Malcolm Wardlaw

eAssistant Professor of Finance
Finance and Managerial Economics
The School of Management, SM31
The University of Texas at Dallas
800 West Campbell Road
Richardson, Texas 75080

W: 972-883-5903

Research Interests
Corporate finance, banking and institutional capital, energy and risk management

Current Research

"Firm Financing and Workplace Safety" (with Jonathan Cohn)

  • Journal of Finance (Forthcoming)
This paper uses establishment-level injury data to study the effects of a firm's capital structure on the safety of its workplace. We find that an establishment's injury rate is positively-related to its parent firms' financial leverage, especially when its operating profits are low. Two quasi-natural experiments - one involving a tax law change and the other oil price shocks - suggest that cash constraints impacting a firm's investment in safety-related activities play a role in driving the relationship between leverage and injury rates. Debt overhang also appears to play a role, as injury rates are lower following an increase in creditor control in the form of covenant violations. Finally, we find that employee bargaining power can mitigate the adverse effects of leverage on workplace safety.

"The Costs of Closing Failed Banks: A Structural Estimation of Regulatory Incentives" (with Ari Kang and Richard Lowery)

  • Review of Financial Studies (2015)
We estimate a dynamic model of the decision of banking regulators to close a troubled bank. The regulator trades off the costs of bank closure against the risk of increased costs of closure in future periods. Further, the regulator bears an additional non-monetary cost for closing banks, which represents the desire on the part of the regulator to keep institutions open. Our results indicate that, controlling for monetary costs, the regulator avoids closing both the largest banks and the smallest banks and prefers closing banks facing more acute operational losses. We find some evidence of political influence on closure decisions. The estimated direct monetary costs associated with closing the median distressed bank is $1 million, with an additional non-monetary cost equivalent to $10 million denominated in lost taxpayer dollars. For banks that are most likely to be closed, however, the average monetary cost and the average non-monetary costs are both around $20 million.

"Investment, Cash Flow, and the Structure of Corporate Debt Covenants" (with Richard Lowery)

We analyze the determinants of covenant structure in private debt contracts. While previous studies have demonstrated a relationship between firm characteristics and the overall strictness of loan contracts, few studies have examined why covenants are written on a range of accounting variables and what determines their selective use. Using a simple model of firm investment where firms face uncertain cash flows and investment opportunities, we characterize the conditions under which it is optimal for a debt contract to specify a restriction on investment or to specify a minimum cash flow realization. Consistent with this model, we find that the application of covenants based on these variables is not necessarily monotonic in firm risk. While the financially riskiest firms tend to employ capital expenditure covenants, cash flow and net worth covenants are most common among moderately risky firms with greater profitability and firms with stronger banking relationships. The results also highlight the importance of debt covenants in both mitigating agency frictions and maximizing the value of future private information.

"The Impact of Bank Health on the Investment of Its Corporate Borrowers

  • Presented at 2011 WFA Meetings
This paper investigates how changes in a bank’s health impact real investment of its existing borrowers. Using a sample of U.S. firm bank relationships, I find that firms reduce investment by around 10% in response to a one standard deviation increase in the loan nonperformance of their primary bank. This effect is only present during active borrowing relationships, and is not driven by reverse causality or changes in region or industry specific investment opportunities. The effect weakens in the decade following the mid-90s but returns post 2006, suggesting that U.S. have not become less bank dependent

"The Trust Alternative" (with Indraneel Chakraborty and Alessio Saretto)

We propose an alternative market design to the current credit ratings industrial organization. An issuer delegates a pass-through non-monitoring trust to acquire a rating report from credit ratings agencies (CRAs). The trust pays outcome contingent fees, which guarantee truth-telling and therefore eliminate ratings inflation. Moreover, because the trust acts as an intermediary, it also eliminates the ability of issuers to shop different CRAs for better ratings. Voluntary participation to the trust mechanism from both issuers and CRAs is guaranteed by the surplus generated by improved ratings efficiency. Ultimately, the trust can improve social welfare by inducing more effort, especially when CRAs are competing over the accuracy of ratings. Differently from up front fees, in fact, payments contingent upon outcomes can be properly designed to increase the CRA’s effort to produce more precise signals.

Work in Progress

"On the Design of Corporate Public Debt Contracts" (with Robert Kieschnick)

"Measuring Contract Completeness: A Text Based Analysis of Loan Agreements" (with Bernhard Ganglmair)

"Corporate Mergers and Workplace Safety" (with Jonathan Cohn and Nicole Nestoriak)

Teaching Experience

Topics in Empirical Corporate Finance (PhD Course) - Spring 2013/ Spring 2015

Topics in Theoretical Corporate Finance (PhD Course) - Spring 2012

Financial Management (MBA Course) - Spring 2011 / 2012 / 2013 / 2014

Energy Risk Management (Undergraduate Course) - Fall 2010

Financial Modeling in Excel (Undergraduate Course) - Fall 2008 / Spring 2009

Business Finance (Undergraduate Course) - Summer 2007

Erdös Number


Additional Information

Dual Citizen, U.S. and United Kingdom