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Author: Rodney Benjamin Wallace
Publisher:
ISBN:
Category :
Languages : en
Pages : 145
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Author: Rodney Benjamin Wallace
Publisher:
ISBN:
Category :
Languages : en
Pages : 145
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Author: David F. Andrade
Publisher:
ISBN:
Category :
Languages : en
Pages : 236
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Author: Menghan Xu
Publisher:
ISBN:
Category :
Languages : en
Pages : 117
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The dissertation consists of three essays on industrial organization with a particular focus on the structures of financial markets. The first chapter theoretically studies how search friction affects competition and resource allocation in crowdfunding loan markets, which are described using a many-to-one matching framework. Namely, competitive fundraisers must accumulate multiple investors to complete a transaction. I develop a dynamic matching model with a fixed sample search, a la Burdett and Judd (1983), in which fundraisers compete in interest rates while investors look for good investment targets. I highlight two important economic forces in the model. First, investors can only observe a limited number of quotes. Second, a surplus cannot be created until a fundraiser attracts contributions from enough investors. I show that in the presence of search friction, fundraisers implement mixed strategies to set interest rates in a unique stationary equilibrium, which results in rate dispersion even if the goods are homogeneous. Regarding resource allocation, I show that in the many-to-one market, rate dispersion creates an endogenous coordination mechanism among anonymous and independent investors, thereby making it easy for them to concentrate their investments. In other words, search friction improves allocation efficiency in a crowdfunding market compared with its perfect competition counterpart. Based on the theoretical framework constructed in the first chapter, the second chapter empirically studies the market structure of the crowdfunding market. I construct a novel data set based on a large panel of fundraisers' behaviors. Using reduced form analysis, I find evidence of persistent rate dispersion and funding mismatches, which are consistent with the theoretical predictions of the search model. I also show that the model is identifiable and can be estimated using a non-parametric approach, which allows me to measure the allocation efficiency. Regarding methodology, I demonstrate that it is sufficient to use projects' ranks to recover search friction primitives, which reduces the computational burden and increases the precision. The third chapter studies how the combination of adverse selection and moral hazard affects the design of financial contracts. Specifically, the chapter studies an optimal mechanism design problem,a la Mussa and Rosen (1978), in the presence of limited enforcement. In the study, the bank (principal) designs loan contracts to screen firms (agents) with unobserved productivities. Meanwhile, the bank cannot prevent the firm from consuming acquired funds without producing anything. The impediment of forming contracts creates an endogenous outside option for all borrowers. I show that in the optimal mechanism, loan sizes for higher types are decreased by ironing, i.e., by pooling on the top. In addition, the lower types produce at the second-best level. Moreover, I show that firms' participation is independent of the enforcement level.
Author: Fabian Ackermann
Publisher:
ISBN:
Category :
Languages : en
Pages : 143
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Author: Xiaoye (Phoebe) Tian
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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This dissertation explores how imperfections in financial markets affect decisions made by market participants and subsequent market outcomes. The three chapters in this dissertation focus on three different financial markets: corporate lending market for small firms in China, refinance market for residential mortgage in US and retail investment product market in China. The first chapter studies inefficiencies arising from the lack of long-term contracting between borrower (firm) and lender (bank). I draw on a proprietary data from a Chinese bank, which only offers one-year term loans for small firms. How, and to what extent can default risk be reduced if they were able to enter long-term contract? I develop a dynamic model of business lending to analyze borrower's default incentives in an environment with imperfect information and learning. Estimation of the structural model implies that over seventy percent of observed defaults are strategic borrower defaults. In the counterfactual model, banks are able to offer long-term contingent contract which involves a schedule of future lending terms that can vary with time and firm's financial status. I find that optimal long-term contract has two main benefits: First, by frontloading prices, it alleviates agency frictions and disincentivizes willful defaults. Second, by cross-subsidization, it provides insurance for firms against negative shocks. As a result, with long-term contracting 17% fewer firms default, and total firm outputs expand by 2.6%. The second chapter (joint with Chen Zheng) studies the unintended consequences arising from program design, and how it augments the market power of incumbent lenders, in the context of a federal program called Home Affordable Refinance Program. We build a dynamic discrete choice model of refinance decision where the payoff is generated from a search and negotiation process. We estimate the model using data on program participation and pricing decision. The estimation exploits a significant change to the program design that gives exogenous variation in the competitive advantage of incumbent lenders under the program. In a counterfactual where the advantage granted by program design is shut down, we find that it leads to an average welfare improvement of 4,977. The insight from this study could apply to other policies whose implementation depends on intermediaries with incumbency advantage with respect to targeted agents. In the third chapter, I develop an empirical structural model of the wealth management sector in China in order to analyze the welfare impact of the proposed regulation aimed at ending the prevalence of the implicit guarantee in this industry. The implicit guarantee means the bank implicitly promises the returns on wealth management products to investors, and investors choose from differentiated wealth management products based on characteristics including guaranteed returns. In the counterfactual post-regulation scenario, the bank does not guarantee returns, and it only serves as an intermediary charging a constant fee, shifting the underlying risk of investment to investors. The change of consumer welfare hinges on two forces-the adjustment of the bank's markups and investor's disutility of risk. Empirical findings suggest that the markup decreases moderately, but not enough to completely compensate for investor's aversion of risk, so consumer surplus drops slightly as a result of the regulation.
Author: John Joohahn Moon
Publisher:
ISBN:
Category : Asset allocation
Languages : en
Pages : 286
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Author: Yifei Wang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Author: Andrey G. Zagorchev
Publisher:
ISBN: 9781124193748
Category :
Languages : en
Pages : 141
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The third essay examines the impact of government ownership and financial markets on corporate governance using 1327 firms from fourteen EU countries in the period 2003 to 2008. The results show that aggregate government ownership measured through privatization and financial markets lead to improvements in the corporate governance practices of firms.
Author: Emanuele Tarantino
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 140
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Author: Marcus Eduardo Mathias Studart
Publisher:
ISBN:
Category :
Languages : en
Pages : 126
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This essay consist of three chapters. In chapter 1, I analyze the equilibrium behavior of asset prices and margins (i.e collateral required to trade shares using debt), when Market Makers smooth out price fluctuations by trading on a margin. I address the questions of 1) whether financial margins can increase in reaction to supply shocks without misinformation about the shocks' nature, 2) when non-fundamental shocks reduce asset prices and increase margins, and 3) how margins and prices react to persistent supply shocks, as opposed to temporary ones. In the model, price fluctuations are induced by supply shocks, and margins are set to match the price depreciation induced by a future negative tail shock. Temporary shocks (i.e. shocks that fade very soon) are shown to have no effects on prices or margins, when either they are small or Market Makers hold large collateral amounts. If the shock is sufficiently large, some shares will be held by (currently active) risk averse investors, and price falls due to larger risk premium. If, before the shock, Market Makers were holding asset shares, prices fall even more, because Market Makers wealth is marked down, and expected future prices falls, since it becomes more likely that future shocks will depress prices. Persistent shocks (i.e. shocks that do not fade quickly) reduce current prices, because, in the best scenario, they shift down the future price distribution, and reduce Market Makers' asset valuation. I give conditions for margins to increase with a persistent shock. Falling prices and higher margins are not necessarily the result of a margin spiral (i.e. when margins increase and constrain Market Makers, who are forced to sell, causing prices to fall and margins increase more). Margins can increase because future price variance increases at the same time as Market Makers' asset valuation reduces, and Market Makers may not be financially constrained at all. In chapter 2, I study repurchase agreements, short-term collateralized loans known as repos, that are commonly used to fund different sorts of assets. Using a dataset of Money Market Mutual Funds (MMF), I find that repos backed by liquid collateral, such as US Treasuries securities, have on average shorter maturities, lower haircut rates and lower interest rates than less liquid collateral, while the average maturities of repos held by MMF are positively correlated with fund size and overall portfolio maturity. Motivated by these evidences, I develop an equilibrium model to price simultaneously assets and repos. I show that assortative matching between assets and lenders offering different maturities exists in equilibrium. Lenders who offer longer maturities are better suited to finance less liquidity securities, since investors' expected transaction costs are lower, as collateral (to repay debt) is sold long after their debt is considered unworthy. Liquid securities prices increase with repos, in order to make the financing of illiquid securities more attractive to long maturity lenders. Interest rates and haircuts are functions of both the transaction costs and maturities distributions, and are shown to be increasing in illiquidity. Haircuts exceed the securities' transaction costs, in order to cover how much securities depreciate when sold, and to force borrowers to repay the interest on their debt. Moreover, illiquid securities have higher haircuts, because not only they have larger transaction costs but also because the repos used to finance them pay more interest. I emulate a financial crisis through an increase in the probability of a debt run. As repos are terminated earlier, all asset prices decrease. Illiquid securities prices, however, fall notably more and haircuts and interest rates of repos to fund them increase. In chapter 3, which is co-authored with Siwei Kwok, we study the interaction of information and competition in incentivizing quality provision. We estimate a discrete quality game with Los Angeles County restaurant hygiene inspection data set, via the two step method of Bajari et al (2006). Our results suggest that firm competition incentivizes quality provision, but the effect is non-monotonic. If a market is saturated with a sufficiently large number of firms, an additional firm might actually reduces the likelihood that all others will provide quality. Information, however, enhances the effects of competition and reduces the threshold which additional firms reduce quality provided.
