Firm-level Media Coverage, Bank Loans, and the Role of Institutional Environments (with Donghui Li, Yukun Shi and Lu Xing)
Presented at the Chinese Economics Association (Europe/UK) 2020 Annual Conference, International Risk Management Virtual Conference 2020, and University of Glasgow. Revise & Resubmit at Journal of Corporate Finance.
Employing an international sample of 12,422 bank loan facilities across 37 countries spanning 2000-2016, we investigate the impact of firm-level media coverage on bank loan pricing and the role of institutional environments. We find that both media coverage and positive media sentiment reduce bank loan pricing, which can be achieved by the media’s roles in mitigating information frictions, reducing information risks, and enhancing competition among lenders. We further document that this negative relationship is more pronounced in countries with better accounting and trading information environments, higher representation of privately owned media newspapers, and lower government control of banks. Our main conclusions remain valid after carefully taking into account endogeneity issues and conducting various robustness tests.
Credit Market Segmentation, Access to Credit, and Corporate Risk-taking: Evidence from Asset-backed Securitisation (with Yukun Shi and Yeqing Zeng)
Presented at the Conference on Financial Technology and Finance Development in China 2019 (CUFE, Beijing, China), University of Glasgow and University of Plymouth. Formerly titled "Does Asset-backed Securitisation Affect Corporate Risk-taking?"
This study examines the effect of the use of Asset-backed Securitisation (ABS) on corporate risk-taking. After careful consideration of self-selection bias and endogeneity, we find that the use of ABS is positively associated with corporate risk-taking. More borrowing through ABS economically and significantly increases corporate risk-taking incentives, through increasing access to credit markets. Employing hand-collected ABS data from 10-K filings in the EDGAR database, we document that firms with larger ABS borrowing capacity and less consumption of credit gain from ABS show more risk-taking incentives afterwards. Further analysis suggests that the ABS systematically affected risk-raking, but unequally across firms. The findings support the theoretical views that low costs of capital, high assets liquidity and good investment opportunities are associated with more corporate risk-taking behaviour. Credit market segmentation and accessibility to the credit market are positively related to risk-taking. The findings highlight the relationship between corporate financing and investment decision.
Can Securitisation Prompt Public Firms’ Innovation? (with Thomas Chemmanur and Yukun Shi)
Using hand-collected data from 10-K filings, we analyse the relation between asset-backed securitisation and corporate innovation inputs and outputs. We find that securitisation is an efficient way of spurring public firms' innovation after carefully considering endogeneity issues. Further tests show that securitisation is associated with more exploitative innovation. We support the hypothesis that the effect of securitisation is through the risk-taking channel rather than releasing the financial constraint channel.
Institutional Shareholders’ Temporary Distraction: Acute Pain or Chronic Pain? Evidence from Bank Loans (with Jinhong Hu, Yukun Shi and Dan Zhou)
This paper examines the effect of distraction among institutional investors on various features of the loan contract. We use an exogenous measure to capture institutional investor distraction (Kempf et al. 2017). Using a facility-level sample from 1985 to 2017 of US non-financial borrowers, we find there is a positive relationship between the distraction and the cost of bank loans. Distraction also increases the concerns of risk elements in a loan’s contract. The effects of institutional distractions are associated characteristics of institutional investors, the investors’ holdings proportions and the borrower’s ex-ante credit condition. Further tests show that the increase in loan spread is due to weakened monitoring and governance efforts from institutional investors when they are distracted. Overall, this study contributes to the literature that investors show limited attention to corporate actions and our evidence supports the governance role of institutional shareholders.