1. Product Market Decisions and Subprime Lending by Captive Finance Companies (Job Market Paper)

(Available at SSRN: https://ssrn.com/abstract=4218302)

• AFA 2023 Poster session, MFA 2023

• Abstract: I study whether captive financing, a form of providing funding to consumers, helps companies gain a strategic advantage in managing their product market portfolio. Using detailed data on auto loans, I show that captive lenders alter the financing terms throughout the product life cycle. They reduce interest rates and relax loan standards (1) when the underlying car models become outdated; (2) when competitors release new models; and (3) when they experience exogenous shocks such as recalls. While the lower interest rates offered by captive lenders reduce the likelihood of consumer default in the short term, the average default rate eventually increases in the longer horizon because the loose loan standards allow more subprime borrowers to access credit. For consumers who cannot find a loan from non-captive lenders, borrowing from captive lenders helps them in purchasing a car, but they could potentially be approved for a loan they cannot afford because of the lenders’ willingness to dispense higher-risk loans. These findings collectively suggest that captive financing is a tool manufacturers use to boost car sales throughout the product life cycle, while this tool could induce overleveraging by consumers.

2. Experimenting with Firm Boundaries: The Case of Franchising

with Steven Xiao

 (Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4811276) 

• Presentations: FMA 2022 , AREUEA-ASSA 2023

• Abstract: This paper studies firms’ strategic adoption of franchising, an alternative organizational form, in the process of geographic expansion. Analyzing comprehensive data of franchise establishments, we find that corporations typically franchise in new, remote, and rural markets, but less so when direct flights become available. Local franchisees’ investments notably forecast house price growth, while franchisors' investments do not, indicating franchisees' superior information about local markets. Franchisors increase direct investments in markets where existing stores perform well, with followers outperforming pioneers on average. These findings suggest that franchising serves as a strategic tool to mitigate information friction when corporations explore unfamiliar markets. 

3. Labor Protection and Corporate Investment in Automation 

      (Draft available upon request) 

• Abstract: This paper examines the effect of labor protection on corporate investment in automation. Using difference-in-differences analysis around three regulatory and corporate events that strengthen labor protection, I find that affected firms subsequently increased their investment in automation, as reflected by a higher proportion of newly invented patents related to automation. The evidence is consistent with firms investing more heavily in automation to mitigate the impact of stronger labor protection. My findings suggest that policymakers should account for the second-order effects on endogenous corporate responses when devising public policy for labor protection.