Ongoing Research

Ongoing research agendas include the following featured projects in progress:

Professor Peter Iliev’s research agenda focuses on the economic impacts of climate change on the local economy, with studies that look at both the opportunities from renewable energy and the challenges in achieving net zero emissions. Evidence suggests that renewable energy resources, such as wind turbines, contribute to lower local bond yields and higher credit ratings, particularly in recent years. These resources also enhance the liquidity of local bonds and increase issuance amounts, demonstrating their value to local economies during the energy transition. However, mandates to consume renewable energy under Renewable Portfolio Standards (RPS) can lead to increased bond yields and decreased credit ratings, especially in regions with high electricity prices, thereby raising funding costs for state and local governments. In contrast, Clean Energy Standards (CES), which incorporate a broader range of energy sources, tend to have more favorable economic outcomes, mitigating the financial burden on taxpayers. These findings underscore the complex interplay between renewable energy policies and municipal finance, highlighting both the benefits and costs associated with the transition to clean energy. Interested readers can find related working papers, coauthored with Professor Jess Cornaggia, here: "The State and Local Cost of Net Zero" and "Renewable Energy Resources and the Local Economy: Evidence from Municipal Bonds".

Professor David Haushalter is working on projects related to securities markets including the working paper "Non-Passive Securities Lending by Passive Investors" coauthored with Apoorv Gogar and Kevin Pisciotta (former Smeal Ph.D. students). This team studies passive funds’ conflicts of interest by examining their securities lending activities. They find that passive funds’ lending varies with the costs of lending for their families. Passive funds are less likely to lend a security if (i) their families have a business relationship with the security’s issuer or (ii) active funds in their families have a sizable stake in the security. These costs seem particularly important among fund families with high incentives to lend and have aggregate effects on the securities lending market. The findings indicate that passive funds trade-off maximizing investor returns with maximizing fund family values.

Professor Jay Huang is working on projects related to credit markets including the working paper "Creditor Coalitions in Bankruptcy" coauthored with Stefan Lewellen and Zhe Wang. One reason Chapter 11 bankruptcy can be complex and costly is the coordination problem –multiple classes of dispersed creditors bargain with the debtor and with each other over shares of a relatively fixed pie.  However, despite the central role of coordination issues in bankruptcy, little is currently known about the frequency, determinants, or efficacy of creditor coordination within U.S. Chapter 11 cases. The paper focuses on the formation and behavior of so-called “ad hoc” creditor committees, which are increasingly appealing to and dominated by hedge funds. The paper delves into how factors like creditor type and case specifics influence coalition formation, revealing that such alliances can significantly affect recovery outcomes. Importantly, it highlights the societal impact by demonstrating that while coalitions might strive for improved creditors’ recovery rates, weaker creditor protections can lead to more group formations but less efficient outcomes. Overall, the paper provides suggestive evidence that ad hoc creditor coalitions play an important yet previously undocumented role in U.S. Chapter 11 bankruptcy proceedings.

Professor Tim Simin is working on projects related to hedge funds and mutual funds including the working paper "From Conference Room to Living Room: The Hidden Costs of Remote Work on Mutual Fund Performance" co-authored by Charles Cao and Han Xiao (former Smeal Ph.D. student). This team uses staggered U.S. state-level stay-at-home COVID-19 pandemic orders to study the effect of remote work on actively managed mutual fund performance. Implementation of working-from-home mandates reduced mutual fund returns by 90 basis points per day, corresponding to a daily $6 million economic loss per fund relative to investing in the market portfolio. Remote work decreased measures of managerial skill, especially for funds not within a family and non-team managed funds. Working from home during the COVID-19 pandemic impaired mutual fund performance by increasing frictions, hindering idea sharing and information flows.