Conference Agenda
Please note that all times are shown in the time zone of the conference. The current conference time is: 17th May 2024, 08:18:20am CEST
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Session Overview | |
Location: 2A-33 (floor 2) |
Date: Thursday, 17/Aug/2023 | ||||
8:30am - 10:00am | FI 02: Private Equity Financing Location: 2A-33 (floor 2) Session Chair: Merih Sevilir, Halle Institute for Economic Research and ESMT-Berlin | |||
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ID: 1014
The Broader Impact of Venture Capital on innovation: Reducing information frictions through due-diligence 1London School of Economics and Political Science; 2Kings College London; 3ShanghaiTech University; 4Tsinghua University Most research on venture capital (VC) focuses on VCs’ value-add to their portfolio companies. We explore VCs’ broader value-add on the companies they do not fund, specifically as a by-product of their due diligence. We use novel data from a seed Fund that assigns applicants to due diligence based on the scores of quasi-randomly assigned reviewers. We find that assignment to due diligence leads to higher growth, but also increased closure, even among applicants rejected for investment. The results suggest that VC due diligence helps entrepreneurs reduce their information frictions, possibly by enabling entrepreneurs to learn about their businesses.
ID: 217
Optimal Allocation to Private Equity 1Copenhagen Business School, Denmark; 2Dartmouth College, United States of America We study the portfolio problem of an investor (LP) that invests in stocks, bonds, and private equity (PE) funds. The LP repeatedly commits capital to PE funds. This capital is only gradually contributed and eventually distributed back to the LP, requiring the LP to hold a liquidity buffer for its uncalled commitments. Despite being riskier, PE investments are not monotonically declining in risk aversion. Instead, there are two qualitatively different investment strategies with intuitive heuristics. We introduce a secondary market for PE partnership interests to study optimal trading in this market and implications for the LP’s optimal investments.
ID: 889
Who Finances Disparate Startups? 1University of Colorado at Boulder, Leeds School of Business; 2University of Georgia, United States of America Recently, new firm formations have become more geographically dispersed with greater regional industry diversity. Using detailed early-stage firm information from Crunchbase, we show that such a diminishing industrial agglomeration trend for young firms is driven by angel financing. This trend is tied to angel investors' unique portfolio selection of startups that diverges from venture capital's approach. Specifically, angels who are exceedingly intolerant of geographic distance prefer to invest in more distinctive firms industry-wise, while venture capital investors make industry-concentrated investments with relatively greater geographic flexibility. We also show that angel investors' portfolio selection of disparate startups enhances funded firms' performance and plays an important economic role in forming the regional entrepreneurial ecosystem.
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10:30am - 12:00pm | HF 01: Household Debt Location: 2A-33 (floor 2) Session Chair: Arkodipta Sarkar, National University of Singapore | |||
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ID: 214
How do Borrowers Respond to a Debt Moratorium? Experimental Evidence from Consumer Loans in India 1Bocconi University, Italy; 2CEPR; 3World Bank; 4Stanford GSB Debt moratoria that allow borrowers to postpone loan payments are a frequently used tool intended to soften the impact of economic crises. We conduct a nationwide experiment with a large consumer lender in India to study how debt forbearance offers affect loan repayment and banking relationships. In the experiment, borrowers receive forbearance offers that are presented either as an initiative of their lender or the result of government regulation. We find that delinquent borrowers who are offered a debt moratorium by their lender are 4 percentage points (7 percent) less likely to default on their loan, while forbearance has no effect on repayment if it is granted by the regulator. Borrowers who are offered forbearance by their lender also have causally higher demand for future interactions with the lender: in a follow-up experiment conducted several months after the main intervention demand for a non-credit product offered by the lender is 10 percentage points (27 percent) higher among customers who were offered repayment flexibility by the lender than among customers who received a moratorium offer presented as an initiative of the regulator. Overall, our results suggest that, rather than generating moral hazard, debt forbearance can improve loan repayment and support the formation of longer-term banking relationships.
ID: 188
The Demand for Long-Term Mortgage Contracts and the Role of Collateral University of Pennsylvania, Wharton Long-term fixed-rate mortgage contracts protect households against interest rate risk, yet most countries have relatively short interest rate fixation lengths. Using administrative data from the UK, the paper finds that the choice of fixation length tracks the life-cycle decline of credit risk in the mortgage market: the loan-to-value (LTV) ratio decreases and collateral coverage improves over the life of the loan due to principal repayment and house price appreciation. High-LTV borrowers, who pay large initial credit spreads, trade off their insurance motive with reducing credit spreads over time using shorter-term contracts. To quantify demand for long-term contracts, I develop a life-cycle model of optimal mortgage fixation choice. With baseline house price growth and interest rate risk, households prefer shorter-term contracts at high LTV levels, and longer-term contracts once LTV is sufficiently low, in line with the data. The findings help explain reduced and heterogeneous demand for long-term mortgage contracts.
ID: 956
Forbearance vs. Interest Rates: Experimental Tests of Liquidity and Strategic Default Triggers Washington University, United States of America I use the random assignment of debt relief policies in a large-scale field experiment to test default models emphasizing liquidity and strategic behavior. In contrast to liquidity being the sole trigger, borrowers respond differently to a dollar reduction in current payments when delivered through forbearance or interest rate reduction: forbearance reduces payments twice as much, whereas delinquencies are more responsive to a rate reduction. Compatible with strategic behavior, borrowers default in response to changes in future payments orthogonal to solvency and liquidity. Compatible with the endogeneity of triggers, whether forbearance or interest rates are more effective, and defaults are strategic is tightly linked to borrower balance sheets. I characterize a single strategic default trigger whose location is influenced by distress, precaution, and assets. The findings have implications for targeting loan modifications and modeling the pass-through of interest rates.
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1:30pm - 3:00pm | HF 02: Life Expectancy, Saving, and Other Life-Cycle Decisions Location: 2A-33 (floor 2) Session Chair: Tabea Bucher-Koenen, ZEW-Leibniz Center for European Economic Research | |||
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ID: 1793
Household Finance under the Shadow of Cancer Tilburg University I study the causal effects of life expectancy on households' financial and economic decisions. My sample consists of individuals who undergo genetic testing for a hereditary cancer syndrome. Genetic testing randomizes tested persons into two groups. Those who test positive learn that they face a high risk of cancer and a shorter life expectancy. Those who test negative learn that their cancer risk is not elevated. The differences in outcomes between these two groups identify the effects of life expectancy. I find that life expectancy has a positive effect on wealth accumulation. Lower savings rates, safer portfolios, decreased labor supply, and different preferences for household composition explain lower wealth accumulation under reduced life expectancy.
ID: 713
Mortality Beliefs and Saving Decisions: The Role of Personal Experiences University of Mannheim, Germany This paper is the first to non-experimentally establish a causal relationship between households’ mortality beliefs and subsequent saving and consumption decisions. Motivated by prior literature on the effect of personal experiences on individuals’ expectation formation, I exploit the death of a close friend as an exogenous shock to the salience of mortality of a household. Using data from a large household panel, I find that the death of a close friend induces a significant reduction in saving rate of 2.2 percentage points which persist over the following 5 years. I augment the life-cycle model of consumption by the experienced-based learning model and quantify the impact of this personal experience on mortality beliefs. Even though the shock has no material impact on a household’s situation, I find a quantitatively large initial reduction in expected survival probability of 7.1 percent.
ID: 807
Scared Away: Credit Demand Response to Expected Motherhood Penalty in the Labor Market 1CUHK Business School, The Chinese University of Hong Kong, Hong Kong S.A.R. (China); 2TCL Corporate Research(HK) Co., Ltd; 3National University of Singapore We exploit a policy reform that exogenously deteriorates mothers’ job prospects. China switched from a one-child policy to two-child in 2016, which increased female workers’ childbearing and caring responsibilities. Using a leading peer-to-peer lending platform targeting college students in China, we find that loan applications from female college students decrease by 15.6\% relative to male students after the reform. The drop suggests that female students can anticipate the poorer future job prospects; they reduce their expenditure and invest less in human capital accordingly. Applications for long-term and large-amount loans and loans for human capital investment purpose experience the largest decline. We also find that loan applications decrease after provincial governments' staggered extension of maternity leaves and that the decrease is more prominent when the expected motherhood penalty is greater. The results are unlikely driven by credit supply channels.
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Date: Friday, 18/Aug/2023 | ||||
8:30am - 10:00am | FI 06: FinTech and Lending Techniques Location: 2A-33 (floor 2) Session Chair: Thomas Chemmanur, Boston College | |||
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ID: 1549
Does Relationship Lending Discipline Disclosure? Evidence from Bailout Firms Tel Aviv University, Israel Assessing the Paycheck Protection Program (PPP) --- a financial rescue program designed to cover firms' payroll expenses during the Covid-19 pandemic --- I document that the decision of managers whether to reveal the bailout loan details to the public dominates the disclosure strategy of firms that engage in relationship lending, especially for longer and more intense relationship. Examining potential economic channels, I find that strategic disclosure is unlikely to be driven by habit formation or liquidation concerns. Instead, the evidence suggests that strategic disclosure is driven by relationship capital considerations, where firms incur the costs of disclosing unfavorable news to reduce lenders' monitoring concerns in exchange for future lending benefits. Overall, the findings highlight a novel economic channel for releasing unfavorable information in which relationship lending has a disciplinary effect on firms' strategic disclosure, especially during times of crisis when debt monitoring becomes more relevant.
ID: 1784
Old Program, New Banks: Online Banks in Small Business Lending Virginia Polytechnic Institute and State University, United States of America While banks historically offer a litany of different credit and depository products to their local customers, technological innovation and consumer preferences have spurred growth of online banks specializing in particular activities across broad geographic areas. This paper analyzes the unintended consequences of online banks' specialized lending model on small business lending. We use loans in the SBA program, which provides guarantees to motivate partner-lenders to lend to higher-risk borrowers. We find that online banks expand credit access, lending in disadvantaged and underserved geographies. While providing credit, online banks target higher guarantees, generating a cross-subsidy from traditional lenders, borrowers, and the government to online lenders.
ID: 693
The Entrepreneurial Finance of Fintech Firms and the Effect of Fintech Investments on the Performance of Corporate Investors 1Boston College, United States of America; 2University of California Irvine, United States of America; 3University of Ottawa, Canada; 4Lehigh University, United States of America We analyze the effect of corporate investments in fintech startups on startup performance and on the future performance of investing firms. Corporate investment in fintech startups is associated with greater successful exit likelihood; more and higher quality innovation; and higher inflow of high-quality inventors. We establish causality using an IV analysis. A stacked difference-in-differences analysis shows that such investments enhance the product market performance and equity market valuation of corporate investors belonging to the financial services sector, but not those in the non-financial sector. We show that formation of strategic alliances between investors and fintech startups drive these performance improvements.
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10:30am - 12:00pm | FI 08: Lenders and Borrowers Location: 2A-33 (floor 2) Session Chair: Loriana Pelizzon, Leibniz Institute for Financial Research SAFE | |||
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ID: 785
The price of leverage: what LTV constraints tell about job search and wages? 1Tilburg University; 2Norges Bank Does household leverage matter for workers' job search, matching in the labor market, and wages? Theoretically, household leverage has been shown to have opposing effects on the labor market through, among others, a debt-overhang and a liquidity constraint channel. To test which channels dominate empirically, we exploit the introduction of a macroprudential borrowing restriction that exogenously reduces household leverage in Norway. We study home-owners who lose their job and find that a reduction in leverage raises wages by 3.3 percentage points after unemployment. The mandated restriction of leverage enables workers to search longer for jobs, and thereby find positions in firms that pay higher wage premia and switch to new occupations and industries. We observe no evidence that greater use of credit during unemployment drives the extended job search. The positive effect on wages is persistent and more pronounced for workers who are more likely to benefit from improved job search, such as young people. Our findings contribute to the debate on the costs and benefits of policies that constrain household leverage and show that such policies, while primarily aiming at enhancing financial stability, have other positive effects such as improved labor market outcomes.
ID: 974
Asset-side Bank Runs and Liquidity Rationing: A Vicious Cycle The Chinese University of Hong Kong, Shenzhen, China, People's Republic of I study asset-side runs on credit lines in an infinite-horizon banking model. Strategic complementarity between bankers and credit line borrowers arises: borrowers' panic drawdowns and bankers' liquidity rationing reinforce each other, leading to a vicious cycle. Using data from U.S. banks, I estimate the model and quantify the amplification effect due to the strategic complementarity. This amplification effect accounts for two-thirds of the overall credit shortfalls during the 2008-09 crisis. My estimation also suggests policies targeting banks and borrowers simultaneously to support bank credit.
ID: 2238
Concentrating on Bailouts: Government Guarantees and Bank Asset Composition 1IESE Business School, Spain; 2UPF & BSE This paper studies the link between government guarantees for banks and bank asset concentration. We show theoretically that these guarantees, when combined with high leverage, incentivize banks to further invest in asset classes they are already heavily exposed to. We confirm these predictions using U.S. panel data, exploiting exogenous changes in banks' political connections for variation in bailout expectations. At the bank level, we find that higher bailout probabilities are associated with higher portfolio concentration. At the bank-loan class level, we find that banks respond to an increase in their bailout expectations by further loading up on loan classes that already have a high weight in their portfolio.
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1:30pm - 3:00pm | FI 11: Green Banks? Location: 2A-33 (floor 2) Session Chair: Diana Bonfim, Banco de Portugal | |||
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ID: 392
“Glossy Green” Banks: The Disconnect Between European Banks’ Sustainability Reporting and Lending Activities 1Stockholm School of Economics; 2Barnard College, Columbia University; 3The University of Texas at Dallas; 4European Central Bank We study the relation between banks’ environmental reporting and lending activities. We create a proxy for environmental-themed disclosures using content analysis on banks’ investor reports. Taking advantage of granular loan-level data from a euro-area credit registry, we show that banks with extensive environmental disclosures lend more to brown borrowers and do not provide more credit to firms in green industries. We find that these results are not driven by banks’ financing of brown borrowers’ transition to greener technologies. Instead, these banks lend to the weakest borrowers in brown industries, especially if they have low capital adequacy. Our results suggest that European banks overemphasize their climate goals and credentials, but continue to be tied to their established credit relationships with polluting borrowers.
ID: 534
Credit supply and green investments 1Norges Bank, Norway; 2Bank of Italy; 3Warwick Business School; 4University of Trento Does an increase in credit supply affect firms' likelihood to invest in green technologies? To answer this question, we use text algorithms to extract information on green investments from the comments to the financial statements of Italian SMEs between 2015 and 2019. To identify the effect of credit supply, we use all loans disbursed by banks operating in Italy to construct a firm-specific time-varying instrument for credit availability. We find a large positive elasticity of green investments to credit supply. The effect is concentrated among firms with high availability of internal capital and in areas with higher preferences for environmental protection. Subsidies and market competition can spur green investments if combined with environmental awareness.
ID: 582
Value-Driven Bankers and the Granting of Credit to Green Firms 1University of Zurich, Switzerland; 2Macquarie University, Australia; 3Aalto University School of Business, Finland; 4CEPR, UK; 5IFN, Finland; 6Swiss Finance Institute, Switzerland; 7KU Leuven, Belgium; 8NTNU Business School, Norway How do bankers treat green firms? Utilizing unique loan application and banker preference data from a mid-sized bank, we find that customer managers, serving as front-line bankers, provide more favorable recommendations for green firms, particularly when they hold strong green values. However, a minority of environmentally skeptical bankers counteract this trend. These brown managers fake green interests when their recommendations bear no weight, and conversely, diminish their endorsements to green firms when they do hold significance. Additionally, brown loan officers, acting as superiors to these managers, strive to offset positive green firm evaluations by downgrading them.
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Date: Saturday, 19/Aug/2023 | ||||
9:30am - 11:00am | FI 13: Deposits and Lending Location: 2A-33 (floor 2) Session Chair: Larissa Schaefer, Frankfurt School of Finance and Management | |||
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ID: 2118
Payment Risk and Bank Lending: The Tension between the Monetary and Financing Roles of Deposits 1University of Washington, United States of America; 2Federal Reserve Board Banks finance lending with deposits and support the operation of payment system by allowing depositors to freely transfer funds in and out of their deposit accounts. This bundling of financial services creates a liquidity mismatch. Using granular payment data, we characterize a sizeable liquidity risk exposure that banks face due to highly volatile payment flows. Payment risk is a form of funding stability risk that is unique to banks. Our analysis demonstrates the tension between the monetary role and financing role of deposits. We find that payment risk dampens bank lending: An interquartile increase in payment risk is associated with a decline in loan growth that is 10%-20% of its standard deviation. This detrimental effect is amplified by funding stress in broader financial markets and is stronger for undercapitalized banks. Furthermore, payment risk impedes the bank lending channel of monetary policy transmission. Finally, we characterize how banks mitigate payment risk by adjusting deposit rates.
ID: 955
Running Out of Time (Deposits): Falling Interest Rates and the Decline of Business Lending, Investment and Firm Creation Columbia Business School, Columbia University I show that the long-term decrease in the nominal short rate since the 1980s contributed to a decline in banks' supply of business loans, firm investment and new firm creation, and an increase in banks' real estate lending. The driving force behind these relationships was the shift in banks’ funding mix from time deposits (CDs) to savings deposits, which was caused by the decrease in the nominal rate. I show that banks finance business lending with time deposits because of their matching interest-rate sensitivity and liquidity. A lower nominal rate reduces the spread on liquid deposits (e.g., savings deposits), leading households to substitute towards them and away from illiquid time deposits. In response to an outflow of time deposits, banks cut the supply of business loans and increase their price. The decrease in business lending leads to reduced investment at bank-dependent firms and a lower entry rate of firms in industries that are highly reliant on external funding. I document these relationships both in the aggregate, and in the cross-section of banks, firms and geographic areas. For identification, I exploit cross-sectional variation in banks' market power and business credit data. I develop a general equilibrium model which captures these relationships and shows that the transmission mechanism I document is quantitatively important.
ID: 757
The Impact of Fintech on Banking: Evidence from Banks' Partnering with Zelle 1China Europe International Business School, China, People's Republic of; 2Xi'an Jiaotong-Liverpool University, China, People's Republic of; 3Xi'an Jiaotong-Liverpool University, China, People's Republic of Despite a burgeoning literature on Fintech lending that has been occurring from outside the financial industry, less is known about the adoption of Fintech by banks and its implications. We fill this gap by investigating banks’ partnering with Zelle. We document a network effect in banks’ decisions to partner with Zelle as they are positively affected by Zelle penetration in the market that the banks operate. Zelle partnering is followed by higher growth in partnering banks’ deposits and, consequently, small business lending, in the market with greater Zelle penetration. For identification, we rely on (1) estimations of cross-branch variations within a bank to account for bank-level lending opportunities and (2) an exogenous shock to a bank’s Zelle-partnering status due to bank mergers. Overall, our findings are consistent with the interactive nature of banks’ technology adoption and the positive impact of Fintech on banks’ deposit taking and small business lending.
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11:30am - 1:00pm | FI 15: Gender Discrimination Location: 2A-33 (floor 2) Session Chair: Laurent Bach, ESSEC Business School | |||
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ID: 620
Gender, performance, and promotion in the labor market for commercial bankers 1VU Amsterdam; 2Emory University, Goizueta Business School; 3University of Zurich; 4Swiss Finance Institute; 5KU Leuven; 6NTNU; 7CEPR Using detailed data from the U.S. syndicated loan market, we find that women are persistently under-represented among senior commercial bankers. This gap is not closing over time due to unequal promotion rates between men and women working at the same institution in the same year and cannot be explained by a different individual or managerial performance. The gap is driven more by people than by institutions, with senior bankers both exhibiting assortative matching when switching employers and subsequently shifting the promotion gap in the direction of their previous workplace. We find evidence consistent with parts of the gap being driven by women shouldering more of the burden of family care. Hard credentials or female leadership at the top of banks do not attenuate the gender gap. In contrast, after being targeted by gender discrimination lawsuits, banks increasingly promote women.
ID: 1178
Crime and Punishment on Wall Street: Gender Stigmata in SEC Enforcements 1UC Berkeley; 2SFI at University of Lausanne, Switzerland The SEC punishes major financial crimes with both monetary fines and professional bars. We document that punishments differ starkly across gender. Female offenders receive longer bars from the finance industry and smaller money penalties than male offenders on average. While men tend to receive combinations of punishment, women receive either professional bars or monetary penalties, but not both. Females are 50% less likely than males to cooperate with the SEC. This evidence is consistent with a model of enforcement where for women admitting guilt through accepting a professional bar entails social stigma. The SEC’s two-dimensional punishment scheme thus entails economic disparities between men and women.
ID: 1066
Fintech and Gender Discrimination 1UNC Charlotte, United States of America; 2Renmin University; 3CUHK Shenzhen Using data from a lending platform that switched from a human-based to a machine learning-based system, we find that fintech may increase gender discrimination. The rationale is that machine learning algorithms allow the platform to better decipher differences in borrower preferences between female and male borrowers. Specifically, after the switch, the platform assigned higher interest rates and better credit ratings to less price-sensitive female borrowers. These results are not driven by changes in borrower credit risk or lender preferences. Instead, the behavior is consistent with the platform’s attempt to maximize its revenue by applying price discrimination to female borrowers.
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