Three essays on household finance and banking

Yang, Jeyul

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https://hdl.handle.net/2142/120295 Copy

Description

Title

Three essays on household finance and banking

Author(s)

Yang, Jeyul

Issue Date

2023-04-23

Director of Research (if dissertation) or Advisor (if thesis)

Wang, Jialan

Doctoral Committee Chair(s)

• Almeida, Heitor
• Wang, Jialan

Committee Member(s)

• Irani, Rustom
• Fonseca, Julia

Department of Study

Finance

Discipline

Finance

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Bankruptcy
• Household Finance
• Banking

Abstract

My dissertation focuses on the relationship between the financial status of consumers and small businesses and their economic outcomes. The first two chapters examine bankruptcy behavior, and the third chapter investigates the impact of bank consolidations on small businesses. The first chapter explores the effects of information technologies on the bankruptcy decision. The waves of digitization in recent decades have reached the U.S. bankruptcy system since the early 2000s, transforming it from a paper-based process into an electronic filing system. Exploiting the staggered adoption of the electronic filing system across 66 bankruptcy courts in the U.S., we investigate the impacts of information technology on bankruptcy behavior. The electronic filing system brought about two major changes to the bankruptcy process. First, debtors and lawyers gained the ability to file for bankruptcy online, reducing the time and travel costs associated with filing for bankruptcy. Secondly, they could also more easily access information about a broad range of bankruptcy documents, including past bankruptcy cases using the online database. By reducing costs, as most financial technologies do, the adoption of the electronic filing system may be expected to promote bankruptcy filings. However, we find the opposite effect and show that weekly bankruptcy filings significantly decreased after the digital transformation. Heterogeneity analyses are consistent with the hypothesis that the information channel plays a key role in changing bankruptcy behavior. The second chapter examines the impact of the COVID-19 economic crisis on the universe of business and consumer bankruptcies in the United States. Historically, bankruptcies have closely tracked the business cycle and contemporaneous unemployment rates. However, this relationship reversed during the COVID-19 crisis. While aggregate filing rates were very similar to 2019 levels prior to the onset of the pandemic, filings by consumers and small businesses dropped dramatically starting in mid-March of 2020. Total bankruptcy filings declined by 31 percent between 2019 and 2020. Consumer and business Chapter 7 filings rebounded moderately starting in mid-April and stabilized around 25 percent below 2019 levels, while Chapter 13 filings stabilized around 55 percent below 2019 levels. These trends continued through 2021. We find evidence that expanded unemployment insurance and policies aimed at homeowners such as mortgage forbearance and foreclosure moratoria were significant drivers of the decline in bankruptcies, while the staggered timing of court shutdowns, state shutdowns, and eviction moratoria had no impact. We also find evidence consistent with short-run liquidity constraints preventing some debtors from filing during the initial phase of the pandemic, but these constraints were likely mitigated in the longer run by the Economic Impact Payments and other stimulus payments. Our results shed light on how the combination of economic shocks and relief measures implemented in 2020 led to heterogeneous effects on different sectors of the U.S. economy. The focus of the third chapter is to investigate the role of banks in the transformation of regional industry structure. It is well established that bank financing is critical for the growth of small businesses, which have limited access to the bond or equity markets. However, we have little understanding about the heterogeneity effects of bank lending on small businesses although small businesses represent a diverse group of firms. This paper investigates how banks shape regional industry structure in the U.S. by selectively promoting the start and growth of small businesses. I show that when a bank expands their branch network by merger, the industry structure of the affected counties becomes similar to that of the regions where the acquiring bank already operated before the merger. This transformation brings three important policy implications: first, the convergence of local economic characteristics has made the U.S. regional economy more homogeneous, which could weaken absorption capacities of the economy to unfavorable economic shocks. Secondly, the growth of the affected industries doesn't entail the comparable growth of employment. Lastly, the industrial transformation changes the local labor market in favor of skilled workers.

Graduation Semester

2023-05

Type of Resource

Thesis

Copyright and License Information

Copyright 2023 Jeyul Yang

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