Working Papers

BigTech Credit and Monetary Policy Transmission: Micro-level Evidence from China, with Yiping Huang, Xiang Li, Han Qiu. Reject and resubmit at Management Science

• Abstract: This paper studies monetary policy transmission through BigTech and traditional banks. By comparing business loans made by a big tech bank with traditional banks, we find that BigTech loans tend to be smaller, and BigTech bank grants credit to more new borrowers than conventional banks responding to expansionary monetary policy. Advantages in information,  monitoring and risk management of BigTech banks are the potential mechanisms.  On the other hand, BigTech and traditional bank credits to firms that have already borrowed from these banks respond similarly to monetary policy changes. Overall, BigTech credit amplifies monetary policy transmission mainly through this extensive margin. In addition, monetary policy has a stronger impact on the real economy through BigTech lending than traditional bank loans.

The US as the Global Equity Safe Haven, with Zefeng Chen, Yintao He, Zhiquan Shao

• Abstract: We systematically document a flight-to-US phenomenon in the global equity market when global volatility soars, using portfolio holdings of globally investing active equity mutual funds with total size of over 2 trillion USD. We find that at the fund-stock level, a fund would on average rebalance to a US stock by 2% of this position relative to a non-US stock contemporaneously under one unit increase of the log VIX index, before reaching its peak of 9.1% after 4 quarters. The rebalance to US is mostly offset by withdraw from the emerging markets. Funds experience better ex-post return by engaging in rebalancing than hypothetically not rebalancing in the short run, but this effect diminishes after 8 quarters. We interpret the empirical findings using a stylized model featuring asymmetric balance sheet capacity between US and non-US liquidity providers that generate a convenience value of US stocks. When volatility rises, mutual funds rebalance to US to lower their potential fire sale cost, thanks to the better balance sheet capacity of US liquidity providers leading to a lower haircut for US stocks.

Banking in Production Networks: Evidence and Theory from Supply Chain Finance, with Wukuang Cun, Dongmei Guo, Junjie Xia

• Abstract: This paper investigates how coordination between lenders influences the loan supply to firms within industrial chains. Utilizing Chinese firm-level data, we demonstrate that the financing activities of firms within the same industrial chain are more highly correlated when these firms are connected to the same bank, compared to when they are connected to different banks. Firms that share a common bank with their business partners along the industrial chain tend to borrow more frequently and exhibit higher leverage. Additionally, using granular loan-level data for supply chain finance from a major commercial bank in China, we provide evidence on how banks coordinate loan supply to their customers within industrial chains through internal management processes. To explain our findings, we propose a model of industrial chains with relationship banking that aligns with the empirical evidence. We show that when lenders are branches of the same bank and coordinate their lending decisions, they extend more credit to firms, leading to a more stable loan supply. Our paper offers new insights to the discourse on how credit supply can facilitate industrial supply chains.