Zhiqiang Ye (叶智强)

Working Papers

Information Abundance, Competition for Attention, and Corporate Efficiency (Job Market Paper).

Presentation: 2023 Finance Forum PhD Mentoring Day, 2023 Annual Meeting of ABF&E, 18th Conference on Asia-Pacific Financial Markets, TSE-TSM PhD Finance Workshop, 6th Future of Financial Information Conference (scheduled)

Abstract: I study how speculators' information costs affect real efficiency when firms learn from stocks and speculators' information acquisition consumes their attention. A firm can attract speculators' attention by increasing exposure to its risky production project. Lowering speculators' information acquisition costs improves stock price informativeness and corporate efficiency when the costs are high. Yet, when the costs are low, speculators use up their limited attention. Then, decreasing speculators' information costs can backfire: Firms excessively increase risky project exposure to engage in zero-sum competition for speculators' attention, reducing corporate efficiency and social welfare. Raising firms' growth opportunities can reinforce such inefficiency.

Information Technology and Lender Competition (with Xavier Vives). 3rd R&R at Journal of Financial Economics.  

Winner of the SANFI award for the best paper on Banking at the 29th Finance Forum, 2022.

Presentation (* denotes presentation by co-authors): MADBAR Workshop 2020, CEBRA 2021*, SaMMF Johns Hopkins*, EARIE 2021, EFA 2021*, ESEM 2021, FIRS 2021*, SAEe 2021, Finance Forum 2022, Bocconi-CEPR 2023 Fintech Conference*

Abstract: We study how information technology (IT) affects lender competition, entrepreneurs' investment, and welfare in a spatial model. The effects of an IT improvement depend on whether it weakens the influence of lender–borrower distance on monitoring costs. If it does, it has a hump-shaped effect on entrepreneurs' investment and social welfare. If not, competition intensity does not vary, improving lender profits, entrepreneurs' investment, and social welfare. When entrepreneurs' moral hazard problem is severe, IT-induced competition is more likely to reduce investment and welfare. We also find that price discrimination is not welfare-optimal and that lenders will invest excessively in IT if it is cheap enough. Our results are consistent with received empirical work on lending to SMEs.

Fintech Entry, Lending Market Competition, and Welfare (with Xavier Vives). 

Presentation (* denotes presentation by co-authors): NYU Stern*, DNB-Riksbank-Bundesbank Macroprudential Conference 2022*, MadBar Workshop 2022, SAEe 2022, 15th Digital Economics Conference*, 12th MoFiR Workshop on Banking 

Abstract: We study fintech entry and how it affects competition, investment, and welfare in a spatial model. We find that fintechs with inferior monitoring efficiency can successfully enter because of their superior flexibility in pricing. It follows that fintech borrowers are more likely to default than bank borrowers with similar characteristics. Higher bank concentration leads to higher fintech loan volume and quality. Fintech entry may induce banks' exit and reduce investment; however, it will increase investment if inter-fintech competition is intense enough. Fintech entry will improve welfare if fintechs have high monitoring efficiency and inter-fintech competition intensity is intermediate.

Loan Contract Design and Bank Monitoring with Preferential Central Bank Funding (with Christian Eufinger).

Presentation (* denotes presentation by co-authors): Finance Forum 2023*, 2023 CFRI&CIRF Joint Conference

Abstract: We analyze the effects of central bank funding schemes that offer banks preferential funding rates and collateral requirements on their loan contract design, monitoring incentives, and borrowers' investment behavior. We find that such programs can lead to two types of negative real effects within bank-firm lending relationships. First, they prompt banks to induce their borrowers to assume excessive leverage and overinvest. Second, when offered lenient collateral requirements, banks might forego monitoring and incentivize their borrowers to invest in high-risk, inefficient projects. A particularly novel insight emerges from interaction effects between preferential central bank funding rates, market interest rates, and preferential collateral requirements: the first two can both intensify the adverse impact of the latter on banks' monitoring incentives and, in turn, borrowers' investment efficiency.

Banking on Bailouts (with Christian Eufinger and Juan Pablo Gorostiaga).

Abstract: Banks have a significant funding-cost advantage if their liabilities are protected by bailout guarantees. We construct a corporate finance-style model showing that banks can exploit this funding-cost advantage by just intermediating funds between investors and ultimate borrowers, thereby earning the spread between their reduced funding rate and the competitive market rate. This mechanism leads to a crowding-out of direct market finance and real effects for bank borrowers at the intensive margin: banks protected by bailout guarantees induce their borrowers to leverage excessively, to overinvest, and to conduct inferior high-risk projects. We confirm our model predictions using U.S. panel data, exploiting exogenous changes in banks' political connections, which causes variation in bailout expectations. At the bank level, we find that higher bailout probabilities are associated with more wholesale debt funding and lending. Controlling for loan demand, we confirm this effect on bank lending at the bank-firm level and find evidence on loan pricing consistent with a shift towards riskier borrower real investments. Finally, at the firm level, we find that firms linked to banks that experience an expansion in their bailout guarantees show an increase in their leverage, higher investment levels with indications of overinvestment, and lower productivity.

Publications

An Equilibrium Model for Risk Management Spillover (with Shiyang Huang, Ying Jiang, and Zhigang Qiu),  Journal of Banking and Finance, 2019.