● Manager Attention and Leverage Dynamics (Job Market Paper, update on Nov. 6, 2021):
I examine the relation between firm-level financial decisions and the focuses of executive managers of the company, by creating and analyzing two novel indices of executive attention, as reveled through the language used in quarterly earnings call transcripts. Corporations are critically sensitive to both the macroeconomic environment and firm-specific challenges, and executives must correspondingly choose to allocate finite time and attention between these topics. By using natural language processing, I create a new method to consistently assess the information content of this dialog quantitatively. The attention capacity and attention allocation measurements are time-varying and associated with firm characteristics (size, profitability, tangibility and market to book ratio), as well as macroeconomics (economic growth and uncertainty). I further document that managerial attention towards macroeconomics have both substitution and complementary effects in financial decision making. By being attentive to macroeconomics, managers increase attention capacity, which improves precision of estimated optimal financial structure. However, paying attention to macroeconomics can crowd out the attention allocated to firm-specific issues, resulting in a lower estimation precision. Empirically, the complementary effect increases the firm's leverage ratio, while the substitution effect lowers that. Theoretically, I allow a representative manager to have endogenous information choices when optimizing firm's financial structure. Using an optimal static capital structure model with a contingent claim setup, I show that the model reproduces the key phenomenology.
Expectation Formation Following Pandemic Events (with Zidong An and Yuzheng Wu)