Research

Published Papers

Does Banking Competition Affect Innovation?  (PDF) 2015 Journal of Financial Economics (with Jess Cornaggia, Yifei Mao, and Xuan Tian), Vol. 115 (1), 189-209

We exploit the deregulation of interstate bank branching laws to test whether banking competition affects innovation. We find robust evidence that banking competition reduces state-level innovation by public corporations headquartered within deregulating states. Innovation increases among private firms that are dependent on external finance and that have limited access to credit from local banks. We argue that banking competition enables small, innovative firms to secure financing instead of being acquired by public corporations. Therefore, banking competition reduces the supply of innovative targets, which reduces the portion of state-level innovation attributable to public corporations. Overall, these results shed light on the real effects of banking competition and the determinants of innovation.

Supplemental material: Internet Appendix for “Cornaggia, Mao, Tian, and Wolfe (2015)” 


Working Papers

(with Jess Cornaggia and  Woongsun Yoo)

Through superior technology, financial technology (FinTech) firms may expand credit markets. Alternatively, consumers may substitute one credit provider for another, generating adverse selection problems for incumbent lenders. We analyze the unsecured consumer loan market and identify the influence of FinTech lending on commercial banks using a novel approach that takes advantage of regulatory restrictions for FinTech borrowers and investors. We show that high-risk FinTech loans substitute for bank loans while low-risk loans may be credit expansionary. However, the influence on banks is heterogeneous. Our results highlight the changing landscape of financial intermediation and the regulatory challenges faced by FinTech firms.


(with Bernardo Bortolotti and Veljko Fotak)

We investigate the impact of government ownership on the innovativeness of European listed firms. We find that firms with minority government stakes invest more in research and development (R&D) than private firms, thanks to relaxed financial constraints. However, firms with majority government stakes invest less due to short-term political priorities distorting managerial objectives and incentives. Our results are robust to propensity score matching and instrumental variables to account for omitted variable bias and the endogenous nature of government ownership. On the output side, despite the higher investment in R&D, minority government ownership has no discernable impact on patent quantity and quality, as measured by citations. Our results indicate that government ownership is not an efficient policy to promote innovation in listed firms.


(with Li-Ting Chiu and Woongsun Yoo)

Marketplace lending platforms select which investors will have the opportunity to fund loans. Platforms claim to fairly allocate loans between retail and institutional investors, but we provide evidence that contradicts this claim. Because of heavy regulatory intervention, platforms favor retail investors with lower defaulting loans, even after conditioning on observable information like credit scores and interest rates. Institutional investors appear to sway the platform; when the value of marginal loan volume from institutional investors is high, institutional investors are preferentially allocated lower defaulting loans. As platforms become constrained in their ability to produce similar quality borrowers, the value of marginal loan volume falls, and with it, the favorable allocation to institutional investors. The evidence suggests strategic platform behavior to maximize origination volume but also suggests a lasting effect of regulatory intervention in emerging capital market technologies. 


(with Shyam Venkatesan, Jun Yang,  and Woongsun Yoo)

Flipping is when traders purchase an asset in the initial offering of a security and immediately sell the asset for a higher price in a secondary market.  Flipping is the natural result when segmentation exists in the primary market (initial offering), and investors have heterogenous price beliefs.  We provide empirical evidence for two novel types of segmentation caused by regulation and technology in the primary market for FinTech debt securities.  Our results show both forms of segmentation increase flipping activity.  Additional tests suggest platforms include an interest premium, potentially encouraging flipping and circumventing the investor regulatory restrictions that cause segmentation.  Welfare benefits accrue to traders engaging in flipping activity.  We estimate that borrowers pay an additional 63 BP in interest to allow platforms to resolve regulatory segmentation and excluded secondary market investors concede an average 288 BP in yield to investors flipping notes.  


Works in Progress