Xiang Yin (尹 翔)
Does Buying Local Spur Corporate Investment? (New Draft Coming Soon)
Motivated by political incentives, governments may give preferential treatment to suppliers that are their political constituents. In addition, it's unclear if politically incentivized purchases result in more corporate investment or not. To answer the two questions, I construct a novel and granular data set of the purchases of 308 councils in England with corporate suppliers in monthly frequency from 2011 to 2020. First, I document that compared to non-local councils, suppliers receive more specialized contracts from the local council and maintain a more persistent customer-supplier relationship with it. Next, to identify the causal relationship between local sales and suppliers’ outcomes, I exploit exogenous demand shocks jointly with spatial fixed effects on the councils’ boundaries. I find that local sales reduce the uncertainty of firms’ cash flows while keeping expected cash flows unchanged. It implies that the customer-supplier relationship with the local council is not only more persistent but also more exclusive. Consequently, I find local sales result in 9.7% higher annual growth in fixed assets than sales to non-local sales. The results suggest that the reduction in uncertainty provides the main explanation for the positive impacts of politically incentivized purchases on investment. Overall, this paper highlights novel patterns of governments’ favoritism towards local suppliers via differentiation in contract terms and such demand-side characteristics do shape firms’ behaviors in multiple dimensions.
Distribution of Spending Near the Boundaries of Councils
We study the venture performance effects of Venture Capital (VC) due diligence—i.e., the process through which VCs scrutinize ventures for potential investment. Our novel data comprises nearly 2,000 startups applying for funding to a UK VC seed fund (Fund). For identification, we exploit the Fund's process of screening applicants for due diligence, which features pre-determined selection rules based on the scores of randomly allocated reviewers. We show that assignment to due diligence leads to substantial increases in venture capital fundraising and growth within two years of application, even for those firms that receive no eventual investment from the Fund. The due-diligence performance effects do not vary systematically across observable or unobservable applicant characteristics. By contrast, we find little evidence of venture performance effects from applicants' assignments to informal Fund meetings that are not part of the due diligence process. The results provide evidence that going through VCs' due diligence process adds value in the form of improved venture performance through three potential mechanisms: certification, coaching and self-validation. This new evidence implies that VCs' role in innovation affects many more firms, as it goes beyond their value-added effects on portfolio companies in which they invest. Therefore, frictions in the process through which startups seek and obtain VC due diligence can profoundly impact innovation and economic growth.
The Selection Funnel of A UK VC Firm
Work in Progress:
Competing for Connections: Evidence from Municipal Bonds Auctions
How do financial institutions build connections with local governments? I find that in competitive auctions of municipal bonds issuance, buyers offer lower yields to initiate private relationships with local governments. The lower the yield is in competitive auctions, the more likely the issuer will switch to negotiations with the winner in the follow-up issuances. The effects are pronounced for non-bank institutions during the issuances of revenue bonds where they have expertise and information advantage.
Bank Qualification and the Auction-Negotiation Spread (Bank-qualified Issuance: Principal ≤ $10M )
Negative Correlation between Bureaucratic Inefficiency and Price Volatility in Housing Market