Three Essays in Empirical Corporate Finance
This Ph.D. dissertation consists of three studies on corporate finance, with a focus on debt access and firm leverage.
The first study investigates the impact of digital finance on enhancing small business (SMEs) resilience during natural disasters, with a focus on expanding credit access. Utiliz- ing an innovation policy in China for identification, we find that digital finance development positively influences SMEs’ business activities and performance, even in the aftermath of disaster shocks. It facilitates greater access to fintech credit, enabling small businesses to increase their debt capacity and replace short-term bank loans with long-term fintech loans. Successful fintech loans have lower delinquency and interest rates after disaster shocks, and approved borrowers tend to have higher credit ratings, emphasizing fintech’s role in identify- ing creditworthy applicants. Overall, our study highlights how digital finance development enhances financial inclusion and fortifies small business resilience in the face of natural disasters.
Within the second study, we exploit the setting of China’s land titling program that released labor from farm activities as a quasi-natural experiment to examine how private and publicly traded firms respond to an abrupt increase in labor supply. We find that, while private firms reduce their leverage after the reform, public firms increase theirs. The difference between public and private firms is driven by the interplay between labor market frictions and financial flexibility in capital structure decisions. The entitlement of property rights stimulates labor supply, reducing labor costs and alleviating labor market friction. This, in turn, can reduce firms’ indirect costs of financial distress and increase their leverage. However, firms also choose to lower their leverage to maintain financial flexibility and attract workers in the local labor market. The former effect is more pronounced in public firms, while the latter effect is more prominent in private firms.
In the third study, we measure outsourcing risk within the global automobile industry’s product dependency supply network to assess its impact on capital structure. We document a negative effect of heightened outsourcing risk on firm leverage, particularly following the 2016 Kumamoto earthquake in Japan, a climate shock. This decrease in leverage is more pronounced for firms engaged in R&D activities, facing financial constraints, and exhibiting higher profit growth. Moreover, suppliers from countries with weak legal environments and high political risk further incentivize firms to reduce their leverage. Analyzing firms’ financing decisions, we find that firms exposed to greater outsourcing risks tend to issue equity and face higher spreads from banks and bondholders. These findings underscore the interplay between a firm’s financial and operational decisions. Firms with high outsourcing risk may reduce their leverage to mitigate potential financial distress costs and operating risks, thereby incentivizing suppliers to make specialized products.
