Research

Working Papers:

  • Does Buying Local Spur Corporate Investment? (Job Market Paper)

Does local purchase help firms grow faster than non-local purchase? By constructing a novel data set of contracts and monthly purchases at supplier level of the 308 councils (local governments) in England from 2011 to 2020, I find significant differences in the effects of councils' purchases on local and non-local suppliers. To overcome selection bias and confounders related to distance, I construct council level demand shock and set up a Diff-in-Diff empirical design for suppliers located near the boundaries of councils. I examine the buy-local effects from several aspects -- relative to non-local suppliers,purchases with local suppliers: (1) increases their asset growth by 10.35% more; (2) decreases their survival rate slightly; (3) increases the proportion of long-term debt while keeping overall leverage unchanged; (4) increases the concentration and decreases the churn of their customer base. The results are mostly pronounced with small suppliers in concentrated markets while vary little with firms' financial constraint. I propose two major mechanisms to explain the patterns. First, local purchases initiate customer-supplier relationship that is followed by less volatile cash flows and firms tend to invest more in response to demand shocks when they expect lower uncertainty. I find additional evidence in firms' slower growth when anticipating political turnovers. Second, local suppliers are awarded contracts with characteristics more compatible with ``learning-by-doing'' channel. The paper provides evidence that small businesses in non-competitive markets are demand constrained. It justifies "buy-local'' policies as they may alleviate demand constraints via reduction in cash flows' uncertainty and offering contracts compatible with ``learning-by-doing''. Overall, it highlights the role demand factors play in firm investment and growth.

Distribution of Spending Near the Boundaries of Councils

  • 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 )

  • Venture Coaching: The Value-add of Venture Capital Due-diligence

With Juanita Gonzalez-Uribe(LSE), Robyn Klingler-Vidra (KCL) and Su Wang(Amsterdam)

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 firm. For identification, we exploit the VC firm's process of screening applicants for further 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, even for those firms that receive no eventual investment from the VC. 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 VC meetings that are not part of the due diligence process. The results provide evidence that going through VCs' due diligence process adds value to ventures. This new evidence implies that VCs' role in innovation goes beyond their effects on portfolio firms. Therefore frictions in startups seeking and obtaining VC coaching can profoundly impact innovation and economic growth.

The Selection Funnel of A UK VC Firm

Work in Progress:

  • Bureaucratic Efficiency and Housing Markets

Does bureaucracy have real impacts on economic activities? I provide micro evidence from the housing market in London. I focus on a single-dimension and verifiable task of bureaucrats—the permission for plans of new buildings or house renovations (it takes a median applicant 56 days to obtain the permission). Using a hand-collected dataset of over 1.8 million planning applications from 2001 to 2020, I find the ineffectiveness of processing these applications reduces price volatility in general. For identification, I exploit the variations in bureaucratic effectiveness at the local authority level. While the market friction posed by the government's inefficiency has a modest impact on aggregate trading volume, it stabilizes the market price in times of extensive speculative trading.

Negative Correlation between Bureaucratic Inefficiency and Price Volatility in Housing Market


  • The Transmission of Deposit Shocks Via Small Banks

With Jing Wen (CityU HK) and Christian Simon Paparcuri (CityU HK)

  • The Impacts of Media Coverage on Venture Capital Markets,

With Yue Fei (UNC Chapel Hill)