Does Partisanship Affect Household Consumption?

Invited for submission to the Journal of Financial Economics

Abstract: This paper examines the impact of partisan bias on household consumption. Leveraging detailed household purchase data, I find that households politically aligned with the current U.S. president exhibit higher spending levels and purchase higher-quality goods compared to their misaligned counterparts. This consumption gap cannot be explained by changes in household economic situations or supply-side factors but instead reflects differences in optimism. The partisan consumption effect is more pronounced among politically extreme households and during periods of heightened polarization. Using the staggered entry of right-wing media as a shock to household political attitudes, I show that this shock increases optimism and consumption under Republican presidencies while decreasing both under Democratic ones. Political alignment also correlates with lower savings, suggesting that aligned households, driven by optimism, reduce precautionary savings to support higher spending. Overall, these findings highlight how partisan beliefs can shape household consumption and savings behavior.

Political Alignment and Household Risk-Taking: Evidence from U.S. Mortgage Market (with Zijie Liu)

Abstract: This paper investigates the impact of political alignment with the U.S. president on household risk-taking in the mortgage market. Using a sample of 37 million mortgages acquired by Fannie Mae and Freddie Mac from 2000 to 2023, we show that borrowers in politically aligned zip codes take on greater financial risks, as indicated by higher leverage ratios, loan amounts, and interest rates, relative to borrowers in misaligned areas with similar risk profiles and economic conditions. We find no evidence of lax screening from lenders, suggesting that borrower-side factors such as heightened optimism and risk tolerance drive this partisan risk-taking effect. We further provide aggregate evidence of increased mortgage origination volumes in politically aligned areas. Our findings reveal an important yet underexplored connection between partisanship and household financial decisions, with potential implications for financial stability.

Cursed with Knowledge? Strategic Risks of AI-Powered Monitoring (with Xuyuanda Qi) 

Revise & Resubmit, Management Science

Abstract: Why are some financial institutions slow to adopt artificial intelligence (AI) despite its decreasing costs, while others are quick to embrace it? This paper develops a theoretical framework to understand the tradeoff between using AI for better borrower evaluation and maintaining strict financial discipline. Although AI improves the ability to assess borrower quality during refinancing, it can also encourage financiers to refinance initially speculative borrowers, thus exacerbating adverse selection in initial lending. To avoid these risks, some institutions may optimally choose not to adopt AI. Our model predicts that lower AI costs drive adoption only when this adverse selection is not severe. Moreover, AI adoption is most beneficial for institutions with a moderate-quality lending pool. These results help explain the strategic dynamics of AI adoption in lending and investment monitoring.

Partisan Pricing in SBA Loans

Abstract: I provide the first evidence that partisan perception among lenders affects the cost of credit for small businesses in the U.S. Analyzing SBA 7(a) loan data, I show that lenders who are misaligned with the party of the U.S. president charge 11 basis points higher loan spreads than lenders who are aligned. This pricing gap is highly robust and cannot be fully explained by differences in borrower or lender fundamentals. Instead, perception differences across lenders based on their political affiliations appear to drive the results. I find that lenders with greater exposure to political news and less exposure to diversity exhibit greater partisan pricing bias, and that the SBA's regulatory intervention serves as a mechanism to limit such bias. Overall, this study highlights an additional friction facing the small business lending market.

Holding Cash for Corruption? Evidence from China’s Anti-corruption Campaign (with Yulin Chen, Changyun Wang, and Jianyu Zeng)

Accounting & Finance

Abstract: Leveraging China's 2012 anti-corruption campaign as a quasi-natural experiment, we find that firms with higher pre-campaign bribery spending reduce their cash holdings more than firms with lower spending. Additionally, these ex-ante more corrupt firms experience a greater decrease in the value of their cash holdings, suggesting that cash was more valuable to them before the campaign. The baseline pattern is more pronounced among financially constrained firms, those with better governance, and private enterprises. However, we do not observe significant changes in financing conditions or investment decisions following the campaign. Overall, our findings suggest that firms reduce their cash holdings in anticipation of a decrease in corrupt opportunities in the post-campaign era.