Essays on banking and corporate finance

This dissertation consists of three essays on topics in banking and corporate finance. The first essay analyzes whether equity holdings of international lenders affect the transmission of credit supply shocks from developed countries to emerging markets. I exploit the 1998 Russian debt default as an exogenous credit supply shock to international lenders and trace out the impact on bank lending in Peru. I find that after the shock international lenders with equity holdings in Peruvian banks increased financing to banks in Peru, while international lenders without equity holdings reduced financing to banks in Peru. This effect could be driven either by differential credit supply from international lenders or by heterogeneity in credit demand across banks. I control for credit demand by examining firms that have loans from both banks with international equity holders and banks without international equity holders and find evidence for the credit supply explanation. The change in credit supply has real effects: I find a lower bankruptcy rate among firms borrowing from banks with international equity holders than among firms borrowing from banks without international equity holders. These results suggest that equity holdings of international lenders mitigate the transmission of credit supply shocks to emerging markets.

The second essay analyzes the effect of borrower reputation on access to credit. I exploit a regulatory change that prompted the bank regulator of Peru to share information on late loan payments with all lenders. Using microdata on all corporate loans, I find that after the regulatory change the likelihood of receiving a first-time loan with a new lender decreases for borrowers with late loan payments compared to borrowers with loans in good standing. Using a discontinuous cut-off, I also show that borrowers adjust their repayment behavior to avoid being reported for late loan payments. These results suggest that information sharing across lenders mitigates both adverse selection and moral hazard: lenders use reputations to screen borrowers and borrowers adjust their loan repayments to maintain their reputation. The third essay analyzes why governments set up market entry barriers. Specifically, I study a successful reform of entry regulation in Lima, Peru, and find that the reform reduced time-to-license from 110 to 16 days. I show that the reform focused on reorganizing internal government processes but did not change licensing requirements targeted at fixing market failures. Interviews with newly licensed firms show that the primary motivation for getting a license is to avoid fines and bribes. I argue that this evidence is consistent with a bureaucracy that sets up market entry barriers to extract rents.