Adair Morse | Clausen Center

Adair Morse

Associate Professor

Finance Department, Haas School of Business

Adair Morse is assistant professor of finance at the Haas School of Business at the University of California, Berkeley. She is a Faculty Research Fellow, National Bureau of Economic Research (Cambridge, Massachusetts). Her research covers the areas of household finance, entrepreneurship, corruption and governance, and asset management. Recent work has been instrumental in re-directing the debate on tax reform in Greece. Her work on fraud helped to shape the bounty provisions in the Dodd Frank law of financial reform; and, her work on trickle down consumption has contributed to the debate on the financial crisis and income inequality.

Summary of recent papers:

The Leveraging of Silicon Valley

Date: March 2018

Coauthors: Jesse Davis (University of North Carolina, Chapel Hill) and Xinxin Wang (University of North Carolina, Chapel Hill)

Citation: Working paper

Venture debt is now observed in 28-40% of venture financings. We model and document how this early-stage leveraging can affect firm outcomes. In our model, a venture capitalist maximizes firm value through financing. An equity-holding entrepreneur chooses how much risk to take, trading off the financial benefit against his preference for continuation. By extending the runway, utilizing venture debt can reduce dilution, thereby aligning the entrepreneur’s incentives with the firm’s. The resultant risk-taking increases firm value, but the leverage puts the startup at greater risk of failure. Empirically, we show that early-stage ventures take on venture debt when it is optimal to delay financing: such firms face higher potential dilution and exhibit lower pre-money valuations. Consistent with this notion, such firms take eighty-two fewer days between financing events. This strategy induces higher failure rates: $125,000 more venture debt predicts 6% higher closures. However, conditional on survival, venture debt-backed firms have 7-10% higher acquisition rates. Our study highlights the role of leverage in the risking-up of early-stage startup firms. Aggregation of these tradeoffs is important for understanding venture debt’s role in the real economy.

 

Consumer Lending Discrimination in the Era of FinTech

Date: March 2018

Coauthors: Robert Bartlett (Berkeley Law), Richard Stanton (Berkeley-Haas), and Nancy Wallace (Berkeley-Haas)

Citation: Working paper

Racial discrimination in lending can materialize in loan officer decisions or in algorithmic scoring, especially with big-data use by FinTech lenders. To investigate these discrimination channels, we estimate a treatment-based Oaxaca-Blinder decomposition based on the unique mortgage-default-risk letting of the GSEs. Among approved loans, ethnic-minority borrowers pay higher rates of interest, with both traditional and FinTech lenders charging non-white borrowers 0.08% higher interest for purchase mortgages, the present value of which represents nearly 1% of the loan balance. In aggregate, ethnic-minority borrowers pay almost $0.5B per year in extra interest. These findings are consistent with FinTech and non-FinTech lenders extracting rents in weaker competitive environments such as financial deserts. We additionally estimate that lenders reject African-American and Hispanic applicants 5% more often, leaving money on the table. Discrimination in rejection rates is especially pronounced among low-creditscore applicants, but less pronounced for FinTech lenders. These latter results suggest that GSE underwriting plays a crucial role in minimizing algorithmic discrimination, at least with respect to credit rationing.