Research Interests:

Empirical Corporate Finance, Household Finance, Contracts, Financial Advisers, Mergers and Acquisitions, IPOs

Working Papers:

Do Commissions Cause Investment Adviser Misconduct? (Job Market Paper)

Awards: Australasian Finance and Banking Conference - PhD Forum Prize for Best PhD Paper Presentation (2019)

Presentations: Australasian Finance and Banking Conference and PhD Forum (2019)

Sales commissions may present a conflict of interest that allows investment advisers to obtain rents from uninformed clients. Alternatively, commissions might be a contracting solution to motivate information provision. To analyze the relation between commissions and adviser misconduct, I exploit quasi-exogenous changes in individual investment advisers’ compensation arrangements caused by mergers between large registered investment advisory firms. The opportunity to earn sales commissions increases the probability that an adviser engages in misconduct, but competition is an important mediator. In regions with greater competition, sales commissions decrease misconduct claims. Increased misconduct from commissions is concentrated among low-experience advisers and male advisers. Damages paid out in claims involving commission-motivated advisers are $25,013 (36%) greater than other claims. The experimental design rules out latent firm and market explanations. Overall, I find that the connection between conflicts of interest and information provision depends on the competitive environment.

Political Attitudes, Partisanship, and Merger Activity
(with Ran Duchin, Abed el Karim Farroukh, and Jarrad Harford)

This paper provides novel evidence that homogeneity in firms’ political attitudes plays a role in mergers and acquisitions. Using detailed data on individual campaign contributions to Democrats and Republicans, the estimates show that firms are considerably more likely to announce a merger, complete a merger, and a have shorter time-to-completion when their political attitudes are closer. Furthermore, acquisition announcement returns and post-merger operating performance are significantly higher when the acquirer and the target have more similar political attitudes. The effects of political partisanship on mergers are stronger in more recent years, when the political polarization in the U.S. is greater. Overall, we provide estimates that political attitudes and polarization have real effects on the allocation of assets in the economy.

Institutional Participation and IPO Underpricing: Evidence from MLPs

This paper finds evidence that higher participation of institutional investors in initial public offerings (IPOs) increases underpricing. To establish causality, I utilize the American Jobs Creation Act (AJCA) as an exogenous change in the tax treatment of a special class of equities: master limited partnerships (MLPs). A rule change in the AJCA allowed institutions to obtain pass-through tax treatment for MLP units, avoiding double taxation. In the year following the rule change, institutional ownership of publicly-traded partnership units increases from 11% of outstanding units to 24%. Utilizing a differences-in-differences setting, I compare limited partnership IPOs to industry-matched corporate IPOs. Prior to the rule change, IPOs of MLPs show no evidence of underpricing. The average treatment effect of the rule change is a 14% increase in first-day returns. Further, the cross-sectional variability of first day returns increased threefold, consistent with predictions implied in Rock’s (1986) model of information asymmetry and adverse selection.

Contact

Location

365 Mackenzie Hall Box 353200
Foster School of Business
University of Washington
Seattle, WA 98195
 

Contact Info

tarun625@gmail.com
(404)-641-6431