Identifying Relationship-level Effects Using Covariance Restrictions (UPDATE APRIL 2026)
(with Daniel Lewis)
CODE: A Python script to implement the decomposition is available
We propose a new model in which relationship-specific effects or shocks are identified in a bipartite network under mild covariance restrictions, generalising the influential Abowd et al. (1999) framework. For example, separate demand shocks are identified for each bank from which a firm borrows. We show how previous approaches break down when confronted with such heterogeneity, while our novel identification strategy yields a simple estimator that is consistent and asymptotically normal, under weaker network assumptions than previous approaches. The methodology performs well in empirically-calibrated simulations. We apply our approach to identify relationship-level credit demand and supply shocks for thousands of firms and banks across nine Euro-area countries and three distinct economic episodes. We formally reject the Abowd et al. (1999) assumptions in nearly every country-period and show that within-firm/bank shock variation is of comparable scale to between firm/bank variation. We document considerable bias in Abowd et al. (1999) style estimates and associated regressions, while finding significant deleterious effects of the post-2022 monetary contraction on exposed firms. We highlight novel heterogeneity in the transmission of monetary policy.
(An earlier version of this paper circulated as "Identifying Heterogeneous Supply and Demand Shocks in European Credit Markets'')
Collateral and Credit (NEW) - European Central Bank working paper
(with Hans Degryse, Luc Laeven and Tong Zhao)
This paper studies the role of collateral using the euro area corporate credit registry, AnaCredit. We document key facts about the importance, distribution, and composition of collateral, including its presence, types, and values. On average, 53% of bank loans are collateralized. Real estate and financial assets are the most pledged, while physical movable assets and other intangible assets are less present. In addition, we show that the aggregate collateral value pledged to the banking sector is substantial, driven mainly by real estate in most countries. For the first time, we examine the collateral channel in bank credit using the actual value of individual collateral. By exploiting within-firm across banks and withinbank across-firm variations for newly issued secured loans, we find that the elasticity of collateral value to loan commitment amounts is around 0.7´0.8. This collateral value elasticity exhibits substantial country and time heterogeneity, which can be explained by legal, financial, and macro conditions.
The Supply Chain Spillovers of Private Equity Buyouts (updated April 2026)
(with Cédric Huylebroek)
We study how private equity (PE) buyouts propagate through supply chains using unique firm-to-firm transactions data from Belgium. In normal times, suppliers of PE-backed firms outperform their peers by 5%–10% in employment and sales growth, primarily due to increased input demand from PE-backed customers rather than knowledge spillovers or other mechanisms. In economic downturns, however, this outperformance is attenuated and suppliers compress markups by around 8% as PE investors intensify bargaining pressure and reconfigure supply chains to extract cost savings. Beyond the direct effects on suppliers, we show that as PE-backed firms absorb supplier capacity, they crowd out competitors that rely on the same suppliers. Overall, our findings underscore that supply chains are central to how PE investors create and redistribute value.
Climate regulation, firm emissions and green takeovers (accepted for publication at Journal of Money, Credit and Banking)
(with Klaas Mulier , Glenn Schepens and Leo Stimpfle)
This paper shows that, when the price of emission allowances is sufficiently high, emission trading schemes improve the emission efficiency of highly polluting firms. The efficiency gain comes from a relative decrease in emissions rather than a relative increase in operating revenue. Part of the improvement is realized via the acquisition of green firms. The size of the improvement depends on the initial allocation of free emission allowances: highly polluting firms receiving more emission allowances for free, such as firms on the carbon leakage list, have a weaker incentive to become more efficient. For identification, we exploit the tightening in EU ETS regulation in 2017, which led to a steep price increase of emission allowances and made the ETS regulation more binding for polluting firms.
Banks and firms: evidence from a legal reform altering contract design (R&R at Journal of Corporate Finance)
(with Hans Degryse, Nikolaos Karagiannis and Tong Zhao)
We study a legal reform that aims to improve small firms' bargaining position by altering the contractual environment. The new law gives small firms the right to prepay loans against a contractually specified penalty and requires banks to offer firms' best-suited loan type. Using this quasi-natural experiment, we show that, while the legal reform increases overall credit availability, banks dampen the effect of the act by tilting their credit supply to loans that are unaffected by the legal change, i.e., credit lines. Our results show that reforms generate unintended consequences since banks strategically try to undo part of the regulation.
Early stage without (public) draft:
Financial Shocks and Production Networks, with Tong Zhao and Yushi Peng