• Finding Credit at the Bottom of the Pyramid: Chinese State Lending and Corporate Investment in Impoverished Areas (Job Market Paper)

 

Abstract: I study how firms’ participation in development programs influences credit allocation by state banks, focusing on China’s Targeted Poverty Alleviation (TPA) scheme. To identify the causal effect of firms’ participation, I develop an IV strategy based on the share of a firm’s senior managers born in poor counties. I find that TPA participation improves firms’ credit access and reduces borrowing costs. Firms use new loans to finance production, leading to higher sales and profits. To study how TPA participation affects firm value, I construct a simple structural model and estimate that a 1 percent increase in TPA spending leads to a 0.03 percent increase in firm value. I argue that these results are best explained by favor exchange between governments and firms, in which firms help governments achieve political goals and earn rents in return. Productive firms are more likely to participate in TPA, so state banks’ preferential treatment for TPA firms improves the quality of credit allocation. My findings provide evidence of a novel positive effect of favor exchange between governments and private firms, realized through higher, potentially welfare-improving investment.

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• Does Affirmative Action Discourage Its Beneficiaries? Evidence from A Natural Experiment in Chinese College Admissions (with Siddharth George)

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Abstract: We study how being admitted via affirmative action affects minority students in universities. Our identification strategy exploits a unique feature of Chinese college admissions, where minority students receive bonus points. We estimate an RD design, comparing minority students who scored just above the cutoff (and were admitted on merit) against minority students who scored just below the cutoff (and were admitted to the same college via affirmative action). We find that students admitted via affirmative action have significantly lower self-image, weaker social relationships, and perform worse academically. They also have lower career aspirations and are less likely to be party members, suggesting that being admitted via affirmative action may have longer-term impacts on minority students. These effects are larger for disadvantaged minority students and in elite colleges. Collectively, our results suggest that affirmative action triggers impostor feelings among minority students, which may hurt their performance in elite environments. Placebo tests of students who receive merit-based bonus points support this interpretation.

 

• College Ties and Firm Malfeasance (New version coming soon!)

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Abstract: This paper studies the impact of connections to regulators through college ties on firm malfeasant activities. I first develop a theoretical model that incorporates the potential for college ties in a firm’s malfeasant activity decisions and then test the main results of the theory using Chinese listed firm data and turnover data of regulatory committee members from 2004 to 2017. Taking advantage of the exogenous change of the Committee members, I find that tax avoidance rates are relatively higher in connected firms compared to unconnected firms, shedding light on the enforcement lenience of the regulator. Together with the findings that sales manipulation activities are more prevalent in connected firms, the higher likelihood of committing fraud in college-tied firms provides suggestive evidence on the high propensity of malfeasant activities in firms with connections through college ties because of relatively lax regulation and examination from the Committee. I further show that the effects of college ties are heterogeneous across firm ownership, firm size, and firm sectors.