Marco Pagano

Marco Pagano
University of Naples Federico II | UNINA · Department of Economics and Statistics

B.A., Cambridge University; Ph.D., MIT

About

221
Publications
64,348
Reads
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22,483
Citations
Citations since 2017
42 Research Items
6566 Citations
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201720182019202020212022202302004006008001,0001,200
201720182019202020212022202302004006008001,0001,200

Publications

Publications (221)
Article
Full-text available
We distill evidence about the effects of COVID-19 on companies. Stock price reactions to the shock differed greatly across firms, depending on their resilience to social distancing, financial flexibility, and corporate culture. The same characteristics affected the response of firms’ sales, employment, and asset growth. Despite the shock, firms exp...
Article
Full-text available
An arbitrageur with short investment horizon gains from accelerating price discovery by advertising his private information. However, advertising many assets may overload investors’ attention, reducing the number of informed traders per asset and slowing price discovery. So the arbitrageur optimally concentrates advertising on just a few assets, un...
Article
Full-text available
We employ a representative sample of 80,972 Italian firms to forecast the drop in profits and the equity shortfall triggered by the COVID-19 lockdown. A 3-month lockdown generates an aggregate yearly drop in profits of about 10% of GDP, and 17% of sample firms, which employ 8.8% of the sample’s employees, become financially distressed. Distress is...
Article
Full-text available
An amendment to this paper has been published and can be accessed via a link at the top of the paper.
Article
Full-text available
We forecast the drop in profits and the equity shortfall triggered by the COVID-19 lockdown, using a representative sample of 80,972 Italian firms. A 3-month lockdown entails an aggregate yearly drop in profits of about 10% of GDP and results in financial distress for 17% of the sample firms, employing 8.8% of the sample employees. Distress is more...
Article
In China, between 2006 and 2013, local public debt crowded out the investment of private firms by tightening their funding constraints while leaving state‐owned firms' investment unaffected. We establish this result using a purpose‐built data set for Chinese local public debt. Private firms invest less in cities with more public debt, with the redu...
Article
Full-text available
Governments are deciding on measures to help economies recover from the impacts of the COVID-19 pandemic, but, as in previous crises, a narrow focus on fighting the recession could have adverse effects on the environment and health. We suggest that health and sustainability should be at the heart of the economic response.
Preprint
Full-text available
This paper investigates whether security markets price the effect of social distancing on firms' operations. We document that firms that are more resilient to social distancing significantly outperformed those with lower resilience during the COVID-19 outbreak, even after controlling for the standard risk factors. Similar cross-sectional return dif...
Article
We establish that the labor market helps discipline asset managers via the impact of fund liquidations on their careers. Using hand-collected data on 1,948 professionals, we find that top managers working for funds liquidated after persistently poor relative performance suffer demotion coupled with a significant loss in imputed compensation. Scarri...
Article
Full-text available
We forecast the drop in profits and the equity shortfall triggered by the COVID-19 lockdown, using a representative sample of 80,972 Italian firms. A 3-month lockdown entails an aggregate yearly drop in profits of about 10% of GDP and results in financial distress for 17% of the sample firms, employing 8.8% of the sample employees. Distress is more...
Article
Corporate leverage responds differently to employees’ rights in bankruptcy depending on whether it is driven by strategic concerns in wage bargaining or by credit constraints. Using novel data on employees’ rights in bankruptcy, we estimate their impact on leverage, exploiting time-series, cross-country, and firm-level variation in the data. For fi...
Article
Using a firm-level international panel data set, we study if unemployment insurance offered by the government and by firms are substitutes. We exploit cross-country and time-series variation in public unemployment insurance as a shifter of workers’ demand for insurance within firms, and family versus nonfamily ownership as a shifter of firms’ suppl...
Chapter
During the Euro debt crisis, banks' holdings of domestic sovereign debt amplified the transmission of sovereign stress to bank lending and solvency risk in stressed countries. Yet, current proposals to reform European banking regulation of bank sovereign exposures meet with obstacles, some structural-namely, the scarcity and asymmetric provision of...
Book
This book is the product of a two-year research programme entitled Restarting European Long-Term Investment Finance (RELTIF), organized by Assonime and the Centre for Economic Policy Research (CEPR) in London. The programme brought together leading researchers from across the world to consider the causes of the persistently low level of investment...
Article
Full-text available
Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the determinants of banks' sovereign exposures and their effects on lending during and after the crisis. Public, bailed-out and poorly capitalized banks responded to sovereign stress by purchasing domestic public debt more than other banks, consistent with both the "...
Article
The euro crisis was fuelled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a euro area-wide safe asset without joint liability, would help to resolve these problems. We make three contributions. First, numerical simulations show that ESBies with a su...
Article
In both the subprime crisis and the eurozone crisis, regulators imposed bans on short sales mainly aimed at preventing stock price turbulence from destabilizing financial institutions. Contrary to the regulators’ intentions, financial institutions whose stocks were banned experienced greater increases in the probability of default and volatility th...
Article
We present a model in which firms compete for scarce managerial talent (“alpha”) and managers are risk averse. When managers cannot move across firms after being hired, employers learn about their talent, efficiently allocate them to projects, and provide insurance to low-quality managers. When, instead, managers can move across firms, firm-level c...
Article
We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks’ domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if...
Article
More transparent firms enjoy better access to finance, and also enable closer scrutiny by tax authorities and thus face a heavier tax burden, insofar as they are required to report the same data to tax authorities and investors (book-tax conformity). We study this trade-off in a model with distortionary taxes and finance rationing, and test its pre...
Article
Europe’s financial structure has become strongly bank-based–far more so than in other economies. We document that an increase in the size of the banking system relative to equity and private bond markets is associated with more systemic risk and lower economic growth, particularly during housing market crises. We argue that these two phenomena aris...
Chapter
The financial structure of an economy is the set of institutions that channel resources from its savers to its investors, allocate them across alternative uses, and enable investors to share risks and diversify their portfolios. These functions can be performed by capital markets or by financial intermediaries that match savers and borrowers indepe...
Article
The euro crisis was fuelled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a euro area-wide safe asset without joint liability, would help to resolve these problems. We make three contributions. First, numerical simulations show that ESBies with a su...
Article
We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks’ domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if...
Article
The euro crisis was fueled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a union-wide safe asset without joint liability, would help to resolve these problems. We make three contributions. First, numerical simulations show that ESBies would be at le...
Article
In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated wit...
Chapter
Full-text available
The 2007 to 2009 financial crisis resulted in the re-emergence of the debate on financial regulation and its relationships with other macroeconomic policies, particularly monetary policy. In Europe, the financial crisis was followed by the sovereign debt crisis, as the bail-out of the financial sector put strains on public finances in several count...
Article
Full-text available
Persistently low growth and investment are a source of deep concern in European economies. The causes are extensively discussed but the financial system is repeatedly cited as a potentially major contributory factor. Is this justified? Is there evidence to support it? This Green Paper is the first output from a project on Restarting European Long-T...
Article
We investigate the determinants of firms’ implicit insurance to employees, using a difference-in-difference approach: we rely on differences between family and non-family firms to identify the supply of insurance, and exploit variation in unemployment insurance across and within countries to gauge workers’ demand for insurance. Using a firm-level p...
Article
Full-text available
The EU banking system has reached a size where it is likely to give a negative contribution to economic growth and to increase risk taking, in the form of banks’ default risk and of likelihood of financial crises. Moreover, being heavily bank-dependent, the EU financial system is associated with a more volatile supply of credit and lower economic g...
Article
Since 2008, eurozone sovereign yields have diverged sharply, and so have the corresponding credit default swap (CDS) premia. At the same time, banks' sovereign debt portfolios have featured an increasing home bias. In this paper, we investigate the relationship between these two facts, and its rationale. First, we inquire to what extent the dynamic...
Article
We investigate the determinants of firms’ implicit employment and wage insurance to employees against industry-level and idiosyncratic shocks. We rely on differences between family and non-family firms to identify the supply of insurance, and between national public insurance programs to gauge workers’ demand for insurance. Using firm-level data fr...
Article
Speculators often advertise arbitrage opportunities in order to persuade other investors and thus accelerate the correction of mispricing. We show that in order to minimize the risk and the cost of arbitrage an investor who identifies several mispriced assets optimally advertises only one of them, and overweights it in his portfolio; a risk-neutral...
Article
Has economic research been helpful in dealing with the financial crises of the early 2000s? On the whole, the answer is negative, although there are bright spots. Economists have largely failed to predict both crises, largely because most of them were not analytically equipped to understand them, in spite of their recurrence in the last 25 years. I...
Chapter
Financial integration has made great steps forward in Europe in the last decade. Yet, if a single currency is a necessary condition for the emergence of pan-European capital markets, it is not a sufficient one. Even after the removal of exchange rate risk, persistent differences in the regulations applying to financial intermediaries, tax treatment...
Article
The way in which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. Market Liquidity offers a more accurate and authoritative take on liquidity and price discovery. The authors start from the assumption that not everyone is present at all times...
Article
We study a model where some investors (“hedgers”) are bad at information processing, while others (“speculators”) have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Mark...
Article
More transparent firms enjoy better access to finance, and also enable closer scrutiny by tax authorities and thus face a heavier tax burden, insofar as they are required to report the same data to tax authorities and investors (book-tax conformity). We study this trade-off in a model with distortionary taxes and finance rationing, and test its pre...
Article
How does finance affect employment and inter-industry job reallocation? We present a model that predicts that financial development (i) increases employment and/or labour productivity and wages, with a smaller impact at high levels of the equilibrium wage and financial development; (ii) may induce either more or less reallocation of jobs depending...
Article
We present a model of labor market equilibrium in which managers are risk-averse, managerial talent ("alpha") is scarce and firms compete for this talent. Absent managerial mobility, firms provide efficient long-term compensation, which allows for learning about managerial talent, and assign managers to tasks based on their talent. In this case, fi...
Article
The received wisdom about financial disclosure is that increasing public information in security markets raises their liquidity. We show that, while true if disclosure concerns information whose interpretation does not require sophisticated processing, this principle does not apply to information about the structure of security payoffs, which inste...
Chapter
The article surveys theoretical and empirical work on the transparency of the securities trading process, distinguishing broadly between pretrade transparency (the display of quotes for prospective trades) and posttrade transparency (the publication of information regarding completed transactions). The impact of transparency on market liquidity, in...
Article
We present a model of securitization where issuers of structured bonds choose coarse and opaque ratings to enhance the liquidity of their primary market, at the cost of reducing secondary market liquidity. The degree of transparency chosen by issuers is ine¢ ciently low if the social cost of secondary market illiquidity exceeds the private one, pro...
Article
Full-text available
This paper examines the role of credit rating agencies in the subpwne crisis that tnggered the 2007-2008 financial turmoil. We focus on two aspects of ratings that contributed to the boom and bust of the market for structured debt: rating inflation and coarse information disclosure. The paper discusses how regulation can be designed to mitigate the...
Article
Most stock exchange regulators around the world have reacted to the financial crisis of 2007-2009 by imposing bans or regulatory constraints on short-selling by market participants. We use the large amount of evidence generated by the introduction and lifting of these bans to investigate the effects of short-selling bans on liquidity and price disc...

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Projects

Projects (4)
Project
The seniority of employees’ claims in the liquidation of insolvent firms, and their rights in the renegotiation of their debt varies greatly across countries. We show that the balance between these rights of employees and those of other creditors should affect the leverage chosen by firms. In a simple model of strategic leverage, employees’ seniority is predicted to increase the positive response of leverage to appreciation of its real estate or an increase in its revenue, while stronger employees’ rights in the renegotiation of corporate debt have the opposite effect. These predictions differ starkly from those that obtain if firms’ leverage is determined by a collateral constraint. To test them, we construct novel measures of employees’ protection in bankruptcy via questionnaires to law firms and other sources, and investigate whether these measures affect the response of firm leverage in a sample of 12,445 companies in 28 countries between 1988 and 2013. We find that increases in the value of these firms’ real estate is associated with a greater increase in leverage for companies located in countries where employees have stronger seniority in company liquidation and weaker rights in debt renegotiation, as predicted by the strategic leverage model. For a subsample of 928 mining and oil companies, we find a similar differential response of leverage to profitability shocks resulting from changes in the prices of the commodities produced by these companies.
Project
The euro crisis was fueled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a union-wide safe asset without joint liability, would help to resolve these problems. We make three contributions. First, numerical simulations show that ESBies would be at least as safe as German bunds and approximately double the supply of euro safe assets when protected by a 30%-thick junior tranche. Second, a model shows how, when and why the two features of ESBies—diversification and seniority—can weaken the diabolic loop and its diffusion across countries. Third, we describe the operational steps necessary to implement ESBies.