Essays in Financial Intermediation and Corporate FinanceYingjie Q

i ESSAYS IN

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ISBN 978-91-7731-169-0

DOCTORAL DISSERTATION IN FINANCE STOCKHOLM SCHOOL OF ECONOMICS, SWEDEN 2020

Yingjie Qi

ESSAYS IN FINANCIAL INTERMEDIATION AND CORPORATE FINANCE

Essays in Financial Intermediation and Corporate FinanceYingjie Q

i ESSAYS IN

FINA

NCIA

L INTERM

EDIA

TION

AN

D CO

RPORA

TE FINA

NCE

ISBN 978-91-7731-169-0

DOCTORAL DISSERTATION IN FINANCE STOCKHOLM SCHOOL OF ECONOMICS, SWEDEN 2020

Yingjie Qi

ESSAYS IN FINANCIAL INTERMEDIATION AND CORPORATE FINANCE

Essays in Financial Intermediation and Corporate Finance

Yingjie Qi

Akademisk avhandling

som för avläggande av ekonomie doktorsexamen vid Handelshögskolan i Stockholm framläggs för offentlig granskning

måndagen den 15 juni 2020, kl 15.15, Swedish House of Finance,

Drottninggatan 98, Stockholm

Essays in Financial Intermediationand Corporate Finance

Yingjie Qi

Dissertation for the Degree of Doctor of Philosophy, Ph.D.,in EconomicsStockholm School of Economics, 2020

Essays in Financial Intermediation and Corporate Finance© SSE and Yingjie Qi, 2020

ISBN 978-91-7731-169-0 (printed)ISBN 978-91-7731-170-6 (pdf)

This book was typeset by the author using LATEX.

Front cover photo: © Emma Qi Meurk

Printed by: BrandFactory, Gothenburg, 2020

Keywords: relationship banking, cross-selling, credit allocation, debt renegotiation,�nancial distress, banking misconduct, online lending.

iii

致我的父母

To my parents

Foreword

This volume is the result of a research project carried out at the Department of Finance atthe Stockholm School of Economics (SSE).

The volume is submitted as a doctoral thesis at SSE. In keeping with the policies ofSSE, the author has been entirely free to conduct and present her research in the mannerof her choosing as an expression of her own ideas.

SSE is grateful for the �nancial support provided by the Swedish Bank Research Foun-dation, the Jan Wallander and Tom Hedelius Foundation and Stiftelsen Louis FraenckelsStipendiefond, which has made it possible to carry out the project.

Göran Lindqvist Per Strömberg

Director of Research Professor and Head of theStockholm School of Economics Department of Finance

Stockholm School of Economics

Acknowledgements

I am forever indebted to my advisor Per Strömberg for his continuous support, guidance,and belief in me. Per is one of the kindest people and best economists in the world. It hasbeen a privilege to be his student.

I thank Bo Becker, Mariassunta Giannetti, Vincent Maurin, Jan Starmans, and Dong Yanfor many helpful discussions and valuable feedback in the process of writing this thesis. Ithank Adrien d’Avernas, Ramin Baghai, Marieke Bos, Tomas Björk, Magnus Dahlquist,Michael Halling, Jungsuk Han, Paolo Sodini, and Pehr Wissén for their support on thejob market.

I thank my co-authors Christoph Bertsch, Clara Fernström, Isaiah Hull, and Xin Zhangfor the opportunities to work with them. I thank Tor Jacobson, Jesper Lindé, and UlfSöderström for their hospitality during my long visit at the Sveriges Riksbank. I thank theSwedish Bank Research Foundation and the Jan Wallander and Tom Hedelius Foundationfor their �nancial support.

I thank my friends Ricardo Lopez Aliouchkin, Alberto Allegrucci, Niklas Amberg, Fate-meh Hosseini, Markus Ibert, Mats Levander, Jieying Li, Maja and Peter Román, ErikSverdrup, and Tommy von Brömsen for many fun memories.

Finally, thank you to my parents, my sister Yanjie, my husband Anders, and my daughtersEmma and Ellinor. Thank you for being in my life.

Stockholm, April 20, 2020Yingjie Qi

Contents

Introduction 1

1 Big Broad Banks: How Does Cross-Selling A�ect Lending? 31.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.2 Related literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.3 Data and description of products . . . . . . . . . . . . . . . . . . . . 121.4 Baseline results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151.5 Theoretical framework . . . . . . . . . . . . . . . . . . . . . . . . . 201.6 Identi�cation of the mechanisms . . . . . . . . . . . . . . . . . . . . 241.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301.A References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

2 Bank Misconduct and Online Lending 592.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602.2 Related literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632.3 The P2P online lending market . . . . . . . . . . . . . . . . . . . . . 662.4 Theoretical framework and hypothesis development . . . . . . . . . . 682.5 Data and descriptive statistics . . . . . . . . . . . . . . . . . . . . . . 702.6 Empirical results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722.7 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 862.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 872.9 Main tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 892.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1072.B References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

3 Cost of Loans and Moral Hazard: A Quasi-Experiment 1233.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1243.2 Experimental setting . . . . . . . . . . . . . . . . . . . . . . . . . . 1273.3 Data and sample restriction . . . . . . . . . . . . . . . . . . . . . . . 1273.4 Empirical strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1293.5 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

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3.6 Robustness tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1323.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1353.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1493.B References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

Introduction

This doctoral thesis is a collection of three essays.In the �rst essay Big Broad Banks: How Does Cross-Selling A�ect Lending?, I show

that combining loan and non-loan products (cross-selling) has two bene�ts, using uniquemicro-data that contain the internal information on all corporate customers of a largeNordic bank. First, it increases credit supply, especially in recessions. Second, it increasesthe likelihood of receiving lenient treatment in delinquency. I argue that non-loan rela-tionships play an important role in determining credit supply and debt renegotiation, notonly by (i) mitigating information asymmetries (as suggested in earlier literature), butalso by (ii) increasing the pro�tability of the relationship. Exploiting an exogenous anddi�erential change in similar products’ pro�tability due to the Basel II implementation, Iestimate the causal e�ect of this new pro�t channel on credit supply. A 20 percent decreasein non-loan products’ pro�tability (i) reduces credit supply to a�ected �rms by 13 percent(600,000 USD) compared with una�ected �rms, and (2) reduces likelihood of receivinglenient treatment for a�ected �rms by 30 percent (13 pp) compared with una�ected �rms,conditional on being delinquent.

* * *

The second essay, Bank Misconduct and Online Lending, is joint work with ChristophBertsch, Isaiah Hull, and Xin Zhang. We introduce a high quality proxy for bank miscon-duct that is constructed from Consumer Financial Protection Bureau (CFPB) complaintdata. We employ this proxy to measure the impact of bank misconduct on the expansionof online lending in the United States. Using nearly complete loan and application datafrom the online lending market over the 2008-2016 period, we demonstrate that bankmisconduct is associated with a statistically and economically signi�cant increase in onlinelending demand at both the state and county levels. Exploiting plausibly exogenous shockto how borrowers perceive the degree to which traditional banks engage in misconduct,we rule out alternative explanations such as liquidity and other factors.

* * *

The third essay, Cost of Loans and Moral Hazard: A Quasi-Experiment, is joint workwith Clara Fernström. We document the e�ects of higher loan costs on private �rms in the

2 E S S AY S I N F I N A N C I A L I N T E R M E D I AT I O N A N D C O R P O R AT E F I N A N C E

presence of �nancial frictions by exploiting a novel quasi-experiment and a unique andcomprehensive dataset from Sweden. In June 2010, the central bank of Sweden increasedthe policy rate unexpectedly and exposed �rms with long term loans maturing right beforeor after to di�erent costs of loans. Consistent with the debt overhang theory, we �ndthat higher costs of loans have a signi�cant negative e�ect on investment, and more sofor highly levered �rms. Contrary to the risk shifting theory, we �nd no evidence thatdistressed �rms engage in activities that are riskier ex-post due to higher costs of loans.These results are robust to carefully controlling for �rms’ credit demand.