Research papers

[1] Bank Ownership and Product Market Competition (Job Market Paper)

• Presentations: AFA 2022 poster; CICF 2021; New Zealand Finance Meeting 2021; World Finance Conference 2021

This study analyzes how the bank ownership of industrial firms affects firm market power. I find that firms with bank ownership are associated with increased markups, whereas firms facing bank-held competitors experienced diminished markups. Using an exogenous variation to the bank ownership of industry rivals following bank mergers, I employ a difference-in-differences analysis to establish causality inference. The mechanism analyses show that the decreased markup effect is stronger for competitive industries and R\&D-intensive firms. Moreover, firms are more likely to switch banks, especially when banks have more proprietary information on them. I also find increased loan costs for the affected firms.

[2] Common Ownership and Advertisement, with Yaxuan Qi, Yin Wang, and Wenji Xu

This paper provides insights on how common ownership shapes firms' advertisement costs. We develop a theoretical model in which advertising boosts demand and firms simultaneously choose output and advertisement expenditure. The model demonstrates that common ownership increases advertising intensity because it helps internalize the positive spillover effect of advertisement. This effect is more pronounced when advertisement elasticity of demand is high, price elasticity of demand is low, and products are more homogeneous in the industry. Our empirical investigation provides evidence supporting model predictions. Using an exogenous variation in common ownership following financial institution mergers, we employ a difference-in-differences (DID) analysis and find that firms raise ads-to-sale ratio when the mergers increase their common ownership with industry peers. This effect is more pronounced for consumer-orientated firms, high-barrier industries, and firms with market power in the industry.

[3] How Do Debtor-friendly Bankruptcy Reforms Affect Corporate Debt?, with Yaxuan Qi, Wai Yee Wan

A growing number of countries adopt debtor-friendly bankruptcy reforms in the spirit of U.S. Chapter 11 to facilitate the restructuring of distressed corporate debt. Using a difference-in-differences design based on the reforms in six economically advanced jurisdictions, we find that weakened creditor rights lead firms to adopt more diversified debt structures and employ less secured debt. For affected firms, the borrowing costs increase in bank loans and public bonds, showing that creditors request higher risk premiums in facing diminished legal protection. In addition, we observed a shift of term loans to revolving credit and a pattern of shortened debt maturities after these legal reforms. Overall, we provide causal evidence that bankruptcy reforms shape debt structure, and their impact is profound and nuanced.

[4] One Man’s Meat, Another’s Poison: Spillover Effect of Bank-Firm Common Ownership, with Yaxuan Qi

• Presentations: AFA 2020 poster

This paper studies the new and emerged phenomenon that institutional investors simultaneously hold the equity of banks and industrial firms (i.e., bank-firm common ownership). We show that bank-firm common ownership raises the risk of proprietary information leakage and causes real effects on loan and product markets. If a bank establishes common ownership with a firm’s rivals, the firm is more likely to switch the bank and reduces loan borrowing from the bank. This adverse effect is more pronounced in a diversified industry and when a firm shares more similar product lines with its rivals. We also find that the rival-bank common ownership could reduce firms’ market share in their product market. We establish the causality by a difference-in-differences method based on financial institution mergers.