Yongqiang Chu

Learning from Customers: Corporate Innovation along the Supply Chain

This paper studies the effect of timely feedback along the supply chain on motivating innovation. We use the geographical distance between a supplier and its major customers to capture the ease and intensity of timely feedback from customers to their suppliers. To establish causality, we explore plausibly exogenous variation in distance caused by customer headquarters relocations. In a difference-in-differences framework, we show that timely feedback from customers has a positive effect on supplier innovation. The effect is stronger when the customers are more innovative themselves and are within closer technology proximity with the suppliers. Our paper provides the first analysis that tests the feedback effect proposed in Manso (2011) and sheds new light on the real effect of customer-supplier relationship along the supply chain.

An Intertemporal Capital Asset Pricing Model with Owner-Occupied Housing

This paper studies the portfolio choice and asset pricing in the presence of owner-occupied housing in a continuous time framework. Owner-occupied housing serves as an important consumption good as well as a dominant asset for most households. The theory part of this paper shows that the market portfolio is not mean-variance efficient; and traditional CAPM fails in a model with owner-occupied housing; however, a conditional linear factor pricing model can still be derived, in which the market portfolio return and housing return are two pricing factors. Moreover, the nondurable consumption to housing ratio, ch, is shown to affect expected returns in the same way as cay (the consumption-to-wealth ratio in Lettau and Ludvigson 2001a, 2001b) The empirical evidence shows that ch can predict asset returns at various horizon ranging from one quarter to two years. ch is also shown to enter linearly the stochastic discount factor of the economy. The cross-sectional Fama-MacBeth regressions show that the conditional models conditioning on ch perform much better than their unconditional counterparts, and the conditional two factor model derived in this paper performs almost as good as Fama-French three-factor model.

Asset Fire Sales by Banks: Evidence from Commercial REO Sales

I study asset fire sales by commercial banks during the financial crisis. Specifically, I find that banks with lower liquidity levels post lower asking prices, receive lower sale prices, and are less likely to sell REO properties to natural buyers. Further analysis shows that the results are unlikely to be driven by omitted variables related to local conditions, property characteristics, or bank characteristics. To establish causality, I use the losses banks incur due to house price drops as the instrument for bank liquidity and find similar results in two-stage least-squares instrumental variable regressions.

Banking Deregulation and Credit Supply: Distinguishing the Balance Sheet and the Competition Channels

This paper studies how interstate banking deregulation affects credit supply, focusing on distinguishing the balance sheet and bank competition channels. Using a regression discontinuity design, I find that interstate banking deregulation affects credit supply, not only by legally impacted commercial banks, but also by non-legally impacted non-bank lenders. Controlling for lender-year fixed effects to isolate the balance sheet effect, I find that credit supply by the same lender varies with interstate banking restrictions in different states. Overall, the results suggest that the impact of interstate banking deregulation is mostly driven by the bank competition channel.

Debt Incentives and Bank Risk-Taking

We examine how executive pension and deferred compensation plans affect bank risk-taking. We show that banks with more inside debt incentives are 5-8% less likely to approve risky mortgages. Using state individual tax rates as instruments, we show that the effect is likely to be causal. Further evidence shows that the effect comes mainly from executive pension plans. This result is robust and statistically significant after controlling for other potential reasons affecting mortgage origination and various fixed effects.

Banking Relationship, Information Reusability, and Acquisition Loans

I study whether and how banks reuse information acquired from one borrower in loans made to different but related borrowers in financing mergers and acquisitions. Specifically, I find that stronger prior lending relationships between acquisition loan lenders and acquisition targets are associated with lower spreads and fewer covenant restrictions of acquisition loans. The results are unlikely to be driven by unobservable acquirer, target, or lender characteristics. Consistent with the information asymmetry hypothesis, the effect is stronger if the degree of information asymmetry of the target firm is higher. I also find that the result is not driven by the coinsurance effect.