Research


Underwriter Competition and Institutional Loan Pricing (with Zheng Sun, Chenyu Xiong, and Qifei Zhu)
This paper studies how competition among potential underwriters affects the pricing process of institutional loans. Underwriters trade off between setting the initial loan rates aggressively low in order to win underwriting mandates and having to adjust the rates upward in the book-building process, which heightens the risk of losing borrowers’ businesses in the future. We find that the intensity of underwriter competition negatively affects initial loan spreads and is associated with more upward rate adjustments. Using exogenous shocks that reduce banks’ ability to underwrite future deals, we find lower subsequent rate adjustments in the affected market segments, supporting a causal interpretation.


Intermediated Credit and Local Resilience (with Erica Jiang and Lee Seltzer)
This paper demonstrates the importance of bank capital in improving local resilience and the complementarity of bank capital and government aid programs. We show that following the COVID-19 pandemic and shutdown, areas with more jobs supported by subsidized bank loans during normal times had more job losses and business closures, and more so if the local banking sector is less capitalized. Such losses were heavily borne by low-income workers. We also find that areas with a less capitalized banking sector received disproportionately less Paycheck Protection Program funding. Using a dynamic model of firm entry and exit with bank borrowing, we formulate the mechanism of how bank capital can mitigate the impact of adverse aggregate shocks on employment and firm exit. We calibrate the model to quantify effects of bank capital on resilience and the amount of government funding necessary for full resilience in various simulated scenarios of adverse shocks and bank capitalization.


The ESG Preference of Bond Investors (with Chenyu Xiong)
This paper examines bond investors’ preferences for issuers’ Environmental, Social, and Governance (ESG) profiles. We first document that bonds issued by firms with better ESG scores enjoy lower offering yields and are more likely purchased by investors whose existing portfolios exhibit stronger ESG focus. We then show that better issuer ESG profiles lead to higher investor ownership concentration and lower sell-herding tendencies, where the relationship is likely causal. Additionally, we show that flows of a corporate bond mutual fund are less sensitive to its bad performances if its portfolio is more tilted towards high-ESG issuers. These results imply that an ESG-oriented clientele exists among institutional bond investors and that such preferences are viewed favorably by households.


Skilled Labor and Voluntary Forecast Disclosure (with Qianqian Huang and Chang Shi)
This paper examines the impact of skilled labor on firms’ voluntary disclosure of earnings forecasts. We find that firms exhibit higher tendency to disclose both good-news and bad-news forecasts if skilled labor is more essential for their business operations, where we claim causal inference through an instrumented variable approach. The effect is more pronounced, particularly on bad-news forecasts, for firms that are smaller or younger, have more mobile CEOs, compete more fiercely in local labor markets, or experience stock-market price pressure. Results are robust to controlling for local labor quality and labor mobility. We attribute our findings to firms’ strategic communication to foster valuable human capital investments.


Bank Income Tax, Lending Decisions, and Deposit Competition (with Erica Jiang)
We demonstrate the impact of income tax on commercial banks’ lending decisions. We exploit staggered changes in corporate income taxes across U.S. states and show that the share of jumbo loans in banks’ mortgage origination responds negatively to changes in tax rates. In the cross section, the magnitude of this response is negatively associated with the intensity of deposit competition banks are faced with. In addition, although tax increases (cuts) exert no effect on the amount of conforming loan origination, they lead to an increase (decrease) in the average interest rate spread of such loans over the corresponding prime mortgage benchmark rate. This effect appears to be driven by banks in more competitive deposit markets. The findings suggest that income tax directly influences bank lending decisions through the funding cost channel.


Regulatory Capital, Business Growth, and Investment Risk: Evidence from Life Insurance Companies
This paper examines how capital requirements affect life insurance companies’ business growth and investment risk taking. I show through a simple model that capital requirements are negatively (positively) associated with life insurers’ equilibrium business scale (average portfolio investment risk). Using staggered changes in U.S. state laws that enable life insurers to raise capital more easily, I find evidence consistent with the model’s prediction: life insurers respond to these law changes by accelerating their insurance underwriting growth and reducing their allocation to risky investments on average. The effect is more pronounced for insurers that are less financially competitive.