Publications
Pledgeability and Bank Lending Technology with Wei Zhai, Journal of Corporate Finance, August 2024, 88, 102650
What is the effect of an expansion of eligible collateral on different lending technologies? We show, both empirically and theoretically, that a larger set of eligible collateral: (i) increases average loan volume more for transaction (T) banks than for relationship (R) banks; (ii) increases T-banks' net interest income more than R-banks' and (iii) decreases average loan risk where the effect is driven by R-banks. Expanding the set of collateral from immovable to movable assets typically benefits SMEs because it allows them to obtain secured instead of unsecured loans.
Asset trade, Real investment and a tilting Financial transaction tax with Swarnava (Sonny) Biswas, Giacomo Calzolari and Fabio Castiglionesi , Management Science, April 2023, 69(4), 2401-2424.
We study the impact of a financial transaction tax (FTT) in a model that combines asset trade and real investment. An informed trader holds private information about the fundamental value of a firm and the firm's manager relies on the asset price to infer such information and invest accordingly. We show that an FTT inefficiently reduces trading in the financial market, however it may tilt the market equilibrium and make asset prices more informative. We characterize when each of these two effects prevails. The model also helps reconciling empirical evidence on the adoption of the FTT.
Executive Summary FTT, Executive Summary FTT (German)
Working papers
Asymmetric Information in Repo Markets with Piotr Danisewicz, Loriano Mancini, Francesco Mazzari and Julian Metzler
We study how market structure impacts the transmission of an uncertainty shock on repurchase agreements (repos). In the European market, repos are traded anonymously in central clearing counterparties (CCP) and bilaterally in over-the-counter (OTC) markets. We develop a model of lender competition with heterogeneous borrowers in which borrower quality is private information and repos are traded via OTC and CCP markets. By leveraging regulatory, transaction-level data, we provide evidence for the empirical predictions of the model. We find that (i) repo rates in the CCP market react stronger to economic uncertainty shocks than in the OTC market, (ii) low quality borrowers benefit from pooling with high quality borrowers in an anonymous CCP market and (iii) high value collateral is more valuable in CCP than in OTC markets. Our results inform the discussions on repo market fragmentation, the use of CCPs and the transmission of monetary policy.
Geopolitical Risk and Green Transition: Evidence from Green and Sustainability-linked Loans with Giuseppe Pratobevera, Klaus Schaeck and Xueyi Wang
We show how geopolitical risk influences the green transition. The 2022 Russia–Ukraine war serves as a quasi-natural experiment to examine lending in the green and sustainable loan (GSLL) market. Using bilateral trade exposure as a proxy for geopolitical risk across 54 major economies, we find a significant post-war increase in the number and volume of GSLL originations in highly exposed countries. Firms pursue green and sustainable investments as a hedge against geopolitical risks. Industry-level analysis shows that this increase is driven by low-exposed industries, while high-exposed industries exhibit a negative but statistically insignificant response. Exploring potential mechanisms at firm-level, we find that GSLL borrowers in low-exposed industries experience improved EBIT margins, while those in high-exposed industries face declining operating cash flows. These results highlight two distinct channels: low-exposed firms leverage green loans for growth and opportunity, while high-exposed firms prioritize financial survival by diverting resources away from green investments.
Real Effects of Unconventional Monetary Policy with Piotr Danisewicz, Ye Gao and Klaus Schaeck
This paper investigates the real effects of unconventional monetary policy on firms' R&D investment and product market competitiveness. We exploit a quasi-natural experiment, in which the ECB via its Corporate Sector Purchase Programme (CSPP), quasi randomly purchases firms' bonds. By focusing on firms whose bonds are eligible to the CSPP, we show that as a result of reduced funding costs, firms whose bonds were purchased invest more into R&D. We provide evidence that runner-ups in product market competition are the main beneficiaries of the reduced funding costs.
(In)efficient repo markets with Loriano Mancini and Norman Schürhoff
Repo markets trade off the efficient allocation of liquidity in the financial sector with resilience to funding shocks. The repo trading and clearing mechanisms are crucial determinants of the allocation-resilience tradeoff. The two common mechanisms, anonymous central-counterparty (CCP) and non-anonymous over-the-counter (OTC) markets, are inefficient and their welfare rankings depend on funding tightness. CCP (OTC) markets inefficiently liquidate high (low) quality assets for large (small) funding shocks. Two innovations to repo market design contribute to maximize welfare: a liquidity-contingent trading mechanism and a two-tiered guarantee fund.