Collateral and Credit (NEW) - draft coming soon
(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 (NEW)
(with Cédric Huylebroek)
The impact of private equity (PE) buyouts on target firms is well documented, yet empirical evidence on their impact across the supply chain remains scarce. We address this gap by leveraging unique production network data to examine how supply chains contribute to PE investors’ ability to create and extract value. We show that, on average, suppliers of PE-backed firms outperform their peers due to increased demand for inputs from PE-backed customers, rather than due to alternative mechanisms such as knowledge spillovers. In contrast, during economic downturns, while PE-backed firms outperform their peers even more strongly, their suppliers show no signs of outperformance. This can be explained by PE investors exerting pressure on and reconfiguring their supply chains to achieve cost savings for their portfolio companies during periods of economic distress. Finally, beyond their impact on suppliers, we also show that PE buyouts create crowding-out effects for competitors that rely on common suppliers.
Identifying Heterogeneous Supply and Demand Shocks in European Credit Markets (NEW)
(with Daniel Lewis)
We propose a new model in which relationship-specific supply and demand shocks are non-parametrically identified in bipartite data under mild assumptions. For example, separate heterogeneous supply shocks are identified for each firm to which a bank lends. We show that a simple estimator is consistent, derive its limiting distribution, and illustrate its performance in simulations. Using these methods, we identify the heterogeneous distributions of supply and demand shocks for thousands of banks and firms in 11 European countries using the Anacredit dataset. Our estimates characterise how both quantity and price elasticities, and thus supply and demand curves, have changed in those 11 markets in recent years. The shock distributions exhibit within-firm/bank heterogeneity that is not well-explained by conventional fixed effects approaches, which only capture between-firm/bank heterogeneity. This unexplained heterogeneity correlates strongly with economically meaningful relationship-level characteristics and macroeconomic policy measures. These results have important implications for policy, identification assumptions in empirical work, and modeling exercises.
Bank Specialization and Corporate Innovation (forthcoming at Review of Finance - Special Issue on Finance and Product Markets )
(with Hans Degryse, Leonardo Gambacorta and Cédric Huylebroeck)
Theory offers conflicting predictions on whether and how lenders’ sectoral specialization would affect firms’ innovation activities. We show that the sign and magnitude of this effect vary with the degree of “asset overhang” across sectors, which is the risk that a new technology has negative spillovers on the value of a bank’s legacy loan portfolio. Using both patent data and micro-level innovation survey data, we find that lenders’ sectoral specialization improves innovation for firms operating in sectors with low asset overhang, but impedes innovation for firms operating in sectors with high asset overhang. These results hold for two distinct measures of asset overhang and using bank mergers as a source of exogenous variation in bank specialization. We further show that these heterogeneous effects arise through financial contracting. Overall, our findings provide novel insights into the dual facets of bank specialization and, more broadly, the link between banking and innovation.
Banks and firms: evidence from a legal reform altering contract design (R&R at Journal of Corporate Finance)
(with Hans Degryse and Nikolaos Karagiannis)
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.
Climate regulation, firm emissions and green takeovers
(with Klaas Mulier and Glenn Schepens)
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.
Early stage without (public) draft:
Financial Shocks and Production Networks, with Tong Zhao and Yushi Peng
Household Credit Dynamics: A Cross-Country Analysis during Monetary Policy Tightening, with co-authors from nine central banks
This research is part of a larger cross-country collaborative effort in the context of the ChaMP research network of the European System of Central Banks.