I study the effect of state fiscal monitoring on municipal governance. I focus on governance outcomes related to financial reporting quality, local corruption, political entrenchment, and the financial soundness of municipalities. I exploit the staggered adoption of fiscal monitoring policies, which entail a regular review of municipal financial reporting for signs of fiscal distress. I find that the introduction of monitoring policies is associated with an increase in proxies for reporting quality, a decrease in corruption convictions, and a reduced likelihood of reelection of incumbent politicians. Consistent with the intended purpose of state monitoring, I find evidence consistent with the financial health of municipalities improving following the initiation of state monitoring, as measured with financial statement-based ratios. Collectively, my results are consistent with state fiscal monitoring improving several important aspects of municipal governance.
Networks of Large Passive Investors and Activism
I study which institutional investors are more likely to support activists when the company is targeted. I predict that an investor is more likely to support an activist if their interests are sufficiently aligned. In practice, it is non-trivial to quantify interest alignment. To do this, I develop a novel approach that is based on network theory. I assume that a high number of co-investments implies the alignment of investment and governance preferences. Motivated by this assumption, I introduce two new measures of interest alignment. The first measure is based on the number of co-investments, and the second measure accounts for the relative importance of co-investments for investors. I find that these measures of interest alignment are predictive of the activist's success. Moreover, past positive interactions with the activist lead to the increase in the number of co-investments. This finding implies that stronger connections can result from either investors’ learning about the activist's judgments or the activist's discovery about other investors’ willingness to cooperate.
WORK IN PROGRESS
Causes and Consequences of Investor Activism around the World (preliminary results)
with Mark Maffett and Douglas Skinner
Local Elections and Municipal Debt Financing (empirical results and early write-up)
with Krisztina Orban