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.

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.

I study how shareholder litigation affects the cost of bank loans via its impact on the distribution of bankruptcy estate and the conflict of interests between shareholders and creditors. Using a natural experiment based on a ruling by the Ninth Circuit Court of Appeals, I find that increasing the difficulty of class action suits decreases loan spreads. The effect is stronger for firms with higher institutional ownership, which is consistent with the argument that class actions suits help shareholders extract wealth from creditors when the firm is in bankruptcy. Further analysis shows that the effect is weaker for firms with stronger creditor protection in bankruptcy.

This article studies whether debt renegotiation mitigates debt overhang and increases corporate investment. Using mergers between lenders participating in the same syndicated loans as natural experiments that reduce the number of lenders and thus make renegotiation easier, I find that the firms affected by the mergers become more likely to renegotiate the loans and increase capital investment. The effect is stronger for firms with higher Q and firms in financial distress, supporting the hypothesis that the lender mergers mitigate the debt-overhang problem.

This paper studies the relationship between firm leverage and supplier market structure. We find that firm leverage decreases with the degree of competition between suppliers. Specifically, leverage decreases with the elasticity of substitution between suppliers. Leverage also decreases with the number of suppliers when the elasticity of substitution is high, and increases with the number of suppliers when the elasticity is low. We also provide empirical evidence that is consistent with the model predictions.

This paper studies how the conflict of interest between shareholders and creditors affects corporate payout policy. Using mergers between lenders and equity holders of the same firm as shocks to the shareholder-creditor conflict, I find that firms pay out less when there is less conflict between shareholders and creditors, suggesting that the shareholder-creditor conflict induces firms to pay out more at the expense of creditors. The effect is stronger for firms in financial distress. Received March 22, 2017; editorial decision October 17, 2017 by Editor Wei Jiang.

We show that banks expand mortgage lending in the home states of Senate Banking Committee chairs, and the effect is more pronounced in counties where the incumbent senator faces a competitive re-election race. Banks strategically target politically active borrowers. Consequently, banks’ profitability increases after favoring the incumbent politicians’ constituents, but they suffer a deterioration in mortgage asset quality in the long run. Our findings imply that political power could distort private capital allocation beyond conventional political contribution channels.

We show that banks use industry knowledge acquired through corporate lending in mortgage lending, a phenomenon we refer to as the “industry expertise channel.” Specifically, banks that specialize in particular industries expand their mortgage lending activity in regions where those industries are concentrated. The impact of industry expertise increases with information asymmetry and borrower risk. In addition, mortgages originated from this channel contain more soft information and perform better. The effect of the channel increases after unexpected industry distress and the 2008 financial crisis, suggesting that the effect is likely causal.

Lenders’ simultaneous equity holdings introduce conflicts of interest among members of syndicated loans. We argue that lenders address such within-syndicate conflicts with financial covenant design to improve contracting efficiency. We show that loans with higher conflicts rely less on performance-based covenants, which serve as tripwires to facilitate ex-post control transfer and require coordination among syndicate members. Instead, high-conflict loans rely more on capital-based covenants to align shareholder-creditor interest ex-ante and incentivize shareholder monitoring. Overall, these results suggest that such conflicts can reduce capital flexibility and renegotiation efficiency for the borrowers.

We study whether and how banks reuse information across different but related borrowers in financing mergers and acquisitions. We find that stronger prior lending relationships between acquisition loan lenders and acquisition targets are associated with lower spreads and fewer covenant restrictions on acquisition loans. We show that the results are unlikely to be driven by unobservable acquirer, target, or lender characteristics. Consistent with the information asymmetry hypothesis, the effect is stronger when information asymmetry about the target firm is higher. We also find that the result is not driven by the coinsurance effect.