Abstracts 

15. Proximity to Bank Headquarters and Branch Efficiency: Evidence from Mortgage Lending (with Ivan Lim, Linh Nguyen, and John Wilson)

Journal of Money, Credit and Banking, forthcoming 

We use the staggered introduction of new flight routes to identify reductions in travel time between banks’ headquarters and branches to examine their effects on branch outputs and efficiency. Reductions in headquarters-branch travel time increases branch-level mortgage origination volume, and these loans exhibit higher ex-post performance. Further analyses suggest these effects are due to branch employees working harder and more efficiently in seeking new customers, and screening applications. Overall, our results suggest that geographic proximity enables bank headquarters to monitor branches more effectively and mitigate distance-related agency costs.

14. Does Shareholder Litigation Cause Public Firms to Delist? Evidence from Securities Class Action Lawsuits (with Jonathan Brogaard, Nhan Le & Vathunyoo Sila)

Journal of Financial and Quantitative Analysis, forthcoming 

Using three exogenous shocks to ex ante litigation risk, including federal judge ideology and two influential judicial precedents, we find that lower shareholder litigation risk reduces a firm’s propensity to delist from the U.S. stock markets. The effect is at least partially driven by indirect costs of litigation and that being a private firm can significantly reduce the threat of litigation. Overall, the results suggest that mitigating excessive litigation costs for public firms is crucial to ensure the continued vibrancy of the U.S. stock market.

13. Regulatory Spillovers in Local Mortgage Markets (with Ivan Lim & Linh Nguyen)

Review of Corporate Finance Studies, forthcoming 

We document novel evidence on the spillover effect of a corporate control regulation on local mortgage markets. We find that banks directly targeted by the Sarbanes-Oxley Act (SOX) to rectify their internal control weaknesses reduce mortgage originations following the regulation’s enactment. This causes mortgage credit to be reallocated toward other banks in the same local markets: while competing public banks expand lending to safer borrowers, private banks increase lending toward risky applicants. Consequently, loans originated by private banks in spillover counties report higher default rates. 

12. Earnings Expectations and the Quality of Financial Services (with Xiaomeng Shi & Mingzhu Wang) 

Journal of Accounting and Public Policy, accepted

Using complaint data filed by consumers with the Consumer Financial Protection Bureau against financial institutions, we show that banks receive, on average, 13.3% more customer complaints in the quarter immediately after they narrowly beat analysts’ earnings forecasts. The effect is mainly driven by banks’ attempts to reduce their non-interest expenses to beat earnings benchmarks. The relationship is stronger when bank CEOs receive a greater proportion of incentive-based compensation. Overall, our paper demonstrates how capital market incentives exacerbate shareholder–customer conflicts.

11. Lender Trust and Bank Loan Contracts (with Jens Hagendorff & Sonya Lim)

Management Science, 2023, 69(3): 1758-1779

We examine the contractual implications of a lender’s trust in corporate loans. We measure how trusting a lender is using the average trust attitude in the chief executive officer’s (CEO) ancestral country of origin. We find that banks with trusting CEOs charge lower interest rates in US syndicated loans. This effect is identified within existing lender-borrower relationships and similar types of loans. Further analyses indicate that trust reduces the cost of credit by boosting the perceived credibility of borrower information and by mitigating contracting problems. We corroborate our findings by conducting a survey of loan officers with experience in loan syndication.

10. Climate Change Risk and the Cost of Mortgage Credit (with Steven Ongena, Shusen Qi & Vathunyoo Sila) 

Review of Finance, 2022, 26(6): 1509-1549

We show that lenders charge higher interest rates for mortgages on properties exposed to a greater risk of sea level rise (SLR). This SLR premium is not evident in short-term loans and is not related to borrowers’ short-term realized default or creditworthiness. Further, the SLR premium is smaller when the consequences of climate change are less salient and in areas with more climate change deniers. Overall, our results suggest that mortgage lenders view the risk of SLR as a long term risk, and that attention and beliefs are potential barriers through which SLR risk is priced in residential mortgage markets.

9. The Walls Have Ears: Local Information Environments and Corporate Fraud (with Jens Hagendorff & Nhan Le)

Journal of Money, Credit and Banking, 2022, 54(8): 2377-2410 

This paper shows that a firm's likelihood of committing corporate fraud is affected by the local information environment. We use the density of local bank branch networks as a proxy for the local information environment. We show that denser bank branch networks increase the likelihood of fraud detection, accelerate the detection of fraud, and decrease the fraud propensity of local firms. Our results cannot be explained by the clustering of firms in urban areas, geographic proximity to regulators, or other location effects. Overall, our study identifies a spatial dimension in the detection and prevention of corporate fraud.

8. Does Marriage Equality Promote Credit Access?  Evidence from Same-sex Marriage Laws (with Jens Hagendorff & Vathunyoo Sila)

Journal of Corporate Finance, 2022, 77, Article 102315  

We show that following the legalization of same-sex marriage across US states, mortgage applications from same-sex borrowers are more likely to be denied relative to a matched sample of different-sex borrowers. Our findings are robust to using a stacked regression design and several approaches to account for compositional changes in the pool of mortgage applicants around same-sex legalization. FinTech lenders, which rely less on human loan officers, experience no change in the denial gap. Our results highlight information frictions between loan officers and same-sex borrowers as one channel for the increased denial gap between same-sex and different-sex applications.

7. Hometown Lending (with Ivan Lim)

Journal of Financial and Quantitative Analysis, 2021, 56(8): 2894-2933

Banks open more branches and make more lending near their Chief Executive Officers’ (CEOs) childhood hometowns. The effects are stronger among informationally opaque borrowers and among CEOs who spend more time in their childhood hometowns. Furthermore, loans originated near CEOs’ hometowns contain more soft information and have lower ex-post default rates, implying that hometown loans are more informed. Hometown lending does not affect aggregate bank outcomes, suggesting that credit is being reallocated from regions located farther away to regions proximate to bank CEOs’ hometowns.

6. Government Connections and Credit Access Around the World: Evidence from Discouraged Borrowers (with  Shusen Qi)

Journal of International Business Studies, 2021,  52(2): 321-333

Motivated by the international business literature that examines the interactions between organizations, corruption, and political forces, we examine whether and how government connections affect small and medium-sized enterprises’ (SMEs) credit access around the world. Using a sample of SMEs across 30 developing countries, we show that SMEs with government connections are significantly less likely to be discouraged from approaching banks for a loan as compared to SMEs without such connections. However, connected SMEs do not receive preferential lending from banks. Moreover, the nature of this effect depends on the institutional setting. Specifically, the effect becomes stronger in countries with high levels of corruption, suggesting that government connections are substitutes for poorly functioning formal institutions. Our findings have important implications for policies targeted at reducing corruption, improving access to financing, facilitating entrepreneurship, and attracting foreign investment.

5. Does Shareholder Litigation Affect the Corporate Information Environment? (with Nhan Le & Vathunyoo Sila)

Journal of Financial Markets, 2021, 56, Article 100600

Using the staggered adoption of universal demand (UD) laws in the United States, we show that the reduction in shareholder litigation risk deteriorates firms’ stock price informativeness. This reduction in stock price informativeness is due to firms changing the way they invest rather than obfuscating or withholding firm-specific information. We also show that the reduction in litigation risk is associated with higher investment-price sensitivity. Overall, despite causing a deterioration in firms’ information environment, the reduction in litigation risk does not appear to harm shareholder wealth. Our paper offers novel insights into the net economic benefits of shareholder litigation laws.