Theses Doctoral

Essays in Empirical Corporate Finance

Liberman, Andres

This dissertation studies empirical corporate finance problems related to financial intermediation. The dissertation is composed of three chapters. The first chapter exploits a natural experiment to quantify how much consumer credit borrowers are willing to pay for a good credit reputation. A department store in Chile offered its delinquent borrowers whose balance was higher than an arbitrary cutoff a renegotiation that reduced the monthly payment due required to appear in good standing to other lenders through a credit bureau. Using the variation induced by the cutoff in a fuzzy regression discontinuity design, I find that borrowers repay 10% of their monthly income to have a good credit reputation for 6 to 8 months. Even though previous work has documented the effect of reputational mechanisms on repayment behavior, this is the first paper that quantifies the value of a good credit reputation. The second chapter focuses on the same group of borrowers as the first chapter and analyzes how the renegotiation campaign, which can be understood as a market for credit reputation, may introduce an inefficiency in consumer credit markets. I obtain an individual-level dataset of Chilean bank debt data, which I match to the department store data with the use of the unique national tax identifier. Because borrowers who renegotiate at The Store are indistinguishable from other borrowers in good standing in the credit bureau, other lenders may end up with a less creditworthy pool of borrowers. Thus, renegotiation may impose a negative externality that has not been previously studied in the literature. Indeed, I document that banks increase their lending to borrowers whose balance is above the cutoff, that is, who were affected by the renegotiation campaign, relatively more than borrowers below the cutoff who were unaffected by it. Further, I find evidence consistent with a potential externality, as borrowers whose balance is above the cutoff default more and in higher amounts after the renegotiation campaign relative to borrowers whose balance is below the cutoff. I discuss some policy implications of this result. Finally, the third chapter, co-authored with Emily Breza, studies the effect of the provision of trade credit on the contracting outcomes of a large client and its suppliers. We exploit a regulation change that reduced from 90 to 30 the number of days a large supermarket chain in Chile could wait to pay its suppliers. The regulation serves as a natural experiment as it was only binding for small suppliers, defined as those firms whose yearly revenues were less than an arbitrary cutoff. Focusing on a narrow window of firms with yearly revenues around the cutoff, we find that small suppliers sell their products at prices 5%-10% lower than large suppliers after the regulation change. We also provide suggestive evidence to isolate the mechanisms through which trade credit (or a lack thereof) affect market outcomes. These results help evaluate the tradeoffs small firms face when negotiating trade credit terms with large clients.

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More About This Work

Academic Units
Thesis Advisors
Jiang, Wei
Ph.D., Columbia University
Published Here
July 19, 2013