Interview Daniel Vullings

In this EBF Journal, we will introduce Daniel Vullings to you!

By Bogdan Rosca

Daniel Vullings is an assistant professor at the University of Groningen where he teaches courses in Mathematics, Statistics, and Econometrics. Daniel's background is in finance, with a PhD in the design of debt contracts or derivative engineering. He has several papers on this topic which are in the process of publishing. In addition to his finance background, Daniel is also interested in political economics, specifically applied microeconomic theory in the context of political economics. Daniel's approach to research is focused on theory and he aims to strip away specific details in order to understand general concepts that can be applied to a variety of situations. While he does not do much in the way of application himself, he believes that the general ideas he develops can be useful in understanding real-world problems. Daniel has been teaching at the University of Groningen for several years and enjoys teaching more theoretical math courses.

 

Research of Daniel

Daniel has been working on several research project. Below, I will give a short summary of three of them. The first project involves designing a new type of debt contract, called contingent convertible bonds, or CoCo bonds. CoCo bonds are a type of hybrid securities that convert into equity or get written down in value when a predetermined trigger, such as a decline in a company's capital position, is reached, providing a cushion for the issuer in case of financial stress. In the paper, Daniel designs the bonds to have a unique price in discrete time, something which was not investigated before. Moreover, he takes the risk of overnight jumps in the value of a bank into account. This research is a follow-up to Daniel's PhD work, which focused on the design of debt contracts or derivative engineering. By creating a bond that can be uniquely priced, Daniel hopes to make these types of bonds more viable for use in the financial industry.

The second project involves designing a new debt contract called ‘a risk incentive compatible bond’. This bond is being adapted to a more general model than the one presented in Daniel's dissertation, allowing for a slightly more general statement to be made about its function. The bond is designed to align the risk preferences of bondholders, equity holders, and management to allow more projects to be financed due to reduced costs of asymmetric information. Daniel is still working on the generalisation of the results as such the specific details of this bond are not mentioned.

The third project is focused on political economics and the separation of powers. This research aims to understand whether separating power between the legislature and the judiciary leads to more desirable or fair outcomes. The research will involve theoretical analysis and simplified models in order to understand the general principles at play, rather than a detailed analysis of a specific situation. The study will examine how the separation of powers can potentially constrain legislators and their ability to help supporters through lobbying and campaign funding. Daniel mentions that this paper requires more research in order to fully understand the implications of the separation of powers.

 

Funding

Daniel's research projects are funded through payments from University of Groningen, which relies on tuition fees and government subsidies as its main sources of funding, with the government providing a significant portion of the funding for each student enrolled. In addition to these sources of funding, the university also receives research grants, which are typically awarded based on the quality of the research being conducted. The university places a strong emphasis on research-driven education and encourages its faculty to engage in research in order to improve the quality of their teaching. By supporting research, the university hopes to attract students who are interested in receiving a high-quality education and to maintain a reputation as a leading institution for research and education.

 

Research – Bankruptcy and CoCo bonds

In the interview, Daniel discusses the impact of bankruptcy on society and how it can be detrimental. He explains that when a company goes bankrupt, its assets are misallocated, leading to sale at a discounted price, resulting in a loss in value for the assets and those who were owed money by the company. This can have a ripple effect, as the suppliers and creditors who were not paid may also struggle financially, potentially leading to further bankruptcies. Furthermore, Daniel highlights the issue of resource misallocation, as the assets of a bankrupt company may not be used as efficiently as they could have been if the company had remained operational. This can lead to a loss in economic productivity and overall economic growth.

Besides this, a company often has outstanding debts to suppliers, banks, and other creditors that it is unable to pay as it goes bankrupt. These creditors may not be able to use the assets of the bankrupt company efficiently, leading to a drop in value and a fire sale of the assets at a discounted price. This can result in a loss of jobs and income for employees and suppliers, as well as a negative impact on the economy as a whole. CoCo bonds are a solution to this problem, as they allow companies to raise capital by issuing bonds that can be converted into equity if the company is at risk of bankruptcy. This gives the company a financial cushion to fall back on in times of hardship, while also forcing the bondholders to help the company avoid bankruptcy as the bonds are converted to equity. Daniel believes that higher capital requirements are a better than CoCos at reducing the risk of financial crises and that CoCos are only useful as long as higher equity requirements are not politically feasible, nevertheless, CoCo bonds have the potential to significantly reduce the negative impacts of bankruptcy on society, as they give companies a better chance to weather economic downturns and continue operating. Overall, Daniel's perspective on bankruptcy is one of concern for its potential negative impacts on society and the economy. His research efforts aim to find ways to prevent or mitigate these negative effects, highlighting his commitment to finding solutions to complex economic issues.

 

To conclude, it is clear that bankruptcy can have significant impacts on society. When a company goes bankrupt, it can lead to the loss of jobs and financial strain for employees, as well as financial losses for suppliers and other creditors. Additionally, the assets of the bankrupt company may lose value, as they may not be used as efficiently by those who acquire them. Daniel's research focuses on finding ways to prevent companies from going bankrupt, through the use of CoCo bonds and other financial instruments. By reducing the occurrence of bankruptcy, it is possible to mitigate these negative impacts on society and promote economic stability.