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Industrial Organization and Finance

Paper Session

Sunday, Jan. 7, 2024 10:15 AM - 12:15 PM (CST)

Marriott Rivercenter, Grand Ballroom Salon D
Hosted By: American Finance Association
  • Chair: Mark Egan, Harvard University

Bank Competition Amid Digital Disruption: Implications for Financial Inclusion

Erica Xuewei Jiang
University of Southern California
Yang Yu
Singapore Management University
Jinyuan Zhang
University of California-Los Angeles


We study how digital disruption impacts bank competition, considering consumers’
heterogeneous digital preferences. Exploiting the rollout of 3G mobile networks, we
find that digital disruption geographically expands bank lending but contracts bank
branch networks. Meanwhile, more (less) branch-reliant banks increase (decrease)
prices. These developments result in a distributional effect, reducing the unbanked
rate among young consumers while increasing it among the elderly. A structural model
shows that increased digital preference of young borrowers drives banks’ branch adjustment,
causing significant surplus losses for older savers. Regulating branch closures
could mitigate the distributional impact as the banking sector undergoes digital transformation.

Financial Shocks, Productivity, and Prices

Simone Lenzu
New York University


We study the interconnection between the productivity and pricing eects of nancial shocks. Combining administrative records on rm-level output prices and quantities with quasi-experimental variation in credit supply, we show that a tightening of credit conditions has a persistent, yet delayed, negative eect on rms’ long-run physical productivity growth (TFPQ) but also induces rms to change their pricing policies. As a result, commonly used revenue-based productivity measures (TFPR)—which conate the pricing and productivity eects—oer biased predictions regarding the consequences of nancial shocks for rms’ productivity growth, underestimating the long-run elasticity of physical productivity to credit supply by almost half. Moreover, we show that the pricing adjustments themselves also have productivity implications. Firms coping with a contraction of credit use low pricing as a source of internal nancing, allowing them to avoid cutting expenditures on productivity-enhancing activities, thereby softening the impact of nancial shocks on long-run productivity growth.

A Tale of Two Networks: Common Ownership and Product Market Rivalry

Florian Ederer
Yale University
Bruno Pellegrino
Columbia University


We study the welfare implications of the rise of common ownership in the United States from 1995 to 2021. We build a general equilibrium model with a hedonic demand system in which firms compete in a network game of oligopoly. Firms are connected through two large networks: the first reflects ownership overlap, the second product market rivalry. In our model, common ownership of competing firms induces unilateral incentives to soften competition and the magnitude of the common ownership effect depends on how much the two networks overlap. We estimate our model for the universe of U.S. public corporations using a combination of firm financials, investor holdings, and text-based product similarity data. We perform counterfactual calculations to evaluate how the efficiency and the distributional impact of common ownership have evolved over time. According to our estimates the welfare cost of common ownership, measured as the ratio of deadweight loss to total surplus, has increased about ninefold between 1995 and 2021. Under various corporate governance models the deadweight loss of common ownership ranges between 3.5% and 13.2% of total surplus in 2021. The rise of common ownership has also resulted in a significant reallocation of surplus from consumers to producers.

The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending

Jason Allen
Bank of Canada
Robert Clark
Queen's University
Jean-Francois Houde
University of Wisconsin-Madison
Shaoteng Li
Jinan University
Anna Trubnikova
Cornerstone Research


In this paper we study the role of intermediaries (brokers) in the Canadian mortgage market. In
this market consumers can search for quotes in one of two ways: on their own, or via a broker.
We provide descriptive evidence that borrowers who transact through brokers are different
from those who do not. Broker-clients: (i) finance larger loans, (ii) are more leveraged, and
(iii) are less creditworthy. We investigate two explanations for these observations: (i) brokers
steer borrowers towards products that are more profitable for them and (ii) borrowers have
(unobserved) preferences for riskier loans. We build and estimate a model of mortgage demand
that accounts for, and disentangles the explanations for, the differences in product choices across
origination channels: selection on observables, selection on unobservables, and broker steering.
We find that brokers steer about 15% of borrowers to mortgages with longer amortization, while
a borrower's own (unobservable) characteristics drive their decision for smaller down payments.

Kairong Xiao
Columbia University
Ryan Kim
Johns Hopkins University
Alexander MacKay
Harvard University
Matteo Benetton
University of California-Berkeley
JEL Classifications
  • G3 - Corporate Finance and Governance