Research Interests: financial intermediation, information economics
Links: Personal Website
Vincent Glode joined the Finance Department at the Wharton School in July 2009 after earning his PhD in finance from Carnegie Mellon University. His research is mainly theoretical and studies how financial intermediaries create and allocate surplus in the economy. His papers have been published in leading academic journals such as the American Economic Review, the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies. He has served as an associate editor at Management Science and the Journal of Empirical Finance and as an elected board member of the Finance Theory Group. At Wharton, Professor Glode teaches Corporate Valuation at the undergraduate and MBA levels, for which he has won several teaching awards. He has served on Wharton’s Teaching Excellence committee and the MBA program’s executive committee. He is a CFA charterholder.
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Abstract: We develop a tractable model of strategic debt renegotiation in which businesses are sequentially interconnected through their liabilities. This financing structure, which we refer to as a debt chain, gives rise to externalities as a lender's willingness to provide concessions to his privately-informed borrower depends on how this lender's own liabilities are expected to be renegotiated. Our analysis reveals how targeted government subsidies and debt reductions as well as incentives for early renegotiation following large economic shocks such as a global pandemic or financial crisis can prevent default waves.
Vincent Glode and Christian Opp (2018), Over-the-Counter vs. Limit-Order Markets: The Role of Traders’ Expertise, Review of Financial Studies.
Abstract: Over-the-counter (OTC) markets attract substantial trading volume despite exhibiting frictions absent in centralized limit-order markets. We compare the efficiency of OTC and limit-order markets when traders' expertise is endogenous. We show that asymmetric access to counterparties in OTC markets yields increased rents to expertise acquisition for a few well-connected core traders. When the existence of gains to trade is uncertain, traders' higher expertise in OTC markets can improve allocative efficiency. In contrast, when expertise primarily causes adverse selection, competitive limit-order markets tend to dominate. Our model provides guidance for policymakers and empiricists evaluating the efficiency of market structures.
Vincent Glode, Christian Opp, Ruslan Sverchkov (Working), To Pool or Not to Pool? Security Design in OTC Markets.
Abstract: This paper studies the optimality of pooling and tranching for a privately informed security originator facing buyers endowed with market power (perhaps due to liquidity shortages). Contrary to the standard result that pooling and tranching are optimal practices, we find that selling assets separately may be preferred by originators as it weakens buyers' incentives to inefficiently screen them. Our results can shed light on observed time-variation in the practice of pooling and tranching in financial markets, in particular, the dramatic decline in the size of the ABS market following the most recent financial crisis.
Vincent Glode, Christian Opp, Xingtan Zhang (2018), Voluntary Disclosure in Bilateral Transactions, Journal of Economic Theory.
Abstract: We characterize optimal voluntary disclosures by a privately informed agent facing a counterparty endowed with market power in a bilateral transaction. Although disclosures reveal some of the agent's private information, they may increase his information rents by mitigating the counterparty's incentives to resort to inefficient screening. We show that when disclosures are restricted to be ex post verifiable, the informed agent optimally designs a disclosure plan that is partial and that implements socially efficient trade in equilibrium. Our results shed light on the conditions necessary for asymmetric information to impede trade and the determinants of disclosures' coarseness.
Vincent Glode, Christian Opp, Xingtan Zhang (2018), On the Efficiency of Long Intermediation Chains, Journal of Financial Intermediation.
Abstract: Intermediation chains represent a common pattern of trade in over-the-counter markets. We study a classic problem impeding trade in these markets: an agent uses his market power to inefficiently screen a privately informed counterparty. We show that, generically, if efficient trade is implementable via any incentive-compatible mechanism, it is also implementable via a trading network that takes the form of a sufficiently long intermediation chain. We characterize information sets of intermediaries that ensure this striking result. Sparse trading networks featuring long intermediation chains might thus constitute an efficient market response to frictions, in which case no regulatory action is warranted.
Vincent Glode and Richard Lowery (2016), Compensating Financial Experts, Journal of Finance.
Abstract: We propose a labor market model in which financial firms compete for a scarce supply of workers who can be employed as either bankers or traders. While hiring bankers helps create a surplus that can be split between a firm and its trading counterparties, hiring traders helps the firm appropriate a greater share of that surplus away from its counterparties. Firms bid defensively for workers bound to become traders, who then earn more than bankers. As counterparties employ more traders, the benefit of employing bankers decreases. The model sheds light on the historical evolution of compensation in finance.
Qi Chen, Joseph Gerakos, Vincent Glode, Daniel Taylor (2016), Thoughts on the Divide between Theoretical and Empirical Research in Accounting, Journal of Financial Reporting.
Vincent Glode and Christian Opp (2016), Asymmetric Information and Intermediation Chains, American Economic Review.
Abstract: We propose a parsimonious model of bilateral trade under asymmetric information to shed light on the prevalence of intermediation chains that stand between buyers and sellers in many decentralized markets. Our model features a classic problem in economics where an agent uses his market power to inefficiently screen a privately informed counterparty. Paradoxically, involving moderately informed intermediaries also endowed with market power can improve trade efficiency. Long intermediation chains in which each trader's information set is similar to those of his direct counterparties limit traders' incentives to post prices that reduce trade volume and jeopardize gains to trade.
Vincent Glode and Philip Bond (2014), The Labor Market for Bankers and Regulators, Review of Financial Studies.
Abstract: We propose a labor market model in which agents with heterogeneous ability levels choose to work as bankers or as financial regulators. When workers extract intrinsic benefits from working in regulation (such as public-sector motivation or human capital accumulation), our model jointly predicts that bankers are, on average, more skilled than regulators and their compensation is more sensitive to performance. During financial booms, banks draw the best workers away from the regulatory sector and misbehavior increases. In a dynamic extension of our model, young regulators accumulate human capital and the best ones switch to banking in mid-career.
Vincent Glode, Richard C. Green, Richard Lowery (2012), Financial Expertise as an Arms Race, The Journal of Finance.
Abstract: We show that firms intermediating trade have incentives to overinvest in financial expertise, and that these investments can be destabilizing. Financial expertise in our model improves firms' ability to accurately estimate value when trading a security. It creates adverse selection, which under normal circumstances works to the advantage of the expert. It deters opportunistic bargaining by counterparties. That advantage is neutralized in equilibrium, however, by offsetting investments competitors make. Moreover, when volatility rises the adverse selection created by expertise triggers breakdowns in liquidity, destroying gains to trade and thus the benefits that firms hope to gain through high levels of expertise.
The focus of this course is on the valuation of companies. The course covers current conceptual and theoretical valuation frameworks and translates those frameworks into practical approaches for valuing companies. The relevant accounting topics and the appropriate finance theory are integrated to show how to implement the valuation frameworks discussed on a step-by-step basis. The course teaches how to develop the required information for valuing companies from financial statements and other information sources in a real-world setting. Topics covered in depth include discounted cash flow techniques and price multiples. In addition, the course covers other valuation techniques such as leveraged buyout analysis.
Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.
Independent Study Projects require extensive independent work and a considerable amount of writing. ISP in Finance are intended to give students the opportunity to study a particular topic in Finance in greater depth than is covered in the curriculum. The application for ISP's should outline a plan of study that requires at least as much work as a typical course in the Finance Department that meets twice a week. Applications for FNCE 899 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. ISP's must be supervised by a Standing Faculty member of the Finance Department.
Trading practices in OTC markets seem downright old-fashioned compared to centralized markets such as the NYSE. But several major asset classes, such as bonds, prefer over-the-counter. Research from Wharton and the University of Rochester looks into why.Knowledge @ Wharton - 10/11/2019