Research
Job Market Paper
Take it to the Bank! Local Discourse and Deposits
[draft available upon request]
Using a hand-collected data set on almost one million local television news stories in the U.S., this paper shows that depositors respond to changes in the intensity of reporting about the COVID-19 pandemic by holding more demand deposits. Counties, where pandemic news stories are 10 percentage points more frequent relative to all news stories hold 1.3% more demand deposits after the onset of the pandemic. This effect holds when controlling for the intensity of the pandemic and several other alternative explanations. Further evidence suggests that local news reflects the intensity of local discourse, which in turn causes a spike in deposits, especially in counties with a weaker social structure. The results suggest that the intensity of societal discourse around an event can have significant implications for banks and the real economy.
Publications
Flooded through the back door: The role of bank capital in local shock spillovers
(with Steven Ongena)
Journal of Financial and Quantitative Analysis, 2022, 57(7): 2627-2658.
[current version][published version]
This article demonstrates that low bank capital carries a negative externality because it amplifies local shock spillovers. We exploit a natural disaster that is transmitted to firms in non-disaster areas via their banks. Firms connected to a strongly disaster-exposed bank with lowest-quartile capitalization significantly reduce their total borrowing by 6.6% and tangible assets by 6.9% compared to similar firms connected to a well-capitalized bank. These findings translate to negative regional effects on GDP and unemployment. Additionally, following a disaster event, banks reduce their exposure to currently unaffected but generally disaster-prone areas.
Borrowers Under Water! Rare Disasters, Regional Banks, and Recovery Lending
(with Michael Koetter and Felix Noth)
Journal of Financial Intermediation, 2020, 43.
[published version] [working paper]We test if and how banks propagate disaster risk in the form of a natural catastrophe striking its customers: the 2013 Elbe flood in Germany. We identify shocked banks based on bank-firm relationships gathered for approximately a million firms and test for the existence of a corporate credit composition channel. Banks with relationships to flooded firms lend 38% more than banks without such customers after the flood. This lending hike is associated with higher profitability and reduced risk. Our results suggest that local banks are an effective mechanism to mitigate rare disaster shocks faced especially by small and medium-sized enterprises (SMEs).
Badly hurt? Natural disasters and direct firm effects
(with Felix Noth)
Finance Research Letters , 2019, 28: 254-258.
[published version] [working paper]We investigate firm outcomes after a major natural disaster in Germany in 2013. We robustly find that firms located in the disaster regions have significantly higher turnover, lower leverage, and higher cash in the period after 2013. We provide some evidence that the effect comes mainly from firms that already experienced a similar major disaster in 2002. Overall, our results document that firm performance does not turn out bad necessarily in the direct aftermath of a natural disaster.
Nowhere Else To Go: Determinants of Bank-Firm Relationship Discontinuations after Bank Mergers
(with Santiago Carbo-Valverde)
Finance Research Letters , 2023, 54
[published version][Short WP Version (2022)] [Long WP version (2020)]
This paper investigates firm-bank relationship changes in the context of bank mergers. We find that firms are less likely to switch and more likely to drop their bank relationship after bank mergers. Importantly, in less competitive environments, measured by Lerner index and HHI, relationship drops are more likely. If mergers decrease competition, the existing consolidation wave in banking could thus induce increasingly harmful bank-firm relationship drops. Firms are also more likely to switch and less likely to drop their bank relationships if they are more creditworthy, measured by their z-score and available collateral.
Working Papers
Social Connectedness (and Distance) in Bank Lending
Previous title: The Role of Social Networks in Bank Lending
(with Simon Rother)
Revise and Resubmit at the Review of Financial Studies
We analyze how social ties between the population in bank regions and the population in borrower regions affect bank lending. After accounting for physical and cultural distances, bank lending increases with social connectedness, especially when lending requires more information and screening incentives are intact. Consistent with a soft-information channel, fintech lending is unaffected by connectedness. Loans to borrowers from well-connected regions exhibit more favorable loan terms and improved loan performance. Positive real effects ensue, predominantly through small firms. The results reveal a new information channel and propose a partial explanation for the effects of distance in bank lending.
Good Friends in Uncertain Times: Social Connectedness and Foreign Direct Investment
(with Felix Dornseifer)
This paper shows that cross-country social networks can mitigate uncertainty in the context of foreign direct investment (FDI). We first document an economically important relationship between social connectedness -- measured through Facebook friendship links -- and FDI. We exploit genetic distance as a novel instrument to establish a plausible causal link. Social connectedness is particularly important when political, economic, and institutional uncertainty is high. Our results suggest that interpersonal connections are one possible channel to resolve frictions arising from increasing global political and economic uncertainty.
Does publication lead to publication? The effect of author reputation on publication success
[older version] [current version under major revision]
I test whether non-quality related author reputation affects publication success. I exploit the fact that post-publication journal reputation changes affect an author's reputation exogenously. This quality independent reputation change significantly increases the publication success of the next publication, without influencing citations. The effect of reputation increases with journal prestige and is particularly pronounced in non-specialized economics journals. The results suggest that a better reputation can cause better publication outcomes.
Work in progress
Not all friends are equal
Inequality, economic connectedness, and financial decision-making
(with Andra Ghent and Mark Jansen)