Publications

The Effects of Mandatory Profit-Sharing on Workers and Firms: Evidence from France
with Elio Nimier-David and David Thesmar.
Quarterly Journal of Economics (2026), 141(3): 2205–2267
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Abstract

Since 1967, all French firms with more than 100 employees have been required to share a fraction of their excess profits with their employees. Through this scheme, firms with excess profits distribute, on average, 10.5% of their pretax income to workers. In 1990, the eligibility threshold was reduced to 50 employees. We exploit this regulatory change to identify the effects of mandated profit-sharing on firms and their employees. The cost of mandated profit-sharing for firms is evident in the significant bunching at the 100-employee threshold observed prior to the reform, which completely disappears post-reform. Using a difference-in-differences strategy, we find that at the firm level, mandated profit-sharing (i) increases the labor share by 1.8 percentage points, (ii) reduces the profit share by 1.4 percentage points, and (iii) has small to nonexistent effects on investment and productivity. At the employee level, mandated profit-sharing increases lower-skilled workers’ total compensation and leaves high-skilled workers’ total compensation unchanged. Overall, mandated profit-sharing redistributes excess profits to lower-skilled workers in the firm without generating significant distortions or productivity effects.
Financial Advisors and Investors’ Bias
with Marianne Andries and Maxime Bonelli.
Review of Financial Studies (2025)
SSRN Published Version

Abstract

We study an intervention by a brokerage firm providing advisory services to high-net-worth investors. In 2018, the firm changed the information displayed on its internal platform, so that financial advisors could no longer observe which clients’ holdings were in paper gain or loss. Using data on portfolio stock transactions between 2016 and 2021, we show that, while all investors exhibit a significant disposition effect before 2018, that is, a greater propensity to realize gains than losses, highly advised investors see their bias significantly reduced afterward. Our paper shows financial firms can successfully reduce clients’ biases by appropriately manipulating advisors’ information.
How to Use Microdata for Macro-Finance
with David Thesmar.
Annual Review of Financial Economics (2023), 15: 387-406.
SSRN Published Version

Abstract

Financial frictions generate misallocation of resources across firms by restricting productive firms’ access to capital. This article reviews the literature that estimates the aggregate losses generated by such misallocation. The first approach relies on structural estimations: A model of firm dynamics with financial frictions is typically estimated and used to compare efficiency in the actual economy with a counterfactual with perfect financial markets. We argue that robustness is a central concern for this structural literature and discuss ways to analyze robustness in structural estimation (using well-identified moments and analyzing sensitivity to moments). The second approach relies on sufficient statistics, namely formulas that measure misallocation using simple empirical statistics and that are valid for a class of models. We discuss key contributions in that space, the generality of this approach, and the conditions under which it is valid. Sufficient statistic approaches are simpler and more robust, but they come at a cost: The range of counterfactual analyses that can be explored is more limited.
How to Use Natural Experiments to Measure Misallocation
with David Thesmar.
American Economic Review (2023), 113(4): 906–38
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Abstract

We propose a method to estimate the effect of firm policies (e.g., bankruptcy laws) on allocative efficiency using (quasi-)experimental evidence. Our approach takes general equilibrium effects into account and requires neither a structural estimation nor a precise assumption on how the experiment affects firms. Our aggregation formula relies on treatment effects of the policy on the distribution of output-to-capital ratios, which are easily estimated. We show this method is valid for a large class of commonly used models in macrofinance. We apply it to the French banking deregulation episode of the mid-1980s and find an increase in aggregate TFP of 5 percent.
Quantifying Reduced-Form Evidence on Collateral Constraints
with Sylvain Catherine, Thomas Chaney, Zongbo Huang and David Thesmar.
Journal of Finance (2022), 77(4): 2143-2181
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Abstract

This paper quantifies the aggregate effects of financing constraints. We start from a standard dynamic investment model with collateral constraints. In contrast to the existing quantitative literature, our estimation does not target the mean leverage ratio to identify the scope of financing frictions. Instead, we use a reduced-form coefficient from the recent corporate finance literature that connects exogenous debt capacity shocks to corporate investment. Relative to a frictionless benchmark, collateral constraints induce losses of 7.1% for output and 1.4% for total factor productivity (TFP) (misallocation). We show these estimated losses tend to be more robust to misspecification than estimates obtained by targeting leverage.
Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy
with Matthieu Gomez, Augustin Landier, and David Thesmar.
Journal of Monetary Economics (2021), 117: 543-570
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Abstract

The cash-flow exposure of banks to interest rate risk, or income gap, is a significant determinant of the transmission of monetary policy to bank lending and real activity. When the Fed Funds rate rises, banks with a larger income gap generate stronger earnings and contract their lending by less than other banks. This finding is robust to controlling for factors known to affect the transmission of monetary policy to bank lending. It also holds on loan-level data, even when we control for firm-specific credit demand. When monetary policy tightens, firms borrowing from banks with a larger income gap reduce their investment by less than other firms.
The Banking View of Bond Risk Premia
with Valentin Haddad.
Journal of Finance (2020), 75(5): 2465-2502
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Abstract

Banks’ balance sheet exposure to fluctuations in interest rates strongly forecasts excess Treasury bond returns. This result is consistent with optimal risk management, a banking counterpart to the household Euler equation. In equilibrium, the bond risk premium compensates banks for bearing fluctuations in interest rates. When banks’ exposure to interest rate risk increases, the price of this risk simultaneously rises. We present a collection of empirical observations that support this view, but also discuss several challenges to this interpretation.
Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France
with Johan Hombert, Antoinette Schoar and David Thesmar.
Journal of Finance (2020), 75(3): 1247-1285
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Abstract

We evaluate the effect of downside insurance on self-employment. We exploit a large-scale reform of French unemployment benefits that insured unemployed workers starting businesses. The reform significantly increased firm creation without decreasing the quality of new entrants. Firms started postreform were initially smaller, but their employment growth, productivity, and survival rates are similar to those prereform. New entrepreneurs’ characteristics and expectations are also similar. Finally, jobs created by new entrants crowd out employment in incumbent firms almost one-for-one, but have a higher productivity than incumbents. These results highlight the benefits of encouraging experimentation by lowering barriers to entry.
Banking Integration and House Price Comovement
with Augustin Landier and David Thesmar.
Journal of Financial Economics (2017), 125(1): 1-25
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Abstract

The correlation across US states in house price growth increased steadily between 1976 and 2000. This paper shows that the contemporaneous geographic integration of the US banking market, via the emergence of large banks, was a primary driver of this phenomenon. To this end, we first theoretically derive an appropriate measure of banking integration across state pairs and document that house price growth correlation is strongly related to this measure of financial integration. Our IV estimates suggest that banking integration can explain up to one fourth of the rise in house price correlation over this period.
Inflation Bets on the Long Bond
with Harrison Hong and Jialin Yu.
Review of Financial Studies (2017), 30(3): 900–947
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Abstract

The liquidity premium theory of interest rates predicts that the Treasury yield curve steepens with inflation uncertainty as investors demand larger risk premiums to hold long-term bonds. By using the dispersion of inflation forecasts to measure this uncertainty, we find the opposite. Since the prices of long-term bonds move more with inflation than short-term ones, investors also disagree and speculate more about long-maturity payoffs with greater uncertainty. Shorting frictions, measured by using Treasury lending fees, then lead long maturities to become overpriced and the yield curve to flatten. We estimate this inflation-betting effect using time variation in inflation disagreement and Treasury supply.
Housing Collateral and Entrepreneurship
with Martin Schmalz and David Thesmar.
Journal of Finance (2017), 72(1): 99-132
SSRN Published Version

Abstract

We show that collateral constraints restrict firm entry and postentry growth, using French administrative data and cross-sectional variation in local house-price appreciation as shocks to collateral values. We control for local demand shocks by comparing treated homeowners to controls in the same region that do not experience collateral shocks: renters and homeowners with an outstanding mortgage, who (in France) cannot take out a second mortgage. In both comparisons, an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, treated entrepreneurs use more debt, start larger firms, and remain larger in the long run.
Speculative Betas
with Harrison Hong.
Journal of Finance (2016), 71(5): 2095-2144
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Abstract

The risk and return trade-off, the cornerstone of modern asset pricing theory, is often of the wrong sign. Our explanation is that high-beta assets are prone to speculative overpricing. When investors disagree about the stock market’s prospects, high-beta assets are more sensitive to this aggregate disagreement, experience greater divergence of opinion about their payoffs, and are overpriced due to short-sales constraints. When aggregate disagreement is low, the Security Market Line is upward-sloping due to risk-sharing. When it is high, expected returns can actually decrease with beta. We confirm our theory using a measure of disagreement about stock market earnings.
Are Retail Traders compensated for Liquidity Provision?
with Jean-Noel Barrot and Ron Kaniel.
Journal of Financial Economics (2016), 120(1): 146-168
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Abstract

This paper examines the extent to which individual investors provide liquidity to the stock market, and whether they are compensated for doing so. We show that the ability of aggregate retail order imbalances, contrarian in nature, to predict short-term future returns is significantly enhanced during times of market stress, when market liquidity provisions decline. While a weekly rebalanced portfolio long in stocks purchased and short in stocks sold by retail investors delivers 19% annualized excess returns over a four factor model from 2002 to 2010, it delivers up to 40% annualized returns in periods of high uncertainty. Despite this high aggregate performance, individual investors do not reap the rewards from liquidity provision because (i) they experience a negative return on the day of their trade, and (ii) they reverse their trades long after the excess returns from liquidity provision are dissipated. During the financial crisis, French active retail stock traders stepped up to the plate, increased stock holdings, and provided liquidity. In contrast, mutual fund investors fled from delegation by selling their mutual funds.
Quiet Bubbles
with Harrison G. Hong.
Journal of Financial Economics (2013), 110(3): 596-606.
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Abstract

Classic speculative bubbles are loud: price is high and so are price volatility and share turnover. The credit bubble of 2003-2007 is quiet: price is high but price volatility and share turnover are low. We develop a model, based on investor disagreement and short-sales constraints, that explains why credit bubbles are quieter than equity ones. Since debt up-side payoffs are bounded, debt is less sensitive to disagreement about asset value than equity and hence has a smaller resale option and lower price volatility and turnover. While optimism makes both debt and equity bubbles larger, it makes debt mispricings quiet but leaves the loudness of equity mispricings unchanged. Our theory suggests a taxonomy of bubbles.
Bottom-Up Corporate Governance
with Augustin Landier and David Thesmar.
Review of Finance (2013), 17(1): 161-201.
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Abstract

This article empirically relates the internal organization of a firm with decision making quality and corporate performance. We call “independent from the CEO” a top executive who joined the firm before the current CEO was appointed. In a very robust way, firms with a smaller fraction of independent executives exhibit (1) a lower level of profitability and (2) lower shareholder returns following large acquisitions. These results are unaffected when we control for traditional governance measures such as board independence or other well-studied shareholder friendly provisions. One interpretation is that “independently minded” top ranking executives act as a counter-power imposing strong discipline on their CEO, even though they are formally under his authority.
The Collateral Channel: How Real Estate Shocks Affect Corporate Investment
with Thomas Chaney and David Thesmar.
American Economic Review (2012), 102(6): 2381-2409.
SSRN Published Version

Abstract

What is the impact of real estate prices on corporate investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate investment. To compute the sensitivity of investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993–2007 period, the representative US corporation invests $0.06 out of each $1 of collateral.
Growth LBOs
with Quentin Boucly and David Thesmar.
Journal of Financial Economics (2011), 102(2): 432-453.
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Abstract

Using a dataset of 839 French deals, we look at the change in corporate behavior following an LBO relative to an adequately chosen control group. In the three years following a leveraged buyout, targets become more profitable, grow much faster than their peer group, issue additional debt and increase capital expenditures. We then provide evidence consistent with the idea that in our sample, private equity funds create value by relaxing credit constraints, allowing LBO targets to take advantage of hitherto unexploited growth opportunities. First, post-buyout growth is concentrated among private-to-private transactions, i.e. deals where the seller is an individual, as opposed to divisional buyouts or public-to-private LBOs where the seller is a private or a public firm. Second, the observed post-buyout growth in size and post-buyout increase in debt and capital expenditures are stronger when the targets operate in an industry that is relatively more dependent on external finance. These results contrast with existing evidence that LBO targets invest less or downsize.
Individual Investors and Volatility
with Thierry Foucault and David Thesmar.
Journal of Finance (2011), 66(4): 1369-1406.
SSRN Published Version

Abstract

We show that retail trading activity has a positive effect on the volatility of stock returns, which suggests that retail investors behave as noise traders. To identify this effect, we use a reform of the French stock market that raises the relative cost of speculative trading for retail investors. The daily return volatility of the stocks affected by the reform falls by 20 basis points (a quarter of the sample standard deviation of the return volatility) relative to other stocks. For affected stocks, we also find a significant decrease in the magnitude of return reversals and the price impact of trades.
Optimal Dissent in Organizations
with Augustin Landier and David Thesmar.
Review of Economic Studies (2009), 76(2): 761-794.
SSRN Published Version

Abstract

We model an organization as a two-agent hierarchy: an informed Decision Maker in charge of selecting projects and a (possibly) uninformed Implementer in charge of their execution. Both have intrinsic preferences over projects. This paper models the costs and benefits of divergence between their preferences, that is, dissent within the organization. Dissent is useful to (1) foster the use of objective (and sometimes private) information in decision making and (2) give credibility to the Decision Maker’s choices. However, dissent comes at the cost of hurting the Implementer’s intrinsic motivation, thereby impairing organizational efficiency. We show that dissent can be optimal, in particular, when information is useful and uncertainty is high. Moreover, dissent remains an optimal organizational form even when Implementers can choose their employer or when Decision Makers have real authority over hiring decisions.
Performance and Behavior of Family Firms: Evidence from the French Stock Market
with David Thesmar.
Journal of the European Economic Association (2007), 5(4): 709-751.
SSRN Published Version

Abstract

This paper empirically documents the performance and behavior of family firms listed on the French stock exchange between 1994 and 2000. On the French stock market, approximately one third of the firms are widely held, whereas the remaining two thirds are family firms. We find that, in the cross-section, family firms largely outperform widely held corporations. This result holds for founder-controlled firms, professionally managed family firms, but more surprisingly also for firms run by descendants of the founder. We offer explanations for the good performance of family firms. First, we present evidence of a more efficient use of labor in heir-managed firms. These firms pay lower wages, even allowing for skill and age structure. We also find that descendants smooth out industry shocks and manage to honor implicit labor contracts. Second, we present evidence consistent with outside CEOs in family firms making a more parsimonious use of capital. They employ more unskilled, cheap labor, use less capital, pay lower interest rates on debt and initiate more profitable acquisitions.

Non-refereed Publications

Entrepreneurship and Credit Constraints: Evidence from a French Loan Guarantee Program
with Claire Lelarge and David Thesmar.
NBER volume on “International Differences in Entrepreneurship” edited by J. Lerner and A. Schoar, University of Chicago Press (2010)
PDF Published Version

Abstract

This paper uses a French loan guarantee program targeting new ventures to explore the link between credit constraints and entrepreneurship. Our empirical strategy exploits an exogenous regulatory shift in the mid 1990s which led to an increase in the overall size of the program and to the new eligibility of several industries. Using a detailed dataset with information on all French firms founded between 1988 and 1999, we provide a difference-in-differences type of estimation of the impact of the loan guarantee program on the creation and growth of start-up firms. At the industry level, the availability of loan guarantees has no impact on the overall number of firms created, but makes the average new venture larger, both in terms of assets and employment. At the firm level, the obtention of a loan guarantee helps newly created firms grow faster and pay a lower cost for their capital. However, it also significantly increases their probability of default, suggesting that risk shifting may be a serious drawback for such loan guarantee programs.
Financial Risk Management: When Does Independence Fail?
with Augustin Landier and David Thesmar.
American Economic Review Papers and Proceedings (2009)
PDF Published Version