Essays in Financial Intermediation and Corporate Finance
Yingjie Qi ESSAYS IN FINANCIAL INTERMEDIATION AND CORPORATE FINANCE
ISBN 978-91-7731-169-0
DOCTORAL DISSERTATION IN FINANCE
STOCKHOLM SCHOOL OF ECONOMICS, SWEDEN 2020
Yingjie Qi
ESSAYS IN FINANCIAL INTERMEDIATION
AND CORPORATE FINANCE
Essays in Financial Intermediation and Corporate Finance
Yingjie Qi ESSAYS IN FINANCIAL INTERMEDIATION AND CORPORATE FINANCE
ISBN 978-91-7731-169-0
DOCTORAL DISSERTATION IN FINANCE
STOCKHOLM SCHOOL OF ECONOMICS, SWEDEN 2020
Yingjie Qi
ESSAYS IN FINANCIAL INTERMEDIATION
AND CORPORATE FINANCE
Essays in Financial Intermediation and Corporate Finance
Yingjie Qi
Akademisk avhandling
som för avläggande av ekonomie doktorsexamen vid Handelshögskolan i Stockholm
framläggs för offentlig granskning måndagen den 15 juni 2020, kl 15.15,
Swedish House of Finance,
Drottninggatan 98, Stockholm
Essays in Financial Intermediation and Corporate Finance
Yingjie Qi
Dissertation for the Degree of Doctor of Philosophy, Ph.D., in Economics
Stockholm School of Economics, 2020
Essays in Financial Intermediation and Corporate Finance
© SSE and Yingjie Qi, 2020 ISBN 978-91-7731-169-0 (printed) ISBN 978-91-7731-170-6 (pdf)
This book was typeset by the author using LATEX.
Front cover photo: © Emma Qi Meurk Printed by: BrandFactory, Gothenburg, 2020
Keywords: relationship banking, cross-selling, credit allocation, debt renegotiation, financial distress, banking misconduct, online lending.
iii
致我的父母 To my parents
Foreword
This volume is the result of a research project carried out at the Department of Finance at the Stockholm School of Economics (SSE).
The volume is submitted as a doctoral thesis at SSE. In keeping with the policies of SSE, the author has been entirely free to conduct and present her research in the manner of her choosing as an expression of her own ideas.
SSE is grateful for the financial support provided by the Swedish Bank Research Foun- dation, the Jan Wallander and Tom Hedelius Foundation and Stiftelsen Louis Fraenckels Stipendiefond, which has made it possible to carry out the project.
Göran Lindqvist Per Strömberg
Director of Research Professor and Head of the Stockholm School of Economics Department of Finance
Stockholm School of Economics
Acknowledgements
I am forever indebted to my advisor Per Strömberg for his continuous support, guidance, and belief in me. Per is one of the kindest people and best economists in the world. It has been a privilege to be his student.
I thank Bo Becker, Mariassunta Giannetti, Vincent Maurin, Jan Starmans, and Dong Yan for many helpful discussions and valuable feedback in the process of writing this thesis. I thank Adrien d’Avernas, Ramin Baghai, Marieke Bos, Tomas Björk, Magnus Dahlquist, Michael Halling, Jungsuk Han, Paolo Sodini, and Pehr Wissén for their support on the job market.
I thank my co-authors Christoph Bertsch, Clara Fernström, Isaiah Hull, and Xin Zhang for the opportunities to work with them. I thank Tor Jacobson, Jesper Lindé, and Ulf Söderström for their hospitality during my long visit at the Sveriges Riksbank. I thank the Swedish Bank Research Foundation and the Jan Wallander and Tom Hedelius Foundation for their financial support.
I thank my friends Ricardo Lopez Aliouchkin, Alberto Allegrucci, Niklas Amberg, Fate- meh Hosseini, Markus Ibert, Mats Levander, Jieying Li, Maja and Peter Román, Erik Sverdrup, and Tommy von Brömsen for many fun memories.
Finally, thank you to my parents, my sister Yanjie, my husband Anders, and my daughters Emma and Ellinor. Thank you for being in my life.
Stockholm, April 20, 2020 Yingjie Qi
Contents
Introduction 1
1 Big Broad Banks: How Does Cross-Selling Affect Lending? 3
1.1 Introduction . . . 5
1.2 Related literature . . . 10
1.3 Data and description of products . . . 12
1.4 Baseline results . . . 15
1.5 Theoretical framework . . . 20
1.6 Identification of the mechanisms . . . 24
1.7 Conclusion . . . 30
1.A References . . . 53
2 Bank Misconduct and Online Lending 59 2.1 Introduction . . . 60
2.2 Related literature . . . 63
2.3 The P2P online lending market . . . 66
2.4 Theoretical framework and hypothesis development . . . 68
2.5 Data and descriptive statistics . . . 70
2.6 Empirical results . . . 72
2.7 Discussion . . . 86
2.8 Conclusion . . . 87
2.9 Main tables . . . 89
2.A Appendix . . . 107
2.B References . . . 117
3 Cost of Loans and Moral Hazard: A Quasi-Experiment 123 3.1 Introduction . . . 124
3.2 Experimental setting . . . 127
3.3 Data and sample restriction . . . 127
3.4 Empirical strategy . . . 129
3.5 Results . . . 131
x ES S AY S I N FI N A N C I A L IN T E R M E D I A T I O N A N D CO R P O R A T E FI N A N C E
3.6 Robustness tests . . . 132
3.7 Conclusion . . . 135
3.A Appendix . . . 149
3.B References . . . 155
Introduction
This doctoral thesis is a collection of three essays.
In the first essayBig Broad Banks: How Does Cross-Selling Affect Lending?, I show that combining loan and non-loan products (cross-selling) has two benefits, using unique micro-data that contain the internal information on all corporate customers of a large Nordic bank. First, it increases credit supply, especially in recessions. Second, it increases the likelihood of receiving lenient treatment in delinquency. I argue that non-loan rela- tionships play an important role in determining credit supply and debt renegotiation, not only by (i) mitigating information asymmetries (as suggested in earlier literature), but also by (ii) increasing the profitability of the relationship. Exploiting an exogenous and differential change in similar products’ profitability due to the Basel II implementation, I estimate the causal effect of this new profit channel on credit supply. A 20 percent decrease in non-loan products’ profitability (i) reduces credit supply to affected firms by 13 percent (600,000 USD) compared with unaffected firms, and (2) reduces likelihood of receiving lenient treatment for affected firms by 30 percent (13 pp) compared with unaffected firms, conditional on being delinquent.
* * *
The second essay,Bank Misconduct and Online Lending, is joint work with Christoph Bertsch, Isaiah Hull, and Xin Zhang. We introduce a high quality proxy for bank miscon- duct that is constructed from Consumer Financial Protection Bureau (CFPB) complaint data. We employ this proxy to measure the impact of bank misconduct on the expansion of online lending in the United States. Using nearly complete loan and application data from the online lending market over the 2008-2016 period, we demonstrate that bank misconduct is associated with a statistically and economically significant increase in online lending demand at both the state and county levels. Exploiting plausibly exogenous shock to how borrowers perceive the degree to which traditional banks engage in misconduct, we rule out alternative explanations such as liquidity and other factors.
* * *
The third essay,Cost of Loans and Moral Hazard: A Quasi-Experiment, is joint work with Clara Fernström. We document the effects of higher loan costs on private firms in the
2 ES S AY S I N FI N A N C I A L IN T E R M E D I A T I O N A N D CO R P O R A T E FI N A N C E
presence of financial frictions by exploiting a novel quasi-experiment and a unique and comprehensive dataset from Sweden. In June 2010, the central bank of Sweden increased the policy rate unexpectedly and exposed firms with long term loans maturing right before or after to different costs of loans. Consistent with the debt overhang theory, we find that higher costs of loans have a significant negative effect on investment, and more so for highly levered firms. Contrary to the risk shifting theory, we find no evidence that distressed firms engage in activities that are riskier ex-post due to higher costs of loans.
These results are robust to carefully controlling for firms’ credit demand.
