Research
Working Papers
The Big Tech Lending Model (With Lei Liu and Wei Xiong)
Abstract: By comparing uncollateralized business loans made by a big tech lending program with conventional bank loans, we find that big tech loans tend to be smaller and have higher interest rates and that borrowers of big tech loans tend to repay far before maturity and borrow more frequently. These patterns remain for borrowers with access to bank credit. Our findings highlight the big tech lender’s roles in serving borrowers’ short-term liquidity rather than their long-term financing needs. Through this model, big tech lending facilitates credit to borrowers underserved by banks without experiencing more-severe adverse selection or incurring greater risks than banks (even during the COVID-19 crisis).
Owner Culture and Pay Inequality within Firms (With Jan Bena and Iris Wang)
Abstract: We study the role of national culture in explaining within-firm pay inequality in closely-held firms owned by immigrants using a unique employee-employer matched dataset linked with firm ownership and immigrant records in Canada over the 2001 – 2017 period. We find that culture that immigrant owners carry from their home countries is an economically significant determinant of pay inequality within their firms. We show that Hofstede’s individualism is a key cultural dimension affecting within-firm pay inequality: firms owned by individuals from more individualistic countries have larger pay inequality. We show that the impact of culture on within-firm pay inequality is causal. In a difference-in-differences setting using firms that undergo ownership changes, we find a significant increase in within-firm pay inequality after the firm was taken over by immigrant owners from a country with higher within-firm pay inequality or from a more individualistic country. We find similar results among employee stayers; among employee stayers in firms within a labor-intensive industry where production technology is comparable; when the owner changes were caused by deaths of prior owners. Overall, our findings suggest that informal institutions such as national culture are important determinants of income inequality.
Abstract: I examine racial bias in the most popular online home valuation algorithm and study the impact of the algorithmic information on racial price differentials in the U.S. housing market. I find that racial bias in the algorithm is much smaller than racial price differentials in the market. For example, while Black (Hispanic) households overpay (oversell) by 9.3% (1.9%) in prices relative to White households for similar homes, the algorithm only overvalues the same transactions by 1.1% (0.6%). The algorithm inadvertently learns racial bias from patterns in historical transaction prices. The algorithmic racial bias is small partly because the algorithm is designed to be insensitive to transitory pricing factors including buyer or seller race. Exploiting the staggered coverage of the algorithm across counties, I study the causal impact of the algorithmic information on a sample of neighboring ZIP Codes in bordering counties. I find that if the algorithmic valuation is available for all the homes in an area, it reduces the overpayment of Black buyers relative to White buyers by 4.8%, negating more than half of the corresponding racial price differentials. The findings suggest that a slightly biased algorithm may still reduce racial disparity in a market, and caution against regulation on algorithms solely based on the existence of algorithmic bias.
Publications
National Culture and the Value Implications of Corporate Environmental and Social Performance (with Dale Griffin, Omrane Guedhami, and Kai Li) (Journal of Corporate Finance)
Abstract: We examine why environmental and social (E/S) performance vary across countries and firms, and evaluate the value implications. Using a sample of 33,021 firm-year observations representing 4,587 firms from 43 countries over the 2003–2015 period and applying hierarchical linear modeling, we find that individualism is positively associated with firm-level E/S performance. We show that two country-level channels— freedom of the press and protection of equal rights—and three firm-level channels—managerial discretion, board diversity, and corporate transparency—link individualism to E/S performance. We find a positive association between firm-level E/S performance and firm value, with three firm-level channels—cash flows, cash flow variability, and cost of equity—linking E/S performance to firm value. This positive association is stronger in more individualistic countries. Finally, we find that internationalization weakens the role of national culture; however, it accentuates the positive association between firm-level E/S performance and firm value.