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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 and banking and has taught courses on these subjects to undergraduate, MBA, and doctoral students. He is an expert on capital structure and financing decisions, real options, risk management, 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, and the Review of Financial Studies. He has received several research and teaching awards. He holds a PhD in Finance summa cum Laude from HEC Paris.
Financing Cycles
(with Thomas Geelen, Jakub Hajda, and Adam Winegar)
Capital ages and must eventually be replaced. We propose a theory of financing in which firms finance new capital with debt and deleverage optimally to free up debt capacity as their capital ages, thereby generating leverage cycles. Concurrently, firms reduce the maturity of their debt to match the remaining life of their capital, generating maturity cycles. These firm-level financing cycles drive aggregate leverage and maturity dynamics when capital age is correlated across firms. We provide time series and cross-sectional evidence that strongly supports these predictions and highlights the key roles of capital age and asset life in financing cycles.
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)
Takeover protections decrease shareholder value and increase equity risk and stock returns by removing the option to sell equity when firms approach financial distress. In line with our predictions, distressed firms experience a significant decrease in value and increase in returns and market betas after the passage of anti-takeover laws. At issue bond yields are also higher when an anti-takeover law is in effect. Consistent with the model, the effects of anti-takeover laws on bond yields are greater when bondholders have more bargaining power.
Can corporate debt foster innovation and growth?
Review of Financial Studies Forthcoming
with Thomas Geelen and Jakub Hajda
Understanding cash flow risk
Review of Financial Studies Forthcoming
with Sebastian Gryglewicz, Loriano Mancini, Enrique Schroth, and Philip Valta
Optimal financing with tokens
Journal of Financial Economics 142(3): 1038-1067, 2021
with Sebastian Gryglewicz and Simon Mayer
Short-term debt and incentives for risk-taking
Journal of Financial Economics 137(1): 179-203, 2020
with Marco Della Seta and Francesca Zucchi
Agency conflicts and short- vs. long-termism in corporate policies
Journal of Financial Economics 136(3), 718-742, 2020
with Sebastian Gryglewicz and Simon Mayer
Product market competition and option prices
Review of Financial Studies 32(11): 4343-4386, 2019
with Alexei Zhdanov
Agency conflicts around the world
Review of Financial Studies, 31(11): 4232-4287, 2018
with Boris Nikolov and Norman Schuerhoff
Data: Firm level governance indices across 14 countries
Corporate policies with permanent and transitory shocks
Review of Financial Studies, 30(1): 162-210, 2017
with J-P Décamps, Sebastian Gryglewicz, and Stéphane Villeneuve
Bank capital, liquid reserves, and insolvency risk
Journal of Financial Economics, 125(2): 266–285, 2017
with Julien Hugonnier
Mathematical Appendix to the Paper
Debt enforcement, investment, and risk-taking across countries
Journal of Financial Economics,123(1): 22-41, 2017
with Giovanni Favara, Enrique Schroth, and Philip Valta
Capital supply uncertainty, cash holdings and investment
Review of Financial Studies, 28(2): 391–445, 2015
with Julien Hugonnier and Semyon Malamud
Mathematical Appendix to the Paper
Credit market frictions and capital structure dynamics
Journal of Economic Theory, 157: 1130–1158, 2015
with Julien Hugonnier and Semyon Malamud
Mathematical Appendix to the Paper
Financing investment: The choice between bonds and bank loans
Management Science, 61(11): 2580-2602, 2015
with Philip Valta and Alexei Zhdanov
Corporate governance and capital structure dynamics
Journal of Finance, 67(3): 803-848, 2012
with Boris Nikolov and Norman Schuerhoff
Corporate investment and financing under asymmetric information
Journal of Financial Economics, 99(2): 262-288, 2011
with Norman Schuerhoff
Dynamic investment and financing under personal taxation
Review of Financial Studies, 23(1): 101-146, 2010
with Norman Schuerhoff
Financing and takeovers
Journal of Financial Economics, 87(3): 556-581, 2008
with Alexei Zhdanov
Stock returns in mergers and acquisitions
Journal of Finance, 63(3): 1203-1242, 2008
with Dirk Hackbarth
Closed-form solutions to stochastic switching problems
Journal of Mathematical Economics, 44(11): 1072-1083, 2008
with Pascal François
Agency conflicts and risk management
Review of Finance, 11(1): 1-23, 2007
with Clifford W. Smith
Corporate control and real investment in incomplete markets
Journal of Economic Dynamics and Control, 31(5): 1781-1800, 2007
with Julien Hugonnier
Capital structure, credit risk, and macroeconomic conditions
Journal of Financial Economics, 82(3): 519-550, 2006
with Dirk Hackbarth and Jianjun Miao
On the debt capacity of growth options
Journal of Business, 79(1): 37-59, 2006
with Michael J. Barclay and Clifford W. Smith
Irreversible investment with regime shifts
Journal of Economic Theory, 122(1): 37-59, 2005
with Xin Guo and Jianjun Miao
The dynamics of mergers and acquisitions
Journal of Financial Economics, 77(3): 649-672, 2005
with Alexei Zhdanov
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
Journal of Business, 77(2): 387-411, 2004
with Pascal François
Asset liquidity, capital structure, and secured debt
Journal of Financial Economics, 61(2): 173-206, 2001.
Principles of Finance
This course is intended to provide 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.
Dynamic Corporate Finance (SFI PhD program)
This course is designed to provide a framework for understanding the determinants of corporate financing, dividend, hedging, investment, 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: Real options; Dynamic contracting; Dynamic adverse selection; Financing frictions; Dynamic capital structure models with and without commitment; Runs