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Profile
Erwan Morellec is a Full Professor of Finance at the Swiss Finance Institute (SFI) @ EPFL and the holder of a Swiss Finance Institute senior chair. He is the Head of the SFI nation-wide PhD Program and a CEPR Research Fellow.
Erwan is most active in the areas of corporate finance, banking, and sustainable finance and has taught courses on these subjects to undergraduate, MBA, and doctoral students at EPFL, HEC Lausanne, MIT Sloan, and the University of Rochester. He is an expert on financing decisions, real options, risk management, compensation policy, and liquidity management. His research has been presented at major academic conferences and seminar series around the world and is published in the top rated academic journals such as the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, and Management Science. He has received several research and teaching awards. He holds a PhD in Finance summa cum Laude from HEC Paris.
Investor Activism and the Green Transition
(with Sebastian Gryglewicz and Simon Mayer)
We develop a model of activism and green transition with endogenous activist entry, trading, and exit in which a firm’s transition rate depends on the efforts of both its management and the activist. Activism raises the green transition rate under first best but causes underinvestment in efforts and can hamper transition under moral hazard. Activists either accumulate a larger stake over time, leading to increased engagement and transition rate, or gradually exit. Carbon taxation boosts the transition rate and discourages activist exit conditional on entry, but can deter activist entry if set too high. Green investment subsidies raise firm-level transition efforts, but crowd out activism and generally hamper green transition.
Asset Life, Leverage, and Debt Maturity Matching
(with Thomas Geelen, Jakub Hajda, and Adam Winegar)
Capital ages and must eventually be replaced. We propose a theory of financing in which firms borrow to finance investment and deleverage as capital ages to have enough financial slack to finance replacement investments. To achieve these dynamics, firms issue debt with a maturity that matches the useful life of assets and a repayment schedule that reflects the need to free up debt capacity as capital ages. In the model, leverage and debt maturity are negatively related to capital age while debt maturity and the length of debt cycles are positively related to asset life. We provide empirical evidence that strongly supports these predictions.
Screening and monitoring of corporate loans
(with Sebastian Gryglewicz and Simon Mayer)
How much of a loan should a lender dynamically retain and how does retention affect loan performance? We address these questions in a dynamic agency model in which a lender originates loans that it can sell to investors. The lender reduces default risk through screening at origination and monitoring after origination, but is subject to moral hazard. We show that the optimal lender-investor contract can be implemented by having the lender retain a stake in the loan that decreases over time, effectively rationalizing loan sales after origination, and use the model to generate new predictions linking loan characteristics to initial retention, sales dynamics and loan performance.
Relationship capital and financing decisions
(with Thomas Geelen and Natalyia Rostova)
Lending relationships matter for firm financing. In a model of debt dynamics, we study how lending relationships are formed and how they impact leverage and debt maturity choices, thereby rationalizing recent empirical findings and generating new testable predictions. In the model, lending relationships evolve through repeated interactions between firms and debt investors. Stronger lending relationships lead firms to adopt higher leverage ratios, issue longer term debt, and raise funds from non-relationship lenders when relationship quality is sufficiently high. Debt contracts involving non-relationship investors, such as syndicated loans or bonds, have longer maturity than those exclusively issued to relationship investors.
Takeover protections and asset prices
with Assaf Eisdorfer and Alexei Zhdanov, Management Science Forthcoming
Can corporate debt foster innovation and growth?
with Thomas Geelen and Jakub Hajda, Review of Financial Studies 35(9): 4152-4200, 2022
Understanding cash flow risk
with Sebastian Gryglewicz, Loriano Mancini, Enrique Schroth, and Philip Valta, Review of Financial Studies 35(8): 3922-3973, 2022
Optimal financing with tokens
with Sebastian Gryglewicz and Simon Mayer, Journal of Financial Economics 142(3): 1038-1067, 2021
Short-term debt and incentives for risk-taking
with Marco Della Seta and Francesca Zucchi, Journal of Financial Economics 137(1): 179-203, 2020
Agency conflicts and short- vs. long-termism in corporate policies
with Sebastian Gryglewicz and Simon Mayer, Journal of Financial Economics 136(3), 718-742, 2020
Product market competition and option prices
with Alexei Zhdanov, Review of Financial Studies 32(11): 4343-4386, 2019
Agency conflicts around the world
with Boris Nikolov and Norman Schuerhoff, Review of Financial Studies, 31(11): 4232-4287, 2018
Data: Firm level governance indices across 14 countries
Corporate policies with permanent and transitory shocks
with J-P Décamps, Sebastian Gryglewicz, and Stéphane Villeneuve, Review of Financial Studies, 30(1): 162-210, 2017
Bank capital, liquid reserves, and insolvency risk
with Julien Hugonnier, Journal of Financial Economics, 125(2): 266–285, 2017
Mathematical Appendix to the Paper
Debt enforcement, investment, and risk-taking across countries
with Giovanni Favara, Enrique Schroth, and Philip Valta, Journal of Financial Economics,123(1): 22-41, 2017
Capital supply uncertainty, cash holdings and investment
with Julien Hugonnier and Semyon Malamud, Review of Financial Studies, 28(2): 391–445, 2015
Mathematical Appendix to the Paper
Credit market frictions and capital structure dynamics
with Julien Hugonnier and Semyon Malamud, Journal of Economic Theory, 157: 1130–1158, 2015
Mathematical Appendix to the Paper
Financing investment: The choice between bonds and bank loans
with Philip Valta and Alexei Zhdanov, Management Science, 61(11): 2580-2602, 2015
Corporate governance and capital structure dynamics
with Boris Nikolov and Norman Schuerhoff, Journal of Finance, 67(3): 803-848, 2012
Corporate investment and financing under asymmetric information
with Norman Schuerhoff, Journal of Financial Economics, 99(2): 262-288, 2011
Dynamic investment and financing under personal taxation
with Norman Schuerhoff, Review of Financial Studies, 23(1): 101-146, 2010
Financing and takeovers
with Alexei Zhdanov, Journal of Financial Economics, 87(3): 556-581, 2008
Stock returns in mergers and acquisitions
with Dirk Hackbarth, Journal of Finance, 63(3): 1203-1242, 2008
Closed-form solutions to stochastic switching problems
with Pascal François, Journal of Mathematical Economics, 44(11): 1072-1083, 2008
Agency conflicts and risk management
with Clifford W. Smith, Review of Finance, 11(1): 1-23, 2007
Corporate control and real investment in incomplete markets
with Julien Hugonnier, Journal of Economic Dynamics and Control, 31(5): 1781-1800, 2007
Capital structure, credit risk, and macroeconomic conditions
with Dirk Hackbarth and Jianjun Miao, Journal of Financial Economics, 82(3): 519-550, 2006
On the debt capacity of growth options
with Michael J. Barclay and Clifford W. Smith, Journal of Business, 79(1): 37-59, 2006
Irreversible investment with regime shifts
with Xin Guo and Jianjun Miao, Journal of Economic Theory, 122(1): 37-59, 2005
The dynamics of mergers and acquisitions
with Alexei Zhdanov, Journal of Financial Economics, 77(3): 649-672, 2005
Can managerial discretion explain observed leverage ratios?
Review of Financial Studies, 17(1): 257-294.
Capital structure and asset prices: Some effects of bankruptcy procedures
with Pascal François, Journal of Business, 77(2): 387-411, 2004
Asset liquidity, capital structure, and secured debt
Journal of Financial Economics, 61(2): 173-206, 2001.
Introduction to Finance (MFE program): This course provides a market-oriented framework for analyzing the major types of financial decisions made by corporations. Lectures and readings will provide an introduction to present value techniques, capital budgeting principles and problems, asset valuation, the operation and efficiency of financial markets, the financial decisions of firms, and derivatives. Throughout the class, we will solve problems to enhance our understanding of the covered topics.
Sustainable debt (SFI Master Class):
Co-taught with: Mark Keller, Director ESG Financing UBS.
ESG compliant assets are projected to grow, and reach a third of total assets under management by 2025. While the interest in sustainable investing initially focused on public equity markets, it has recently evolved into fixed income. Building on industry practice and recent academic insights, this Master Class provides participants with an in-depth understanding of sustainable debt. Using the latest available data, the co-presenters discuss implementation approaches and both the opportunities and the shortcomings of current practice. Overall, the Master Class aims to equip banking and finance professionals with up-to-date, relevant, high-level knowledge about sustainable debt.
Dynamic Corporate Finance (SFI PhD program): This course is designed to provide a framework for understanding the determinants of corporate investment, financing, payout, hedging, and compensation policies. The course will provide both an economic analysis of the determinants of each policy and a quantitative analysis of the effects of these determinants. There is no required textbook. Readings will be based on scientific articles. Topics covered: Investment under Uncertainty; Optimal Financing, Optimal Liquidity Management through the length of dynamic models featuring moral hazard, adverse selection, financing frictions, taxes, and/or competition.