UBC Theses and Dissertations
Essays in empirical corporate finance : the impact of supply chains, multinational firms and relationships on firm borrowing costs and investment decisions Hu, Fang C.
This thesis consists of three essays in empirical corporate finance. The first essay examines the role of supply-chain relationships in the pricing of loan contracts. I show that a firm’s borrowing costs are linked to the economic conditions of its customers but not its suppliers. Using external shocks to import competition, I find that tariff cuts in the borrower’s downstream industries increase the borrower’s loan spreads, while upstream tariff cuts do not. I show that downstream tariff cuts increase imports from foreign firms and decrease outputs for domestic firms in the downstream industries, and that this effect propagates up the supply chain to negatively impact the borrower. Borrowers exposed to downstream tariff cuts also experience lower sales growth and lower profits. The second essay examines the roles of domestic versus multinational firms in the transmission of monetary policy. I document that U.S.-headquartered multinationals increase investment more than domestically-focused U.S. firms do following a loosening of U.S. monetary policy. This effect is stronger for U.S. multinationals that operate in more foreign countries, have higher foreign sales, and have more years of experience operating abroad. The effects are the strongest for U.S. firms that operate in high-growth markets and when the U.S. economy is in a low growth phase. A decrease in the U.S. policy interest rate is also associated with an increase in foreign investment by U.S. multinationals. The third essay investigates the effect of bank-firm relationships on the supply and demand for funds and resulting loan terms. Important differences are found in how firm credit ratings, bank capital, and other factors shift supply and demand curves to determine loan terms between banks and firms that have relationships with each other versus those that do not. For example, the private information that banks and firms in a relationship share with each other reduces the effect of changes in firm credit ratings, leverage and other factors. It is also shown that monetary policy is transmitted more strongly through non-relationship lending than through relationship lending. These effects begin immediately upon the formation of a bank-firm relationship and strengthen as the relationship intensifies.
Item Citations and Data
Attribution-NonCommercial-NoDerivatives 4.0 International