Common Ownership in the Loan Market (Job Market Paper)


Firms and banks increasingly have institutional investors as shareholders in common. These shareholders not only receive profits through interest rates, but also benefit from firm profits. In this paper, I first illustrate the implication of firm and bank common ownership on loans in a simple model. I then provide new evidence of the rise and extent of common ownership between firms and banks. I next show that a firm that borrows from a bank with common owners obtains a lower interest rate and a larger loan. I use the growth of index funds as a source of exogenous variation to estimate a plausibly causal link between common ownership and loan terms not confounded by unobserved factors such as strategic investments by active institutional investors. I find that a one standard deviation increase in common ownership leads to a five basis point interest rate decrease and a three percent loan size increase. I show that these loan terms do not go to underperforming firms but to firms that are less likely to receive a credit rating downgrade. I also find that better loan terms are more pronounced for smaller and unrated firms. This suggests that common ownership benefits may be due to decreased information and monitoring frictions for the lender if their shareholders also have access to firm returns and information.

Digital Sales and Inventory Data to Assess Creditworthiness (with Paul Gertler, Sean Higgins and Ulrike Malmendier)

Small merchants in developing countries often do not adopt technology to accept digital payments from credit or debit cards, or track inventory. As a result of low adoption, important data on creditworthiness is lost. Especially for small merchants with limited credit histories, this lack of information leads banks to assess creditworthiness in a costly and imprecise manner through on-site visits. In close collaboration with a private bank, we are piloting a technology that bundles the capability to digitally track sales and inventory through an app, accept digital payments, and optionally provide newly generated data on digital revenues and inventories to banks to increase access to affordable credit. Through focus groups, surveys and transaction data, we are currently determining what improvements should be made to the technology to improve take-up and usage before scaling it up. Pilot results will inform a full-scale field experiment to analyze how high-frequency digital data on sales and inventory can help small merchants signal their creditworthiness, and thereby improve their access to finance and grow. Pilot completed. More information: CEGA


I was a Graduate Student Instructor for the following courses at UC Berkeley:


  • Psychology and Economics, Department of Economics


  • Corporate Finance, Haas School of Business