Baridhi Malakar

Tuesday, April 18th, from 3:30 pm to 5:00 pm EST in Room 314, Scheller College of Business.

You are also welcome to join remotely via Zoom: https://gatech.zoom.us/j/95281884512 .

Area: Finance

Committee Members: Dr. Sudheer Chava (Chair), Dr. Manpreet Singh, Dr. Manasa Gopal, Dr. Alexander Oettl, Dr. Rohan Ganduri (Emory University)

Title: Essays on Responsible and Sustainable Finance

Dissertation Overview:

Essay 1: Fiduciary Duty in the Municipal Bonds Market

I examine whether the imposition of fiduciary duty on municipal advisors affects bond yields and advising fees. Using a difference-in-differences analysis, I show that bond yields reduce by 9% after the imposition of the SEC Municipal Advisor Rule. Larger municipalities are more likely to recruit advisors after the rule is effective and experience a greater reduction in yields. However, smaller issuers do not seem to significantly benefit from the SEC Rule in terms of offering yield. Instead, their borrowing cost increases if their primary advisor exits the market. Using novel hand-collected data, I find that the average advising fees paid by issuers does not increase after the regulation. Offering yields reduce due to lower markup at the time of underwriting, driven by issuers for whom advisors play a more significant ex-ante role in selecting underwriters. Overall, my results suggest that while fiduciary duty may mitigate the principal-agent problem between some issuers and advisors, it has a limited effect on small issuers.

Essay 2: Impact  of Corporate Subsidies on Borrowing Costs of Local Governments: Evidence From Municipal Bonds

We analyze the impact of \$40 billion of corporate subsidies given by U.S. local governments on their borrowing costs. We find that winning counties experience a 15.2 bps increase in bond yield spread as compared to the losing counties. The increase in yields is higher (18 -- 26 bps) when the subsidy deal is associated with a lower jobs multiplier or when the winning county has a lower debt capacity. However, a high jobs multiplier does not seem to alleviate the debt capacity constraints of local governments. Our results highlight the potential costs of corporate subsidies for local governments.

Essay 3: Communities as Stakeholders: Impact of Corporate Bankruptcies on Local Governments

We provide new evidence that the bankruptcy filing of a locally-headquartered and publicly-listed manufacturing firm imposes externalities on the local governments. Compared to matched counties with similar economic trends, municipal bond yields for affected counties increase by 10 bps within a year of the firm’s bankruptcy filing. Counties that are more economically dependent on the industry of the bankrupt firm are more affected and do not immediately recover from the negative impact of the corporate bankruptcy. Our results highlight that local communities are major stakeholders in public firms and how they are adversely affected by corporate financial distress.

Essay 4: Do Managers Walk the Talk on Environmental and Social Issues?

We train a deep-learning model on various corporate sustainability frameworks to construct a comprehensive Environmental and Social (E&S) dictionary. Using this dictionary, we find that the discussion of environmental topics in the earnings conference calls of U.S. public firms is associated with higher pollution abatement and more future green patents. Similarly, the discussion of social topics is positively associated with improved employee ratings. The association with E&S performance is weaker for firms that give more non-answers and when the topic is immaterial to the industry. Overall, our results provide some evidence that firms do walk their talk on E&S issues.