Essays on corporate finance

Abstract

This thesis consists of three essays on corporate finance. In the first chapter coauthored with Yongning Deng, We show that common institutional ownership (CIO) along the supply chain mitigates hold-up problems faced by supplier-customer relationships resulting from incomplete contracts. Suppliers make more relationship-specific investments towards their customers that share common institutional investors. Such effect is stronger as the CIO network between a supplier and customer pair becomes wider and deeper. We establish causality by exploiting exogenous shocks to CIO using a broad sample of mergers between financial institutions and further find the CIO effects on suppliers' investment specificity are stronger for those who ex-ante face severer hold-up concerns. Our work sheds light on the hold-up concerns mitigation effect of CIO on firms’ decision to make relationship-specific investments along the supply chain.

In the second chapter coauthored with Alan Kwan, Chen Lin, Vesa Pursiainen, and Mingzhu Tai, we study the joint dynamics of banks' and banking customers' technology adoption decisions using a variety of novel datasets. We use the COVID-19 pandemic as a laboratory, which raised the cost of using in-person bank services. After the pandemic, banking customers, particularly tech-oriented ones, sharply transition from branch to digital banking. Banks -- especially those with ex-ante better IT -- respond to customer demand for digital services by closing branches and upgrading their technology. These strong-IT banks gain market share, suggesting a shift toward tech adoption increases banking concentration and technology polarization.

In the third chapter coauthored with Ben Charoenwong and Alan Kwan, we study supplier responses to demand in the form of entry into the market for Covid-19 products during the recent pandemic, using data on customer searches and product listings from North America’s largest online platform for supplier sourcing. While many suppliers produced products closely related to Covid-19 products, only a fraction entered the market. Suppliers were likelier to enter products with greater state-level demand (measured by customer searches) for a specific product but were 30\% less demand-responsive when receiving more uncertain information about Covid-19. They also eschewed labor-intensive products. Interestingly, we find suppliers were far likelier to enter when they observed more government support: government searches are over three times more strongly associated with supplier entry than customer searches from the private sector. Three additional measures confirm that government support is associated with demand response: Firms (1) with prior government contracts, (2) in states with more state budget appropriations for Covid-19, (3) and in Democrat states were all more likely to enter a Covid product market conditional on demand. These results suggest a strong role for government buying during a pandemic.