The Brattle Group Prizes for best papers in Corporate Finance for 2017, judged to be exceptional by the associate editors of The Journal of Finance, were awarded at the 2017 American Finance Association’s Annual Meeting in Philadelphia, PA on January 5-7, 2018.
The prizes, handed out annually, are funded through a grant from The Brattle Group and awarded at the AFA’s annual meeting by a Brattle representative. The winners of the first prize receive $25,000 and distinguished papers each receive $10,000. All papers published in the prior year’s issues of The Journal of Finance are eligible for the prizes. The Brattle Group congratulates the winners for their achievement.
First Prize Paper: Emily Breza and Andres Liberman
“Financial Contracting and Organizational Form: Evidence from the Regulation of Trade Credit,” The Journal of Finance, February 2017.
We present evidence that restrictions to the set of feasible financial contracts affect buyer-supplier relationships and the organizational form of the firm. We exploit a regulation that restricted the maturity of the trade credit contracts that a large retailer could sign with some of its small suppliers. Using a within-product difference-in-differences identification strategy, we find that the restriction reduces the likelihood of trade by 11%. The retailer also responds by internalizing procurement to its own subsidiaries and reducing overall purchases. Finally, we find that relational contracts can mitigate the inability to extend long trade credit terms.
Distinguished Paper: Brian T. Melzer
“Mortgage Debt Overhang: Reduced Investment by Homeowners at Risk of Default,” The Journal of Finance, April 2017.
Homeowners at risk of default face a debt overhang that reduces their incentive to invest in their property: in expectation, some value created by investments in the property will go to the lender. This agency conflict affects housing investments. Homeowners at risk of default cut back substantially on home improvements and mortgage principal payments, even when they appear financially unconstrained. Meanwhile, they do not reduce spending on assets that they may retain in default, including home appliances, furniture, and vehicles. These findings highlight an important financial friction that has stifled housing investment since the Great Recession.
Distinguished Paper: Martin C. Schmalz, David A. Sraer, and David Thesmar
“Housing Collateral and Entrepreneurship,” The Journal of Finance, February 2017
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.
For a complete list of past winners, please visit The Journal of Finance Brattle Prize page.
For more information on the American Finance Association, please visit their website.