When it comes to research, Assistant Professor Daniel Saavedra’s main areas of interest are financial accounting and corporate finance, topics that have fascinated him since before he earned his Ph.D. at MIT. His research on financial contracting explores how to design different types of contracts so that the incentives of all parties involved are properly aligned.
“It is either not feasible or too costly for contracting parties such as borrowers and lenders to write contracts that perfectly anticipate all future scenarios of their relationship,” says Saavedra. “As a result, transacting parties are left exposed to the risk that they might face a costly future renegotiation. This expectation can in turn lead to inefficiencies in terms of investment or other value-enhancing corporate decisions.” His “Renegotiation and the Choice of Covenants in Debt Contracts” reveals the importance of renegotiation at the time debt contracts are structured, and provides large sample evidence for how the average borrower and lender incorporate renegotiation considerations into the design of their debt contracts — valuable data for CFOs, lawyers and bankers responsible for the negotiation of debt contracts.
Saavedra is also studying the economic consequences of U.S. firms engaging in tax avoidance activities. “Firms often engage in tax avoidance strategies to reduce their tax-related cash outflows,” he says. “I investigate how these aggressive tax avoidance activities affect corporate policies such as cash holdings or the cost of debt.” In his recent study “Tax Spike Firms,” Saavedra examines whether lenders charge higher interest rates to borrowers that have made unusually large payments to tax authorities before contract initiation. He provides evidence that lenders charge the largest penalties to firms that disclose a tax settlement and to firms that do not provide proper disclosures explaining their tax spikes.
Applying his finance knowledge in socially progressive arenas as well, Saavedra, who was a chess enthusiast in his youth and is still rated by the World Chess Federation, served as fundraiser for an organization in Santa Cruz, Bolivia, that assists single mothers living under the poverty line. Born in Germany, raised in Bolivia and educated in European and U.S. universities, Saavedra has served as CEO at several Bolivian firms. He specialized in applying strategy that helps companies in financial distress return to profitability. His work required a deep understanding of the strategic and financial situation of each company. “As a result,” he says, “I always knew companies’ financial statements inside out. I became very passionate about accounting and corporate finance topics, which has informed my research ever since.”
Ph.D. Management, 2015, MIT Sloan School of Management
MBA, 2009, MIT Sloan School of Management
Diplom Volkswirt (B.A. and master of economics equivalent), 2000, Westfaehliche Wilhelms Universitaet Muenster