Essays in financial economics

Abstract

This thesis considers three empirical essays on financial economics. The first chapter examines the effect of government credit on firm investment, employment, debt, profitability, and survival by using unique data from the China Development Bank (CDB). I explore the different effects of various types of government credit (credit to infrastructure vs. credit to state-owned enterprises (SOEs)). I also trace the effect of government credit across different levels of the supply chain. I find that CDB SOE industry loans crowd out private firms in the same industry but crowd in private firms in downstream industries. I also find private firms benefit from CDB infrastructure loans. I use the exogenous timing of municipal political leaders' turnover as an instrument for CDB loans to cities. The second chapter, joint with Antoinette Schoar, analyzes pricing and advertising strategies of credit card offers. We show that credit cards which have reward programs have lower regular APR but rely more heavily on backward loaded and more hidden payment features. Issuers target different reward programs at different types of the population: Programs such as miles, cash back and points are offered to richer and more educated customers, while low intro APR offers are offered to poorer and less educated customers. Our results also suggest that card features that are mainly demanded by sophisticated consumers cannot be shrouded and need to be priced upfront. Finally, using shocks to the credit worthiness of customers, we show that card issuers rely more heavily on backward loaded credit terms when customers are more protected. The third chapter studies the effects of privatization on both SOEs and privately-owned firms in China. Using political turnover as an instrument variable for privatization, I find that after privatization, the productivity of SOEs and private firms increases by 50% and 100%, respectively. Moreover, every 100 workers got fired by SOEs come with a 169 increase from private firms' hiring in the same industry and same province. I also find that politicians' fixed effect on SOEs is significant. Moreover, corrupt politicians make SOEs less efficient but more powerful in the market.