Work in progress.
With Brent Glover and Oliver Levine, work in progress
In 2014 alone, U.S. firms worth over half a trillion dollars announced their intention to expatriate to a foreign country -- a corporate inversion -- in order to reduce corporate income taxes. To discourage expatriation, U.S. law requires shareholders of inverting firms to realize a personal capital gains tax liability at the completion of the transaction. Thus, while reduced corporate taxes benefit all shareholders equally, a corporate inversion results in a personal tax cost that depends on the individual investor's tax basis and standing. We develop a model to value the net benefits of inversion and we show that the private returns to investors varies widely across individuals. We find that the benefits of inversion disproportionately accrue to the CEO, foreign shareholders, and short-term investors, while many long-term investors suffer a net loss.
Third year field paper
In this paper I develop a parsimonious dynamic model of firm external financing that includes two types of debt, direct and intermediated. My expansion of the static model of Holmstrom and Tirole (1997) makes the model more consistent with the data. First, firms optimally choose whether to use monitoring. Second, idiosyncratic shocks to firm project success lead to endogenous distribution of firms. Second, dynamic considerations introduce a precautionary motive into firms’ behavior that makes them act as if they were risk averse and not to invest all available funds into a single risky project.