Relationship-specific investments for up- and downstream firms and credit constraints (with Michael Troege, Hiep Manh Nguyen, and Hang Thu Nguyen) –  Journal of Corporate Finance, Volume 84, 2024
This paper argues that there exists a fundamental asymmetry between relationship-specific investments (RSI) made for downstream firms (customer-specific investments – CSI) and for upstream firms (supplier-specific investments – SSI). Both types of RSI can create a hold-up problem, but everything else equal, suppliers have higher bargaining power, rendering hold-ups by suppliers more dangerous than hold-ups by customers. Using unique data on Vietnamese SMEs that allow for a clean separation between CSI and SSI, we demonstrate that this leads to less frequent SSI and that the few firms making SSI will be more risky and financially constrained. We discuss the implications of this finding for supply chain management and public policy destined to foster RSI.

CEO Reputation and Corporate Voting (with Alberta Di Giuli and Arthur Petit-Romec) – Journal of Corporate Finance, Volume 83, 2023
This paper examines the influence of CEO reputation on corporate proxy voting. Relying on prestigious business awards (through which the CEO is elevated to superstar status) as salient shocks to CEO reputation, we find that shareholders in aggregate, and mutual funds in particular, are more likely to vote with management (i.e., against shareholder proposals) when the CEO is a superstar. We use a battery of matching procedures to mitigate the concern that these results are driven by selection. We further show that shareholder proposals, especially contested ones and those with positive ISS recommendations, are significantly more likely to fail when the CEO is a superstar. Our results suggest that investors are sensitive to the external appraisal conveyed by the superstar status and prefer not to oppose management.

How Do Large Firms Manage Their Banking Pools?  (with Michael Troege) – Finance, Volume 44, 2023
This paper explores detailed questionnaire data about how large European firms manage their banking pools. We show that bank-firm relationships are differentiated in at least two dimensions: vertically in form of a hierarchy within the banking pool, and horizontally with banks specializing on certain services. We then analyze why companies terminate and initiate new relationships and why they promote or demote banks within the pool. We show that non-price aspects are more important than pricing, and that price competition is asymmetric: Banks with high interest rates are more likely to be dropped from the pool, but new banks do not appear to be chosen because of highly attractive pricing. Finally, we show that cross-selling of certain services such as cash management or debt capital market related services increases the stickiness of bank-firm relationships.

Customer Risk and The Choice Between Cash and Bank Credit Lines  – European Journal of Finance, Volume 28, 2022
I use a matched buyer-supplier sample of U.S. industrial firms to investigate the impact of customer risk on suppliers’ choice between cash and credit lines. I show that customer risk decreases the reliance on bank-managed liquidity insurance relative to cash. I also find evidence indicating that firms actively shy away from credit lines in response to customer risk in order to maximize the future availability of their liquidity reserves. Consistently, my findings suggest that high-customer-risk firms are particularly more likely to be subject to (stricter) borrowing base provisions, which tie the value of a credit line to that of eligible collateral (notably accounts receivable). I also find that steeper credit line spreads alone cannot explain firms’ response to customer risk. These results highlight how customer-supplier relationships affect the precautionary demand for liquidity, and significantly shape corporate financial decisions.

When cutting dividends is not bad news: The case of optional stock dividends (with Edith Ginglinger) – Journal of Corporate Finance, Volume 40, 2016
We provide evidence on optional stock dividends, a mechanism that allows shareholders to choose between stock dividends and cash dividends. We find that, in contrast to dividend cuts, shareholders do not view this option as bad news. They overwhelmingly approve it at general meetings, with the majority favoring stock dividends over cash dividends. We find that large firms with limited cash holdings and a large institutional ownership are more likely to offer optional stock dividends to their shareholders. These firms are the most committed to paying dividends, and this option provides them financial flexibility by allowing temporary cuts in cash outflows without altering their nominal dividend policy.

Working Papers

Debt and Wages: The Role of Labor Regulation, with Christophe Moussu (latest version : February 2023 – available here)
In this paper, we investigate how labor regulation interacts with financial leverage to explain the level of compensation firms pay to their employees. Firm leverage increases the risk of displacement of employees and the bargaining power of shareholders, implying opposite effects on the level of pay. Employment protection laws, however, decrease the risk of dismissal of employees and increase their bargaining power, thus moderating any effect of leverage on employees’ compensation. Testing this hypothesis on a large sample of OECD firms over the 1990-2018 period, we document that the correlation between leverage and employee pay is consistently lower in countries with tighter labor laws. Notably, our results hold in a stacked difference-in-difference (stacked DiD) setting exploiting major labor market reforms worldwide. Additional tests show that our results are consistent with both the risk premium and bargaining channels, and cannot be explained by financially constrained firms cutting their labor costs. Overall, we show that labor market regulation at the country-level strongly influences the relationship between financing choices and labor earnings at the firm-level.

Selected Work-In-Progress

Trust and the propagation of shocks along the supply chain, with Jose Martin-Flores

Is Marriage the key to happiness? The effect of long-term customer-supplier relationships on supplier firms