Research
Lighthouse in the Dark: Search in Marketplace Lending May 2024
Presentation: 2024 AEA Poster; 2022 EEA; 2022 China Fintech Research Conference; 2020 China Finance Doctoral Forum; Bocconi Finance Brown Bag Seminar; LBS Ph.D. Seminar; 2019 Econometric Society European Winter Meeting; Bocconi La Strada Seminar; 2020 Royal Economic Society's Annual Conference (canceled due to Covid-19)
Abstract: This paper sheds light on search frictions in a two-sided online personal loan market. Technology has brought numerous unsophisticated individuals to marketplaces. Using data from a leading Chinese marketplace lending platform, I uncover the presence of a concave demand curve in this market. Borrowers in the online market are revealed mostly unsophisticated, resulting in challenges in proposing reasonable interest rates. I then exploit the staggered introduction of private lending registration service centers (PLcenters) in Chinese cities to demonstrate the role of public information services in mitigating frictions and improving the online lending market outcomes. These PLcenters aim to disseminate financial knowledge and enhance transparency. Using staggered difference-in-differences (DID) analysis, I find PLcenters effectively boost marketplace lending and increase match rates. Remarkably, PLcenters help borrowers, especially those less sophisticated, propose better interest rates, leading to reduced interest rate dispersion. In addition, I present a directed search model with imperfect private and public information to explain economic mechanisms.
Data Manipulation in Marketplace Lending May 2024
with Yutong Hu
Presentation: 2024 ESEM Rotterdam (scheduled); 2024 Economics of Financial Technology Conference (scheduled); 2024 ZEW Conference on Information and Communication Technologies (scheduled); 2024 Wharton Financial Regulation Conference; EWMES 2023, Manchester; 2nd International Cardiff Fintech Conference; 2023 WinE Mentoring Retreat; 2022 HU-IWH Joint Junior Seminar; 2022 China Fintech Research Conference*
Abstract: We provide evidence of online marketplace lending platforms selectively disclosing repayment performance data and find that such default data hiding significantly reduces market efficiency and affects market stability. Using peer-to-peer (P2P) lending data from a leading platform in China, we observe that the platform substantially under-reports actual loan default rates by cooperating with offline sister companies and using the risk control fund. These data-hiding practices are widespread across platforms. Our baseline estimations suggest that the platform under-reported the monthly default rates by at least 5.26 percentage points on average. Moreover, our further investigation reveals that the data-hiding practices drive the online market further away from information efficiency and lower the quality of active borrowers. Furthermore, we conduct event studies to compare loan transaction and secondary market outcomes with those from another more transparent pure-online platform during the ``Ezubao scandal" period. The results imply that hiding default rates makes the market more fragile to investor runs.
Green Investing, Information Asymmetry, and Capital Structure Jan 2024
with Biao Yang
Presentation: IAAE China 2024* (scheduled); 2024 FMA Europe Turin (scheduled); 2024 AFA AFFECT Mentoring; CFAC2023*; 2023 EEA*; Yonsei University; Bocconi La Strada Seminar*; 2021 Econometric Society European Winter Meeting; IWH Brown Bag Seminar
Abstract: We investigate how optimal attention allocation of green-motivated investors changes information asymmetry in financial markets and thus affects firms' financing costs. To guide our empirical analysis, we propose a model where an investor with green taste endogenously allocates limited attention to study market-level or firm-specific fundamental shocks. We find that more green-motivated investors tend to pay more attention to green firm-level information than market-level information. Thus, a higher green taste leads to less category learning behavior. It reduces the information asymmetry of green firms, leading to lower leverage and lower cost of equity capital. Moreover, the information asymmetry of brown firms and the market increases with the green taste. Greater green attention is associated with less market efficiency. We provide empirical evidence to support our model predictions by using US data. Our paper shows how the growing demand for sustainable investing shifts investors' attention and benefits eco-friendly firms.
Impact of monetary policy on corporate default and associated welfare cost
with Kwangwon Ahn, Hanwool Jang and Daeyong Lee
Abstract: This study investigates the impact of modern monetary policy instruments, particularly quantitative easing and forward guidance, on corporate default and the resulting welfare costs. To this end, the study employs a competitive equilibrium framework that features cash-in-advance constraints and endogenous corporate default. We find that both monetary policies decrease the default risk, but quantitative easing escalates the welfare costs of corporate defaults, whereas forward guidance mitigates them. At the medium level of default, the estimated welfare cost of corporate default attributable to quantitative easing and forward guidance is 0.0488\% and 0.0494\% of real output, respectively. Our findings also reveal that including endogenous default in the competitive equilibrium model enhances sensitivity and responsiveness to monetary policy fluctuations, demonstrating that default risk functions as a pivotal connector between the real economic landscape and the financial sector.
Work in Progress
Local Media Closures and Corporate Debt Financing
*: presented by coauthor(s)
Discussions
• 2023 EFA, Reducing Entrepreneurial Capability Constraints: The Broader Role Of Venture Capital Due-diligence, by Juanita Gonzalez-Uribe, Robyn Klingler-Vidra, Su Wang and Xiang Yin (Discussion Slides).
• 2022 China Fintech Research Conference, Influence Of Institutional Differences On Trade Credit Use During Pandemics, by Kung-Cheng Ho (Discussion Slides).
• 2022 HUI workshop, Consumer Credit and Impulse Shopping, by Valentin Burg and Jan Keil (Discussion Slides).