Ongoing Research

Ongoing research agendas include the following featured projects in progress:

Can Municipalities Weather the Weather?

Professor Matt Gustafson continues to study policy-related questions relating to capital raising and financial intermediation as well as various aspects of climate finance. In a recent working paper, Can Municipalities Weather the Weather?, coauthored with Michael Dambra, Dr. Gustafson finds that hot temperatures reduce municipal revenues, especially in hot or agriculturally-reliant areas. These revenue shocks have no balance sheet impacts or long-run impacts, however, as municipalities manage them via immediate spending cuts, especially cutting overhead capital spending. “Propagation of climate disasters through ownership networks” shows that when investors experience a climate shock in their portfolio they become more active voters on climate issues at the other firms they own. On the policy side, “When Locking in Biodiversity Locks Up Land”, coauthored with Smeal colleague Eva Steiner and PhD student Golnaz Bahrami, shows that biodiversity protections reduce land value by approximately 45% and lead to more natural land cover over the coming decades. The largest effects concentrate in the most developable areas, with non-developable areas housing smaller discounts that are linked to the agricultural viability of the land. These papers are a few examples of a broader agenda examining how governments, markets, and property owners respond to environmental and regulatory pressures, and how those responses determine who ultimately bears the costs.

Sustainable Organizations

Assistant Professor Thomas Geelen studies corporate finance, including how sustainability pressures reshape organizations. In "Sustainable Organizations", coauthored with Jakub Hajda and Jan Starmans, he shows that what drives conflict over ESG is not how green stakeholders are on average, but how far apart they stand, and as that gap widens, disputes get settled by reallocating power. This yields surprising results: a greener manager can make an organization less sustainable if it prompts owners to withdraw power from the manager, while a browner manager can make it more sustainable. Efforts to raise sustainability through owners reliably work, while efforts working through managers can backfire.

Geelen's broader work examines how firms' financial decisions play out over time, showing, for instance, that firms don't target a fixed debt ratio but let leverage drift as their assets age, and that acquirers often do "too much" due diligence. His research appears in the field's leading journals, including the Journal of Finance, the Review of Financial Studies, and the Journal of Financial Economics.

Are Direct Lenders More Like Banks or Arm's-Length Investors?

Assistant Professor Young Soo Jang studies private credit. His paper “Are Direct Lenders More Like Banks or Arm's-Length Investors?” examines whether direct lenders, who increasingly displace banks in private equity (PE) buyouts, lend more like banks or arm’s-length investors. He finds that financial covenants are ubiquitous in direct lending where borrowers violate them more often than in bank loans. Direct lenders actively intervene, prompting firms to adopt conservative policies. During the COVID pandemic, they showed greater flexibility than banks, facilitated by more PE sponsor equity injections. Prior sponsor relationships also predict higher credit supply when borrowers are distressed. This research was featured in the Financial Times and has been accepted for publication at the Journal of Financial Economics.

Adverse Selection & the Government Intervention Trap

Associate Professor Fenghua Song studies theoretical issues in banking and corporate finance, with a particular focus on bank capital and its intersection with several consequential themes in the field: (1) the prosocial role of banking in advancing financial inclusion and the transition to a green economy; (2) the mechanisms through which banks and governments create money and liquidity; and (3) how banking culture shapes the allocation of talent and resources across the financial system. His paper “Adverse Selection and the Government Intervention Trap”, which has been accepted for publication at the Review of Financial Studies, shows that when financial market participants anticipate government bailouts, this expectation worsens adverse selection ex ante, producing avoidable market freezes and triggering unnecessary intervention. The analysis generates distinctive policy implications for the design of financial regulation.

Less Duration, More Durable: The Case of Using Floating Rate Debt to Reduce Treasury Interest Burden

Associate Professor Anh Le studies fixed income markets. In "Less Duration, More Durable: The Case of Using Floating Rate Debt to Reduce Treasury Interest Burden," written with Haoxiang Zhu of MIT Sloan, he examines whether the U.S. Treasury could lower its borrowing costs by making greater use of floating-rate notes. The stakes are large: the federal government is expected to pay roughly $1 trillion in interest in 2026 on a national debt of about $39 trillion, and managing that burden is critical to the sustainability of U.S. fiscal conditions and to the long-term health of the Treasury market. Building on a model of interest rates, Le and Zhu find that issuing more floating-rate debt during periods of elevated term premia, paired with a commensurate reduction in fixed-coupon issuance of the same maturity, can meaningfully reduce the government's interest expense. In short, the Treasury can save money by offering less duration precisely when the market charges the most to bear duration risk. They also find that sizeable additional savings are available from improving liquidity in the floating-rate note market, particularly through greater participation by money market funds.

Investment Without Labor: Data Centers & the Local Economy

Associate Professor David Haushalter is working on cross-disciplinary research including the working paper “Investment Without Labor: Data Centers and the Local Economy” co-authored with Jess Cornaggia and Penn State Smeal alumnae Liu Ee Chia and Qiang Wang. A tenet for local economic development policy is that firm entry can generate gains beyond the entering firm. These spillovers provide an economic rationale for place-based investment incentives. The extent to which firm entry generates such gains, however, depends on how it combines labor with other factors of production. Existing evidence comes largely from settings in which new establishments are embedded in local production networks or draw meaningfully on local labor markets, such as large industrial plants and high-tech clusters. As the economy becomes more digital and AI-intensive, a different type of fixed, capital-intensive establishment has become increasingly significant: the data center. Professor Haushalter and his colleagues compare U.S. counties hosting data centers to counties that attracted data center proposals but no operational facilities. They find that local governments’ borrowing costs rise with the scale of data center development. Fiscal capacity, employment, and business formation show little corresponding improvement. Overall, they conclude that investment without labor strains public infrastructure without generating agglomeration gains.