Columbia Business School
Credit markets, monetary policy, information economics
with Gabriel Chodorow Reich, Stephan Luck and Matthew Plosser
Journal of Financial Economics, 2022
We use supervisory loan-level data to document that small firms (SMEs) obtain shorter maturity credit lines than large firms; post more collateral; have higher utilization rates; and pay higher spreads. We rationalize these facts as the equilibrium outcome of a trade-off between lender commitment and discretion. Using the COVID recession, we test the prediction that SMEs are subject to greater lender discretion. Consistent with this hypothesis, SMEs did not drawdown in contrast to large firms, even in response to similar demand shocks. PPP recipients reduced non-PPP loan balances, indicating the program bolstered their liquidity and alleviated the shortfall.
with Andrew Sutherland
Review of Financial Studies, 2021
We study how SME lenders react to information about their competitors' contracting decisions. To isolate this learning from lenders' common reaction to unobserved shocks to fundamentals, we exploit the staggered entry of lenders into an information sharing platform. Upon entering, lenders adjust their contract terms toward what others offer. This reaction is mediated by the distribution of market shares: lenders with higher shares or operating in concentrated markets react less. Thus, contract terms are shaped not only by borrower or lender fundamentals, but also by the interaction between information availability and competition.
Journal of Finance, 2020
2020 JF Brattle Prize for Distinguished Paper
This paper estimates the magnitude of an informational friction limiting credit reallocation to firms during the 2007-2009 financial crisis. Because lenders rely on private information when deciding which relationship to end, borrowers looking for a new lender are adversely selected. I show how to identify private information separately from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships. Quantitatively, these informational frictions seem too small to explain the credit crunch in the U.S. syndicated corporate loan market.
with Alexander Rodnyansky
Review of Financial Studies, 2017
Banks’ exposure to large-scale asset purchases, as measured by the relative prevalence of mortgage-backed securities on their books, affects lending following unconventional monetary policy shocks. Using a difference-in-differences identification strategy, this paper finds strong effects of the first and third round of quantitative easing (QE1 and QE3) on credit. Highly affected commercial banks increase lending by 3% relative to their counterparts. QE2 had no significant impact, consistent with its exclusive focus on Treasuries sparsely held by banks. Overall, banks respond heterogeneously and the type of asset being targeted is central to QE.
Revise and Resubmit, Journal of Financial Economics
with Andrew Sutherland
We examine how the supply of fixed capital affects firm investment. Using equipment transaction-level data, we find pandemic-driven production disruptions significantly altered capital reallocation patterns across firms. A surge in used capital trading activity softened the investment decline, as firms acquired used capital from distant and dissimilar counterparts. Younger firms were disproportionately affected even though they rarely purchase new capital: while in normal times older firms sell their capital to younger firms, following a supply shock, older firms compete for used capital, pricing out younger firms. Our evidence highlights the crucial role of secondary markets and distributive externalities for corporate investment.
Revise and Resubmit, Review of Financial Studies
with Lira Mota. Data available here.
We construct a novel panel dataset to provide new evidence on how the largest nonfinancial firms manage their financial assets. Our granular data shows that, over the past decade, bond portfolios have grown to be at least as large as cash-like instruments, driven by the meteoric rise of corporate bond holdings. To shed light on the drivers of this growth, we conduct a pair of event studies around the 2017 tax reform and the 2020 liquidity crisis. Large holdings of marketable securities are primarily driven by cross-border tax incentives, while cash-like instruments are driven by liquidity motives.
with Kerry Siani and Kairong Xiao.
We develop a two-layer asset demand framework to analyze fragility in the corporate bond market. Households allocate wealth to institutions, which allocate funds to specific assets. The framework generates tractable joint dynamics of flows and asset values, featuring amplification and contagion, by combining a flow-performance relationship for fund flows with a logit model of institutional asset demand. The framework can be estimated using micro-data on bond prices, investor holdings, and fund flows, allowing for rich parameter heterogeneity across assets and institutions. We match the model to the March 2020 turmoil and quantify the equilibrium effects of unconventional monetary and liquidity policies on asset prices and institutions.
with Melina Papoutsi. New version!
Using newly available micro-data on public and private firms, this paper documents five facts about the the rise of bond financing in the euro area through the lens of new and small issuers. (1) Recent new issuers are typically small, private, and unrated; (2) bond spreads of unrated issuers are around the investment-grade threshold; (3) holdings of traditional `buy-and-hold' bond investors are small for unrated and smaller issuers, while financial intermediaries and households are large investors; (4) during the March 2020 turmoil, financial intermediaries were as "safe hands" investors as insurers but households were as flighty as mutual funds; (5) the subsequent bond issuance wave was restricted to large firms, with other issuers returning to the loan market. These facts imply that these issuers are largely disconnected from the aggregate bond market and still significantly dependent on intermediaries.
with Kerry Siani
How do asset purchases by central banks transmit to the real economy? Using micro-data on corporate balance sheets, we study firm behavior after the unprecedented policy support to corporate bond markets in 2020. As bond yields fell, firms issued bonds to accumulate large and persistent amounts of liquid assets. The effects on real investment was generally weak: many issuers already had access to bank liquidity and maintained equity payouts, while others used bond funds to pay back bank debt. This evidence sheds light on how corporate liquidity and financial heterogeneity matter for the macro-economy and the transmission of unconventional policy.
Formally titled: Crowding-Out Bank Loans: Liquidity-Driven Bond Issuance
with Oliver Giesecke and Alexander Rodnyansky
Corporate bond markets are a growing source of funding for companies throughout the world. How does a firm's debt structure affect the transmission of monetary policy? This paper sheds light on a new corporate finance mechanism in which monetary policy disproportionately impacts market-financed firms as bonds have higher downside risks relative to bank loans. We present high-frequency evidence consistent with this channel in the euro area: firms with more bonds are more affected by surprise monetary actions than their counterparts. This finding stands in contrast to a standard bank lending channel and suggests a key role for bond markets in monetary transmission.
with Simon Essig Aberg and Juha Tolvanen
Corporate Bond Issuance and Bank Lending in the United States (with Kerry Siani), European Economy: Banks, Regulation, and the Real Sector - Banking and Covid, 2021
Horizon Effects and Adverse Selection in Health Insurance Markets (with Dan Zeltzer) Canadian Journal of Economics, forthcoming