Working Papers

• Investment and Financing under Reverse Asset Substitution (Job Market Paper, To be presented at AFA Annual Meetings 2010 and presented at FMA Annual Meetings 2009) (Web Appendix)
  I show that banks place investment and borrowing restrictions on firms that are in lending relationships so that the banks can continue extracting surplus from the firms over multiple periods. This agency problem is more pronounced for firms that have larger information asymmetries with the credit market. I use the term Reverse Asset Substitution (RAS) to express this partial transfer of control that benefits debt holders at the expense of equity holders when firm is not in danger of bankruptcy. Equity holders take this agency problem along with potential bankruptcy costs of debt into account when choosing firm leverage. I find that firms enjoying perfect competition in credit supply invest 2% more in PP&E than firms facing a monopoly in credit supply by banks. RAS reduces firm growth (11% lower PP&E) and leverage (24% lower). Also, RAS reduces firm value by 23% compared to the case where bankruptcy cost is the only concern in choosing the amount of bank loan.
  

 

• The Hand of ARMs (and Others) in the Subprime Crisis (Draft available upon request, with Haluk Unal)
  We investigate the role of financial innovation, specifically, the introduction of new types of mortgage contracts, such as hybrid ARMS in the present crisis. We explore policy measures regarding specific mortgage contract types that can help avoid such a situation in the future. We find that the real values of new houses purchased are actually lower when Adjustable Rate Mortgages or Interest Only loans were used to finance the purchase. As the housing boom progressed, consumers and lenders exercised caution and contracted to buy houses that had lesser value in real terms, for all types of mortgage contracts. Using a house worth $200,000 in year 2000 as benchmark, we estimate that houses purchased in 2007 were in expectation 38% lesser in value by year 2000 prices. If all mortgage contracts were Fixed Rate mortgages, we estimate that the cumulative percentage of defaults would stand at 29% compared to 33% as observed in our sample.
  
• Heterogeneity in Corporate Governance: Theory and Evidence (Presented at FMA Annual Meetings 2009)
  Optimal contracts under information asymmetry require an amount of ownership that management needs to have for incentive compatibility, that is often not practical for large firms. I argue that corporate governance mechanisms help achieve second best control for the investor under such conditions. I propose that the amount of management autonomy in a firm is chosen as a best response to exogenous firm characteristics, such as output variance. Shareholders face a trade-off regarding autonomy as higher autonomy increases firm productivity but also leads to increased private benefits. Shareholders in firms with higher exogenous variance attempt to reduce the information disadvantage they face by reducing autonomy of management. Thus, in practice, I observe a range of governance control that is negatively correlated to the variance of firm output. In addition, I find that over time, this information gap has decreased in US capital markets, and since Sarbanes-Oxley the information asymmetry does not play a role in the choice of corporate governance mechanisms.
  
• Effort, Risk and Walkaway under High Water Mark Style Contracts (With Sugata Ray)
  We study a hedge fund style contract in which management fees, incentive fees and a high water mark provision drive a fund manager's effort and risk choices as well as walkaway decisions by both the fund manager and the investor. We model this relationship and calibrate the model to observed data. Using the calibrated model, we consider welfare implications of changes to the standard 2/20 contract. Welfare results highlight the critical role higher management fees play in such contracts in terms of improving the manager's risk taking and effort expenditure decisions. In particular, a higher management fee and lower incentive fee (e.g. a 2.5/10 contract) leads to Pareto improvement in the calibrated model.
  
• Quis Custodiet Ipsos Custodes? (With Marcel Tyrell)
  Trading firms, whom we entrust the job of providing liquidity, may exacerbate liquidity shocks to the economy and furthermore, reduce efficacy of liquidity injections by the state. Unlike traditional banks, trading firms observe their losses privately and have incentives to avoid revealing losses due to the fear of a bank run by investors and counter-parties. Hence, even if central banks stand ready to guarantee liquidity, due to the pooling behavior of trading firms, liquidity allocation will be inefficient. This prolongs the liquidity crisis, as firms in red use injected liquidity to stave off bank runs, while other firms may use new liquidity to take predatory positions. The moral hazard problem is also exacerbated as firms taking excessive risk are provided cheap money. Hence, we suggest a different approach in this paper: to avoid the pooling equilibrium between firms in black and in red, a separating equilibrium is encouraged where all the liquidity is provided to firms with stronger balance sheets, allowing them to absorb the assets of the firms facing losses. As the firms with better books compete against each other with new found liquidity, and the firms in red exit, the liquidity in capital markets also improves quickly.
  

Publications and Thesis Work in Computer Science

• "Clock Synchronization for Wireless Networks". OPODIS 2004: 8th International Conference on Principles of Distributed Systems, France, December 2004, with Rui Fan and Nancy Lynch.
• Inventor of US Patent U6807159 "Data Scheduling Methodology for Optimizing Power July Consumption with Bounded Packet Delay in Short-Range Master Driven Time Division Duplex (TDD) Wireless Networks", with Abhishek Kashyap, Apurva Kumar, Anupam Rastogi, Huzur Saran and Rajeev Shorey. Other patents are European Patent EP1202495, Japanese Patent JP3721115, German Patent DE60110184, Chinese patent CN1319298 and Austrian Patent AT293859. Patent Assignee is International Business Machines (IBM) Corporation, Armonk, NY.
• "QOS Assurance with Colocated Wireless Access Points". Master’s thesis, Massachusetts Institute of Technology, May 2003
• "Dynamic Self-Configuration of Collocated Wireless Networks". ACM SIGCOMM 2003, Germany, with Steven Bauer and John Wroclawski..
• "The Personal Router." ACM SIGMOBILE Mobile Computing and Communications Review, Volume 7, Issue 1, January 2003, with Advanced Network Architecture Group.
• “Rolling Element Bearing Design through Genetic Algorithms”, International Journal of Engineering Optimization. 2003, 35(6), 649-659, with Vinay Kumar, Shivashankar Nair and Rajiv Tiwari.
• "Adaptive Routing for Ad hoc Wireless Networks Providing QoS Guarantees", in Proc. IEEE Intl. Conf. on Personal Wireless Comm., 2002, India, with Gautam Barua..
• "ACRPN: A New Routing Protocol for Wireless Ad Hoc Networks". Bachelor’s thesis, Indian Institute of Technology, Guwahati, May 2003.
• "Methodology for Optimizing Power Consumption and End to End Packet Delay over the Bluetooth Ad-hoc Network" in Proc. IEEE Intl. Conf. On Comm., 2001, Finland, with Abhishek Kashyap, Apurva Kumar, Anupam Rastogi, Huzur Saran and Rajeev Shorey"
• "A Scheduling Scheme to Increase Throughput in Indoor Pico-Cellular Wireless System", in Proc IEEE Intl. Conf. on Personal Wireless Comm., 2000, India, with Abhishek Kashyap, Apurva Kumar, Anupam Rastogi, Huzur Saran and Rajeev Shorey.
• "An Authenticated Key Exchange Scheme", in McGraw Hill Proc. Intl. Conf. on IT, 2000, India, with Sukumar Nandi.