Essays on firms, banks and Access to finance

Abstract

This thesis is a collection of three empirical essays on firms, banks, and access to finance. Chapter 1 provides evidence that credit subsidies for exports are substantially misallocated towards financially unconstrained firms. Using loan level data for firms and exploiting an exogenous change in loan eligibility, I show that publicly listed firms are financially unconstrained, and are also allocated nearly 44% of all subsidized loans. The opportunity cost of these misallocated funds is significant as even the more productive privately held firms are shown to be financially constrained. Chapter 2 studies the role of banks in the transmission of financial flows to the economy. Exploiting a large and unexpected liquidity upsurge in an emerging economy, the chapter examines changes in bank lending behavior and finds very stark results. Bank lending to firms did not increase despite a substantial drop in the cost of capital. The results suggest that banks may be limited in their ability to extend credit due to severe agency problems. Chapter 3 analyzes changes in firm ownership structure that may be caused by the level and ease of obtaining outside financing.

(cont.) I combine a sector-specific financial shock with detailed data on the board of directors of firms and find that private firms that are adversely affected by the financial shock are more likely to have group-affiliated directors take positions on their boards. I also find that private firms that do not get a group director are significantly likely to acquire cross-holdings in other private firms, thus integrating horizontally.