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
Central Clearing, Counterparty Risk, and Repo Specialness with Piotr Danisewicz, Loriano Mancini, Francesco Mazzari and Julian Metzler
European repo transactions clear bilaterally (OTC) or through central counterparties (CCPs). Using transaction-level data from the euro-area repo market, we document that borrowing costs for identical securities are systematically higher in OTC trades than in CCPcleared trades, and that this differential compresses sharply during the March 2020 COVID-19 shock. We develop a model in which repo rates are convex in borrower risk. Because OTC markets price borrower-specific risk while CCPs pool counterparties, this convexity generates the level gap and its compression under stress. The model further predicts that compression is weaker for riskier borrowers and stronger for higher-quality collateral, which we confirm empirically.
SUERF Policy Brief, CMD Opinion
Innovation, Competition and Debt Funding Shock with Piotr Danisewicz, Ye Gao and Klaus Schaeck
We study how debt financing costs shape the link between product-market competition and corporate innovation. Using the European Central Bank’s Corporate Sector Purchase Programme as a funding-cost shock, we compare firms whose eligible bonds were purchased with firms whose bonds were eligible but not purchased. Treated firms face lower bond financing costs, increase bond debt, and raise R&D, while non-R&D investment does not respond. The average response is close to estimates from eligible versus ineligible designs, but the average conceals the result of interest: the innovation effect is confined to highly competitive industries and is driven by firms with low product-market shares. Cheaper debt raises the value of innovation for laggards when competitive pressure makes closing technological gaps strategically valuable. The real effects of monetary interventions therefore depend on product-market structure and on firm position within the industry. Cheaper finance and competition act as complements in stimulating innovation.
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.
(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.