Working Papers

How Do Financial Constraints Affect Product Pricing?

Evidence from Weather and Life Insurance Premiums

(Revise & Resubmit at Journal of Finance) (SSRN)


I identify the effects of financial constraints on firms’ product pricing decisions, using insurance groups containing both life and property & casualty (P&C) divisions. Following P&C divisions’ losses, life divisions change prices in a manner that can generate more immediate financial resources: premiums fall (rise) for life policies that immediately increase (decrease) insurers’ financial resources. Premiums change more in groups that are more constrained. Life divisions increase transfers to P&C divisions, suggesting P&C divisions’ shocks are transmitted to life divisions. Results hold when instrumenting for P&C divisions' losses with exposure to unusual weather damages, implying that the effects are causal.

The Role of Financial Conditions in Portfolio Choices: 

The Case of Insurers 

(with Michael Weisbach)

(Revise & Resubmit at Journal of Financial Economics) (SSRN)


Many institutional investors depend on the returns they generate to fund their operations and liabilities. How do these investors’ financial conditions affect the management of their portfolios? We address this issue using the insurance industry because insurers are large investors for which detailed portfolio data are available, and can face financial shocks from exogenous weather events that can help us establish causality. Results suggest that more constrained insurers have smaller portfolio weights on riskier and illiquid assets, and have lower realized returns. Among corporate bonds, for which we can control for regulatory treatment, results suggest that more constrained insurers have smaller portfolio weights on riskier corporate bonds. Following operating losses, P&C insurers decrease allocations to riskier corporate bonds. The effect of losses on allocations is likely to be causal since it holds when instrumenting for P&C losses with weather shocks. The change in allocations following losses is larger for more constrained insurers and during the financial crisis, suggesting that the shift toward safer securities is driven by concerns about financial flexibility. The results highlight the importance of financial flexibility to fund operations in institutional investors’ portfolio decisions.

Conflicting Interests and the Effect of Fiduciary Duty

—Evidence from Variable Annuities

(with Mark Egan and Johnny Tang) (SSRN)

cited by the US Senate, featured in NYT, ThinkAdvisor


We examine the drivers of variable annuity sales and the impact of a proposed regulatory change. Variable annuities are popular retirement products with over $2 trillion in assets in the United States. Insurers typically pay brokers a commission for selling variable annuities that ranges from 0% to over 10% of investors' premium payments. Brokers earn higher commissions for selling inferior annuities, in terms of higher expenses and more ex-post complaints. Our results indicate that variable annuity sales are roughly six times more sensitive to brokers' financial interests than investors'. To help limit conflicts of interest, the Department of Labor proposed a rule in 2016 that would hold brokers to a fiduciary standard when dealing with retirement accounts. We find that after the proposed fiduciary rule, the sales of high-expense variable annuities fell by 52% as sales became more sensitive to expenses and insurers increased the relative availability of low-expense products. Based on our structural model estimates, investor welfare improved as a result of the fiduciary rule under conservative assumptions.

Debt Maturity and the Threat of Human Capital Departure

—Evidence from CEOs near Retirement Age



Employees are free to leave a firm. The threat of human capital departure should affect firms' financing as Hart and Moore (1994) argue. However, little empirical evidence exists. To study how the threat of losing human capital affects firms’ financing, I examine how loans change as CEOs approach retirement age. I find that loan maturities shorten substantially when CEOs are near mandatory or customary retirement age, as well as near their instrumented or actual retirement. Among loans within the same firm-year, maturities decline by more if lenders are overall more averse to new CEOs, or if lenders perceive a larger increase in uncertainty about CEOs. Comparing loans within the same firm-year controls for unobservables on the firm side and suggests that lenders drive the shortening of loan maturities. Moreover, if the CFO is also departing, loan maturities decline by more. If the retired CEO stays in another role, loan maturities do not decrease. Overall, results suggest that loan maturities shorten because lenders change the menu of loan contracts in response to the threat of firms losing key human capital.