Janet Gao is an Assistant Professor in Finance at the Kelley School of Business, Indiana University. Her areas of expertise include corporate finance, financial intermediation, credit markets, and labor and finance.
Industry Expertise (2)
Areas of Expertise (4)
Labor and Finance
S.C. Johnson School, Cornell University: Ph.D., Finance 2015
S.C. Johnson School, Cornell University: M.A., Economics 2015
University of Chicago: M.S., Financial Mathematics 2009
What Drives Global Syndication of Bank Loans? Effects of Capital RegulationsKelley School of Business
2018 The syndicated lending market is highly globalized. We examine the effect of cross-country differences in capital regulations on the structure of global lending syndicates. Using a sample of loans syndicated by banks from 44 countries, we find evidence consistent with regulatory arbitrage incentives of participant banks. Banks from strictly regulated countries participate more in syndicates originated by banks from less regulated countries. This pattern is robust to controlling for characteristics of lead-participant bank pairs or holding fixed borrower-side conditions. Consistently, strictly regulated banks are more likely to participate in foreign-led loans to riskier borrowers, earn higher spreads, and bear higher credit risk.
Customer concentration and loan contract termsJournal of Financial Economics
2017 We study pricing and non-pricing features of loan contracts to gauge how the credit market evaluates a firm’s customer-base profile and supply-chain relations. Higher customer concentration increases interest rate spreads and the number of restrictive covenants featured in newly initiated as well as renegotiated bank loans. Customer concentration also abbreviates the maturity of those loans as well as the relationship between firms and their banks. These effects are intensified by customers’ financial distress, the level of relationship-specific investments, and the use of trade credit in customer–supplier relations. Our evidence shows that a deeper exposure to a small set of large customers bears negative consequences for a firm’s relations with its creditors, revealing limits to integration along the supply chain.
Credit and Punishment: The Career Incentives of Wall Street BankersKelley School of Business
2017 This study examines the relationship between negative credit events (i.e., defaults, bankruptcies, and rating downgrades) and career turnover for Wall Street bankers underwriting syndicated loans. We construct a comprehensive dataset containing the identities and employment histories of nearly 1,500 bankers employed by major corporate banking departments from the period spanning 1994 to 2014. First, following a negative credit shock in a banker's portfolio, the banker is more likely to depart her bank, transition to a lower-ranked bank, and face a demotion in the future. The results continue to hold when we identify exogenous credit events due to collateral shocks to the borrower. In addition, we confirm that termination practices effectively incentivize bankers to impose stricter lending terms on future loans (i.e., more covenants and greater covenant strictness). Overall, our findings confirm that Wall Street bankers are disciplined for large-scale credit losses.
Learning Through Failure: The Effect of Banks’ Recent Default Experience on Borrowers’ Timely Loss RecognitionKelley School of Business Research Paper
2016 This study examines the effects of lenders’ recent default experience on borrowers’ timely loss recognition. We exploit a unique empirical setting that examines defaults occurring in lenders’ loan portfolios that are unrelated to the firms of interest. We find that borrowers increase timely loss recognition following lenders’ default experiences. Our results vary predictably based on the costs and benefits associated with lenders changing their monitoring behavior. We verify that increases in timely loss recognition connected to lenders’ recent default experiences facilitate greater creditor control, by tightening covenants and increasing the likelihood of violations. Overall, our study suggests that lender default experiences are informative events that have spillover effects for firms’ financial reporting choices.
Bankruptcy and the Cost of Organized Labor: Evidence from Union ElectionsKelley School of Business
2016 Arguments that worker unionization leads to changes in productivity, employment, or business survival find little support in the literature. While unionization may have limited impact in good states, unionized workers are entitled to special treatment in bankruptcy court. This shift in bargaining power can be detrimental to other corporate stakeholders in default states, with senior, unsecured creditors standing to lose the most. We gather data on union elections covering several decades and employ a regression discontinuity design to identify the effect of worker unionization on bondholders' wealth. Closely-won union elections lead to significant losses to bond values but do not lead to poorer firm performance or higher default risk. Critically, unionization is associated with longer proceedings in bankruptcy court, with more bankruptcy emergences and subsequent refilings, and with higher fees and expenses paid to lawyers and financial experts in court. All of these costs diminish corporate asset values, aggravating bondholders' losses. The value effect of unionization is weaker in states where unions have been undermined by right-to-work laws.