Research

Fields: 

FinTech, Banking, Household Finance, Applied Corporate Finance


Working Papers:

1. FinTech as a Financial Liberator  (with Greg Buchak and Shang-Jin Wei)

Abstract: A binding interest rate cap on household savings is a common form of financial repression in developing economies and typically benefits banks. Using proprietary data from a leading Chinese FinTech company, we study Fintech's role in ending financial repression in China through the introduction of a money market fund with deposit-like features available through an already widely-adopted household payment platform. Cities and banks whose depositor base is more exposed to FinTech see greater deposit outflows. Importantly, exposed banks respond to FinTech competition by offering competing products with market interest rates. FinTech thus facilitates a bottom-up interest rate liberalization.

Presentations: ABFER Capital Market Development: China and Asia Seminar Series, Bank of Italy, China Financial Research Conference (CFRC 2021), China International Conference in Finance (CICF 2021), China International Conference in Macroeconomics (CICM 2021), Columbia Macro Lunch, Luohan Academy Webinar, NBER Chinese Economy Working Group Meeting, NYU Stern CGEB China Initiative, Peking University GSM Finance Webinar, Peking University NSD Faculty Seminar, the Peak Initiative of Digital Finance of Open Research

Media coverage: Columbia Business School       


2. Money Creation in Big Tech Lending

Abstract: I present a novel model where Big Tech platforms create private money outside the regulated banking system. Big Tech platforms distinguish from other online markets by providing FinTech payment services, which are more cost-efficient than cash and traditional bank payments. I show that Big Tech's capacity for private money creation depends on the FinTech payment market share, which determines users' tendency to convert FinTech money into bank money. The growing market share of FinTech payments increases the lending capacity of Big Tech platforms by reducing the de facto fiat money reserve demanded by market participants, which may dampen the effect of monetary policy tightening.

Presentations: 35th Australasian Finance and Banking Conference (AFBC)              


3. Does FinTech Reduce Human Biases? Evidence from Two Quasi-Experiments (with Yanting Chen, Yingwei Dong, and Yiping Huang)

Abstract: We investigate whether FinTech alleviates human biases in lending decisions under asymmetric information. Using proprietary data from a large auto equity loan company in China, we find that nonlocal borrowers obtain a smaller loan-to-value (LTV) ratio than their local counterparts, even after controlling for the collateral value and other borrower characteristics. Using two quasi-experiments where the lender adopts different financial technologies, we find that replacing human decision-making with FinTech algorithms significantly reduces both the LTV ratio and default rate differences between local and nonlocal borrowers, mitigating lending biases against nonlocal borrowers. However, the introduction of FinTech credit scores to assist human decision-making through information provision has no impact. Our results thus demonstrate the potential of algorithms in correcting human biases and promoting financial inclusion. 


4. In the Shadow of Big Tech Lending (with Yanting Chen and Yingwei Dong)

Abstract: We investigate the impact of Big Tech lending on non-bank traditional lenders, which have a more overlapping clientele with Big Techs than traditional banks. Our empirical methodology exploits geographical differences in Big Tech penetration ratios and adopts the instrumental variable (IV) approach using FinTech payment adoption ratios and the distance to the Big Tech's headquarter. We find that the competition from Big Tech worsens the performance of branches facing stronger Big Tech competition by reducing the number of borrowers and the amount of loans. Moreover, branches in cities highly penetrated by Big Tech lending tighten the lending standard by reducing the loan-to-value (LTV) ratios, measured as the approved loan amount per unit collateral value, while keeping the average collateral requirement unchanged. Our findings are consistent with the cream-skimming hypothesis that Big Techs possess better screening technology and reduce the quality of borrowers applying for traditional loans. Our results document novel changes in and responses of the non-bank traditional lending business in the Big Tech era.


5. Term Structure of Rental Housing Supply: Evidence from a PropTech Rental Platform (with Maggie Hu, Shangchen Li, Yingguang Conson Zhang, and Zheng Zhang)

Abstract: Exploiting a unique dataset of rental contracts from a leading PropTech rental platform, we investigate how housing market conditions affect the duration of rental housing supply. Landlords lease their units to the platform for shorter lease terms and are less likely to renew when their neighborhoods experience higher housing price growth and transaction volumes. These findings align with model predictions featuring extrapolative expectations; housing booms improve landlords’ expected future rent growth and resale opportunities, hence inhibiting the supply of units with longer contract duration. This effect is stronger when landlords are more experienced, of the younger generation, and for more popular units. Renters stay longer in units sourced from landlords with longer duration, implying maturity matching. The agency increases rental supply duration by providing home remodeling renovation. Our findings shed light on the role of PropTech platforms in improving rental supply in the housing market.

Presentations: China International Conference in Finance (CICF 2022), SMU-Jinan Conference on Urban and Regional Economics, PKU Guanghua School of Management Brown Bag Seminar


6. Is Working from Home Here to Stay? Evidence from Job Posting Data after the Covid-19 Shock (with Hongcheng Xu, Yang Yao, and Liuyi Zheng) 

Abstract: We use proprietary data from a leading online job portal in China to examine the labor demand transition toward working from home (WFH) after the COVID-19 outbreak, a quasi-experiment inducing the short-run WFH take-up. We find that the increase in WFH job postings is persistent in the post-pandemic era and is more prominent among firms with less pre-COVID WFH hiring experience, consistent with the learning hypothesis. Within firms, the increase is larger in cities hit harder by COVID-19. Additionally, the WFH transition is more pronounced for postings with higher wages and stricter requirements and thus has labor market inequality implications.

Presentations: AEA Annual Meeting,  CCER Summer Institute, ICEA Working from Home conference, WEAI Annual Conference


7. Government Deleveraging and Corporate Distress (with Songrui Liu, Yang Yao, and Zhu Zong)

Abstract: We demonstrate how government deleveraging causes corporate distress in a distorted financial market. Our difference-in-differences (DID) analysis exploits China's top-down deleveraging policy in 2017, which targets shadow bank financing and reduces local governments' borrowing capacity. We find that after the government deleveraging, private firms with local government procurement contracts experienced larger accounts receivable increases, larger cash holdings reductions, and higher external financing costs. These firms also experienced more share-pledging activities by controlling shareholders, greater likelihoods of ownership changes, and deteriorated performance. We do not find similar effects among state-owned enterprises (SOEs), which enjoy funding privileges in China's financial system. 

Presentations: China Banking and Corporate Finance Conference (CBCF),  CCER Summer Institute, Tsinghua SEM Alumni Forum


Work in Progress:

1. Local Political Turnover and Economic Policy Transmission (with Yinggunag Conson Zhang)

Abstract: We examine the transmission efficiency of economic policies from the central to local governments using textual analysis of hand-collected three-tier government work report (GWR) data in China. We find that local officials' political agenda is disproportionately shaped by central economic policies in the year when they take office. As a result, central policies transmit better to cities with newly appointed governors and persist longer in these cities. This policy path dependence manifests into a cohort effect: local governors who assume office in the same year focus on a similar set of policies going forward. Our paper provides novel empirical evidence on the transmission mechanism of economic policies in a political hierarchy.

Presentations: CCER Summer Institute, NSD Political Economy and Development Group, NSD Political Economy Workshop


2. Contract Enforcement in FinTech Lending (with Yiping Huang and Yang Su)

Abstract: We examine the value of informal contract enforcement in FinTech lending, where the formal enforcement institution is missing. Our cross-sectional analysis of peer-to-peer (P2P) lending demonstrates a negative correlation between enforcement intensity and the probability of P2P platform failure. Using loan-level data and exploiting the policy shock on violent debt collection, we identify the value of informal contract enforcement to FinTech lenders: Borrowers in cities more exposed to the anti-gang campaign are more likely to default. The effects are more pronounced for borrowers who are hard to screen ex ante. 


Working Papers in Chinese:

1. 国企违约与市场纪律:来自地方国企债券违约的证据 (合作者:姚洋,宗铸)

SOE Defaults and Market Discipline: Evidence from the Chinese Bond Market (with Yang Yao and Zhu Zong)

摘要:本文利用2014-2021年中国债券市场数据研究国企违约对市场纪律的强化作用。研究发现地方国企债券违约引起同省其他地方国企债券发行总量下降接近50%,并对同省城投债发行产生溢出效应。市场纪律的强化是地方国企债券发行下降的原因:地方国企债券违约引起同省其他地方国企信用利差上升接近50个基点,投资者感知的信用风险上升约束了地方国企债券发行。本文分析表明国企违约打破了隐性担保预期,增强了投资者对国企信用风险的敏感度,强化了国企借债的市场纪律。

Abstract: This paper investigates the impact of defaults of state-owned enterprises (SOEs) on strengthening bond market discipline. We find local SOE bond defaults resulted in a decrease of nearly 50% of the total issuance of local SOE bonds in default provinces and had a significant spillover effect on the bond issuance of LGFVs. The Strengthening of market discipline is behind the decline of local SOE bond issuance: the defaults of local SOEs have caused the credit spread of SOEs in the same province to rise by nearly 50 bp, and the increase in credit risk has restrained the bond issuance. Our findings show that defaults of local SOEs help break the market expectation of implicit government guarantees and strengthen bond market discipline.


2. 政治激励、官员变更与企业破产 (合作者:黄北辰,向昊天,张英广)

Political Incentive, Official Turnover, and Corporate Bankruptcy (with Beichen Huang, Haotian Xiang, and Yingguang Conson Zhang)

摘要:企业破产是企业退出市场的重要方式,具有优化资源配置和推动高质量发展的积极意义。本文首次通过企业破产裁判文书的微观数据探究了政治激励和官员变更对地方推动企业破产改革的影响。我们利用2016年企业破产改革成为中央政策目标这一政治激励以及各城市市委书记变更的年份差异进行多期双重差分分析,发现企业破产数量在2016年后有新市委书记上任的城市增幅更大,当地破产管理人协会设立加速,企业破产申请被地方法院受理的概率增高,且这些结果在新任市委书记来自外地或上级单位的城市中更为显著。市委书记变更对企业破产的影响在2016年以前并不显著,反映出中央政策导向对地方推行企业破产改革的关键作用。本文揭示出政治激励与人事变动对推动我国破产制度建设的重要影响。

Abstract: Using corporate bankruptcy court filings data in China, we investigate the impact of government official turnovers on bankruptcy efficiency in a relatively weak legal institution. Corporate bankruptcy cases increased significantly after 2016, when the central government began to remove the political stigma associated with bankruptcy and provide political incentives for local officials to facilitate bankruptcy reforms. Our difference-in-differences analysis shows that cities with post-2016 political turnovers experience a larger increase in bankruptcy cases, faster establishment of bankruptcy administrators associations, and higher probabilities for bankruptcy applications to be accepted by courts. These effects are muted for political turnovers that took place before 2016 and are more pronounced in cities with non-local new officials, who tend to have fewer connections with local businesses. Our paper thus reveals the political determinants of bankruptcy institutions in a transition economy.