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Donald Bowen

@bowen.finance
153 followers 478 following 33 posts

Bridging finance & tech @ Lehigh. Research: 💡innovation, 🤖 AI lending, ⚖️ algorithmic bias, & 🚀 startups. Data and papers at bowen.finance

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Donald Bowen @bowen.finance · 02/01/2025
Policy implication: One-size-fits-all governance mandates can harm firms by forcing out directors with valuable firm-specific knowledge. More flexible approaches might better balance monitoring & advising roles. Firms know this & recognize value of their dirs and so reclass when possible. 9/N
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Donald Bowen @bowen.finance · 02/01/2025
Reclassifying firms (R=1) became compliant with exchange independence quickly via this way (panel 2), even though ISS classifications of their directors remain least independent (panel 3). Upshot: R firms are able to retain employee directors at much higher rate (panel 4) 5/N
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Donald Bowen @bowen.finance · 02/01/2025
Identification: Some firms could reclassify directors as "independent" (eg if they retired > 3 years ago) while others had to hire new outside directors. Reclassification eligibility was largely predetermined before mandates > quasi-random variation in compliance strategy that we can exploit. 4/N
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Donald Bowen @bowen.finance · 02/01/2025
Takeaways 1. Inside dir advice is performance relevant via oper. efficiency 2. Insiders <=/=> agency problems 3. Gov standards disregard pre-existing governance arrangements (which tradeoff monitor/advice) 4. Speaks to policy debates (eg the push for maximal independence) 3/N
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Donald Bowen @bowen.finance · 02/01/2025
Punchline: After the 2002 NYSE/NASDAQ board independence mandates, firms that replaced existing non-independent directors underperformed firms that retained these directors by reclassifying them as independent. Suggests valuable firm-specific knowledge was lost. 2/N
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Donald Bowen @bowen.finance · 02/01/2025
🧵 I'm happy to share an updated draft! "Revisiting Board Independence Mandates: Evidence from Director Reclassifications" provides causal evidence on the effects of mandated board independence. Joint with Jerome Taillard (@babsoncollege.bsky.social) #ASSA2025 #EconSky #FinSky 1/N
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Donald Bowen @bowen.finance · 09/12/2024
My coauthors (@lukestein.com, McKay Price, and Ke Yang) and I were thrilled to find out our work “Measuring and Mitigating Racial Disparities in LLM Mortgage Underwriting” was recognized as the Best Paper at the (fantastic!) New Zealand Finance Meeting acfr.aut.ac.nz/conferences-...
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Donald Bowen @bowen.finance · 09/12/2024
Somehow, just asking LLM to be unbiased • Eliminates approval recommendation gap (on average and across different credit scores) • Reduces average racial interest rate gap by about 60% (from 35bp to 14), with even larger effects for lower-credit-score Black applicants 8/
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Donald Bowen @bowen.finance · 09/12/2024
We find anti-Black bias in mortgage underwriting recommendations from a number of LLMs Black borrowers with low credit scores suffer the most 6/
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Donald Bowen @bowen.finance · 09/12/2024
LLMs recommend denying more loans and charging higher interest rates to Black applicants They would, on average, need credit scores ~120 points higher than white applicants to receive the same approval rate; ~30 higher to get same interest rate 4/
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Donald Bowen @bowen.finance · 09/12/2024
I.e., ChatGPT (we also assess other models) • Claims it’s unbiased… • …but it 𝗶𝘀 biased against Black applicants. Particularly at low credit scores. (We also have this for other risk measures.) • We can partly close the racial gap just by asking for unbiased responses. 3/
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Donald Bowen @bowen.finance · 09/12/2024
LLMs recommend denying more loans and charging higher interest rates to Black applicants Especially at low credit scores/riskier loans Simple prompt engineering can help mitigate gaps
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Donald Bowen @bowen.finance · 09/12/2024
WP thread: “Measuring and Mitigating Racial Bias in LLM Mortgage Underwriting” with Don Bowen, McKay Price, and Ke Yang Our audit study asks AI to assess simple mortgage applications (real HMDA data w/ randomized race and credit scores) 🦶🦶🏼🦶🏿 Download lukeste.in/llmmortgage 1/
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