asset purchase programs: There is a limited understanding of the broader benefits and costs of asset purchases, especially regarding their impact on taxpayers, and the financial stability risks associated with unwinding the purchases.
• Transmission of asset purchases: As quantitative easing becomes a more permanent fixture in monetary policy, we need to further the understanding of its effects on the housing market and how carry trades altered policy outcomes.
• The new monetary framework: The quantity of excess reserves is now decoupled from the base interest rate, which calls for a reassessment of concepts like the money multiplier, taking stock that central banks relinquished a significant amount of control over the money supply. This opens up many policy-relevant questions, such as whether or not we ought to allow non-banks to access the central bank’s balance sheet, or what is the optimal quantity of excess reserves.

As discussed above, I secured high-quality datasets that allow me to address these questions through data-driven research.

Corporate Governance

My work in corporate governance suggests that current regulation could be more efficient at achieving its stated policy objectives. I’m particularly interested in exploring the following areas:

• Director independence: Existing regulations may overstate concerns related to board appointments, while the board independence issue might arise post-appointment as management can cozy up to directors.
• Executive compensation: The significant element of luck in executive pay raises questions about the effectiveness of current compensation structures. Alternative approaches, such as longer (5/10+ years) share vesting periods with shorter cliffs and exercise periods could mitigate these issues.
• Governance mechanisms: It is unclear in previous research whether stronger governance mechanisms would be beneficial. I intend to explore the efficacy of binding shareholder votes, director term limits, and director professionalization–fostering influential multi-firm directors. More generally, the firm’s principal-agent problem is complex, as uncoordinated shareholders delegate authority to directors who then monitor executives on their behalf. This complexity makes research in this area particularly exciting!

General outlook

My goal across both financial intermediation and corporate governance is to understand how policies play out in the real world. I’m focused on bridging the gap between theory and practice to help shape policies that are both effective and grounded in reality.