I am currently a principal researcher at the University of Chicago Booth School of Business and will join CUHK Business School as an Assistant Professor of Finance in 2023.
I received my Ph.D. in Finance from Stanford Graduate School of Business in June 2022.
R&R at Journal of Finance
The Finance Theory Group (FTG) 2022 “best paper in finance theory on the job market” prize
The Brattle Group Ph.D. Candidate Awards For Outstanding Research
An entrepreneur makes offers to multiple investors to fund a project. The project is implemented only if the investment committed exceeds a threshold. Concerned about the project quality and others' decisions, investors share information through strategic communication. When having conflicts of interest, those with contractually stronger incentives to invest persuade others, which induces a cascade causing more investors to invest and persuade. The entrepreneur's choice of contracts affects whether investors have conflicts of interest and thus how they communicate strategically. When the project has high ex ante profitability, the entrepreneur is concerned about investors' information rent and employs a hierarchical structure to differentiate investors, create conflicts of interest, and impede information sharing. When the project has low ex ante profitability, the entrepreneur is concerned about investors' miscommunication and employs a flat structure to homogenize investors, align their interests, and facilitate information sharing. The two structures and their underlying logic are consistent with empirical observations regarding investor syndicates.
The Optimal Structure of Securities under Coordination Frictions
with Ming Yang
We study multi-agent security design in the presence of coordination frictions. A firm intends to develop a project that generates a stochastic cash flow increasing in an unknown state and external investment. To obtain external investment from ex-ante homogeneous investors, the firm offers them multiple monotone securities backed by the project cash flow. Investors observe noisy signals about the state and decide whether to invest. More investment results in a higher project cash flow and thus higher security payoffs, making investment decisions strategic complements. Miscoordination arises because investors cannot precisely infer others’ decisions from their noisy signals. Different from the literature (e.g. Winter (2004)), investors can provide mutual assurance to each other. We find it optimal to use a multi-tranche structure to differentiate investors, in which senior-tranche holders, who are more robust to potential miscoordination, invest more aggressively and help alleviate junior-tranche holders’ fear of miscoordination. This result stems from a novel "assortative matching" mechanism, which relies on that the firm can differentiate investors in security format. In contrast, if the firm can differentiate investors only in pricing but not in security format (e.g. offering investors equity shares at potentially different prices), it is optimal not to differentiate investors and to offer a uniform price. Our paper highlights the role of differentiating security format in mitigating miscoordination.
with Jian Sun
We study SPACs in a finite-horizon continuous-time delegated investment model. Due to the misalignment in incentives, the sponsor has an increasing incentive to propose unprofitable deals to the investor as the SPAC approaches its deadline. As a response, the investor redeems shares more aggressively over time. The investor's current redemption reduces the sponsor's expected payoff from proposing unprofitable deals, but future redemption reduces his expected payoff from waiting. We discuss the welfare implications of SPAC designs related to investors' redemption: 1) prohibiting the investor from redeeming shares in late periods can be a Pareto improvement; 2) coupling the investor's deal rejection with redemption benefits the sponsor; 3) the participation of investors with behavioral biases can be a Pareto improvement.
Much of corporate managers’ incentive is related to the stock price, so a firm can design the corporate information environment to tackle its manager’s moral hazard problem. We analyze a model in which the manager needs to exert costly effort to start a risky, long-term project and the project gives the manager opportunities to make credible disclosure. The optimal disclosure to motivate effort is the manager’s strategic disclosure because it protects the manager from the downside of the project and induces the rational stock market to punish nondisclosure. A more transparent information regime is not always preferred, because it may reduce the manager’s discretion on disclosure. We also derive the optimal disclosure when both the effort and the project choice are considered.
with Liang Dai and Ming Yang
We find that disclosing bank-specific information reallocates systemic risk, but whether it mitigates systemic bank runs depends on the information disclosed. Disclosure reveals banks' resilience to adverse shocks, and shift systemic risk from weak to strong banks. Yet, only disclosure of banks' exposure to systemic risk can mitigate systemic bank runs because it shifts systemic risk from more vulnerable banks to those less vulnerable. Optimal disclosure thus maximally differentiates such exposure, provided that banks experience runs simultaneously, if inevitable. Disclosure of banks' idiosyncratic factors does not differentiate such exposure, rendering the resulting reallocation of systemic risk ineffective in mitigating systemic runs. In the context of disclosing stress-test results, when the quality of the banking system deteriorates, the regulator may have to face a sudden run on a huge mass of banks rather than gradually abandoning weak banks.