Three essays on tech, health, and inclusive finance

Abstract

This thesis consists of three essays related to Tech, health, and inclusive finance. In the first essay, leveraging the unique characteristics of Special Purpose Acquisition Companies (SPACs), we re-examine the debate over the role of managerial network centrality in affecting M&A outcomes, namely whether network centrality allows for more private benefits or rather adds value to firms and helps reduce information asymmetry. Based on a comprehensive sample of 1,306 SPAC IPOs from Jan 2003 to June 2022, we show that SPAC sponsors’ superior position in a professional network of private equity (PE) and venture capital (VC) managers, measured by their network centrality, predicts better SPAC merger performance in the cross-section. We attribute this outperformance of firms with high managerial PE/VC network centrality to superior fundraising ability, deal-sourcing ability, and higher equity ownership in the post-merger entity, which alleviates the agency cost. Overall, we show that network connections reflect managers' value-creation ability more than their rent-seeking capacity; these connections can add value to mergers and help alleviate information asymmetry and associated moral hazard issues, especially when managers' private benefits are closely linked to post-merger firm performance. The second essay studies how PE buyouts of physician medical groups affect physician opioid prescription. Using a difference-in-differences approach, we find that physicians in the PE-owned physician groups relatively decrease their opioid prescription rate after the buyout. More importantly, we document three main channels of this effect. First, we show that PE affects physician opioid prescription through the financial constraint channel. PE firms with less financial constraint ex ante have relatively lower opioid prescription intensity after the buyout. Second, we find that regulatory and litigation risks can incentivize PE firms to influence acquired physician groups to reduce opioid prescriptions. The reduction effect is stronger after the physicians’ state adopts a more stringent opioid monitoring program and after the first legal punishment of PE firms involved in the healthcare sector. Finally, we find evidence that PE firms with stronger CSR preference have a larger reduction effect on physician opioid prescription. In the third essay, I propose and examine a regulatory-driven crowd-out effect that can lead to a negative relation between mortgage credit expansion and small business lending even when lenders’ financial constraints are not binding. In low- and moderate-income (LMI) neighborhoods under the Community Reinvestment Act (CRA) assessments, a shock that leads to mortgage credit expansion results in lower small business lending growth compared to non-CRA neighborhoods, especially if lenders are under greater regulatory pressure. Moreover, it results in a negative impact on SME employment growth and widens income inequality. This regulatory-driven crowd-out effect is more profound in areas with a larger minority share, and minority-owned entities suffer more negative effects on their real growth. More importantly, I find evidence that the crowd-out of small business lending in boom times may exacerbate the subsequent bust of the real sector: it ultimately leads to higher increase in foreclosure, bankruptcy rate, and non-performing loan ratio in bust times in these CRA-eligible areas.