Thesis advisor: Edith Hotchkiss / My dissertation focuses on how the way firms are funded, particularly in periods of financial distress, affects their employment and investment choices. It consists of three papers. The first paper studies how bank lending patterns change after a shock leads some firms to become non-viable. Banks will often continue to lend to poorly performing firms, but it is difficult to distinguish cases where they are lending to viable firms suffering a temporary setback or whether they are ”evergreening”, lending to nonviable firms to help them avoid or delay default. We use a shock to firm growth from the implementation of tolls in a previously free-to-use highway system to attempt to disentangle the two groups of firms. We find evidence more consistent with evergreening: once firms have received a loan in distressed circumstances, they are far more likely to receive a subsequent loan while remaining in a distressed situation. The second paper studies the composition of bank lending in Portugal during the sovereign debt crisis. We provide evidence that banks distort the composition of credit supply in order to comply with ratio-based capital requirements in times of economic distress. An unexpected intervention by the European Banking Authority provides a natural experiment to study how banks respond to falling below minimum required capital ratios during an economic downturn. We show that affected banks respond by cutting lending but also by reallocating credit to distressed firms with underreported loan losses. We develop a method to detect underreported losses using loan-level data. The credit reallocation leads to a reallocation of inputs across firms. We calculate that the resulting increase in input misallocation accounts for about 13\% of the decline in productivity in Portugal in 2012. The third paper uses US Census data to study the impact of private equity deals on employment. Private equity transactions are associated with employment reallocation and job losses (Davis et al. 2014, Olsson and Tag 2017, Arnold et al 2023). However, there is divergence around the role PE firms play in worker outcomes. In this paper we test three hypothesis for why workers are laid off after private equity buyouts: use of market power, breach of trust, and efficient reallocation. / Thesis (PhD) — Boston College, 2024. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.

This study is to discuss the correlation between financial firms and non-financial firms through board linkages and the relationship between these connections and lending and borrowing behavior. Although a board linkage may provide the benefit of better information flows between the lender and borrower, a person on the board of both a bank and a borrowing firm board linkage may face a conflict of interest: the person has a fiduciary duty to both the bank and the firm and these interests may diverge. Many studies suggest that the information benefits of connections outweigh the costs of conflicts. In this way, the study is to find out what kind of firms will attract banker on the board, and the relationship between these connections and lending and borrowing behavior. The conclusions of this study are presented as the following. On firm characteristics, financial firms will choose companies with better credit risk to be the directors. In addition, on the lending and borrowing behavior, the bankers will be the directors of the companies that have longer borrowing terms. The purpose is to monitor these companies. It also can be implied that non-financial firms with banker on the board will have longer borrowing terms than the financial firms.

In Sweden we have environmental objectives to achieve for the year 2020. Swedish banks have a responsibility like everyone else in a society to act environmentally responsible. When Swedish banks are lending to SMEs they are taking a risk, however, banks are risk averse and want to minimize their risk. By lending to a company that does not take environmental responsibility the risk are increasing. In this study we want to research if Swedish banks take environmental responsibility of companies into account when lending to SMEs. Previous studies show that banks do make an environmental consideration when lending to companies, but there is lack of similar studies in Swedish banks. Additionally, the previous findings have shown to be contradictory. We also thought it would be interesting to see whether Swedish banks are familiar with the environmental objectives since we are not far from 2020. Additionally, we want to find out if there have been any changes since previous years, and if Swedish banks work differently with environmental issues in their lending process to SMEs. Thus, our problem statement is: Do Swedish banks take SMEs environmental responsibility into account in the lending process? And are the Swedish banks familiar with the environmental objectives? Some theories that are discussed in this study are the environmental risks that the banks are exposing themselves to when lending to SMEs. The environmental risks are divided into three categories, reputational risk, direct risk and indirect risk. Another theory that we discuss is the information asymmetry, which also affects the lending process. To grant a loan that is not too risky for the bank, and still fair to the company, the bank need to make an assessment. The assessment is based on the information SMEs gives Swedish banks and therefore the companies have the possibility to not be completely truthful. This is a quantitative research with a deductive approach, and in order to get our results we sent out surveys to Swedish banks that work with lending to SMEs. A total of 75 surveys were sent to the Swedish banks and the 32 answers we received constituted a response rate of 51,6 % since only 62 surveys reached the respondents. The result from our survey showed that Swedish banks do take the environmental responsibility of the company into account when lending to SMEs, however, they are not familiar with the environmental objectives. Thus, they do consider the companies’ environmental responsibility when granting loans to SMEs, however, we do not know whether the environmental objectives are included in this process or not. We could also see from the result of our survey that Swedish banks environmental responsibility has change with time. The conclusion of this research is that Swedish banks do take environmental responsibility of the company into account when lending to SMEs. This is something they should consider to develop and incorporate in their environmental work. However, they are not familiar with the environmental objectives.

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Between 2007 and 2013, the number of loans banks provided to small and medium-sized enterprises (SMEs) declined. The purpose of this single case study was to explore the strategies that senior bank lending officers used to improve lending to SMEs. The sample size consisted of 4 senior small business lending officers who have in lending for 5 or more year in Houston, Texas. The conceptual framework used was agency theory. Data were collected using semistructured interviews with 4 senior bank lending officers from a bank in the Houston, Texas area, a review of documents from lending officers, and other artifacts from the Small Business Administration. Data were analyzed with the support of software to generate themes. The data analysis included process coding of the data collected from the participants. Member checking and methodological triangulation enhanced the credibility of the findings in this study. Three themes emerged from the data analysis: the barriers and challenges lenders face when lending to business owners, bankers' strategies to overcome challenges in lending to their customers, and lenders' use of relationships and lending experience to provide loans to their customers. The findings from this study may contribute to social change by providing insights that can be used by senior lending officers related to strategies for providing loans to SMEs. The results of this study may also contribute to increased job creation for local residents, which can positively impact the economic viability of the Houston area.

The contemporary emergence of payday lending as a major source of high-cost short-term credit for credit-constrained populations has prompted debates among government officials, business representatives, advocacy groups and academics over how best to regulate the industry. Such debates typically focus on the prevailing lending practices and interest charges in the industry. While critics associate these with usury, supporters of payday lenders defend them as appropriately priced responses to market demand. This dissertation seeks to contextualize, and contribute to a deeper understanding of, the terms of these debates through an exploration of the recently concluded political exercise in Canada where responsibility for the governance of payday lending has been shifted from the federal government, with its criminal law power over usury, to provincial governments with their various regulatory powers over licensing and consumer protection. The dissertation begins with the observation that there are competing moral discourses about money and interest simultaneously embedded in the financial policy-making process in Canada, a fact that has complicated regulatory efforts aimed at payday lending. While these efforts have largely been informed by varying assessments of the transparency and competiveness of the payday lending market, this dissertation contends that a conceptually more useful way of understanding this market is to study the organizational and marketing strategies employed by payday lenders to indentify and retain a stable customer base, and the reciprocal moves on the part of customers to improve upon their terms of trade. In detailing the political process which culminated in a new regulatory regime for payday lending, this dissertation draws on the “regulation through networks” literature to help explain its progress. A major contribution this dissertation makes to this explanatory approach is in its emphasis on the dual legitimation imperatives with which the network actors had to contend as they negotiated their way to a consensus on a politically acceptable regulatory structure for payday lending. This consensus has proved to be politically vulnerable because of the continuing normative conflicts embedded in official financial policy discourse, and inter alia, in the legitimation imperatives which have permeated the policy-making process.

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Census data show that about 60 million, mostly low-income and minority, American adults either do not have a bank account or have an account but also rely on non-bank financial products to make ends meet. These products, such as payday loans, often have high costs per dollar lent and have historically fallen into gaps in both state and federal regulation. Texas, home of the largest payday lending companies in the country and over 2,500 payday lenders, provides an instructive case study of how small-dollar loan regulation has developed over the years, how non-bank financial institutions navigate the law, and how some organizations with non-profit missions have sought to offer affordable loan alternatives. This paper places current lending regulation in historical context, surveys federal and Texas law related to small-dollar loans prior to and following the financial crisis in 2008, and provides highlights from a federal pilot program designed to encourage banks to offer affordable small-dollar loan products. It also examines the experience of a community development financial institution (CDFI) in Brownsville, Texas that launched a small-dollar loan program in 2012. The federal pilot and Brownsville cases provide insights regarding the viability of affordable small-dollar products, as well as the challenges facing non-profit-maximizing institutions such as CDFIs when trying to develop loan programs under the current regulatory regime. Ultimately this paper concludes that, while there may always be a market for high-cost non-bank financial services, a combination of federal efforts to promote affordable options at banks and efforts by community-oriented CDFIs can go a long way towards providing lower-cost alternatives for people who currently rely on high-cost, non-bank products. / text

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The contemporary emergence of payday lending as a major source of high-cost short-term credit for credit-constrained populations has prompted debates among government officials, business representatives, advocacy groups and academics over how best to regulate the industry. Such debates typically focus on the prevailing lending practices and interest charges in the industry. While critics associate these with usury, supporters of payday lenders defend them as appropriately priced responses to market demand. This dissertation seeks to contextualize, and contribute to a deeper understanding of, the terms of these debates through an exploration of the recently concluded political exercise in Canada where responsibility for the governance of payday lending has been shifted from the federal government, with its criminal law power over usury, to provincial governments with their various regulatory powers over licensing and consumer protection. The dissertation begins with the observation that there are competing moral discourses about money and interest simultaneously embedded in the financial policy-making process in Canada, a fact that has complicated regulatory efforts aimed at payday lending. While these efforts have largely been informed by varying assessments of the transparency and competiveness of the payday lending market, this dissertation contends that a conceptually more useful way of understanding this market is to study the organizational and marketing strategies employed by payday lenders to indentify and retain a stable customer base, and the reciprocal moves on the part of customers to improve upon their terms of trade. In detailing the political process which culminated in a new regulatory regime for payday lending, this dissertation draws on the “regulation through networks” literature to help explain its progress. A major contribution this dissertation makes to this explanatory approach is in its emphasis on the dual legitimation imperatives with which the network actors had to contend as they negotiated their way to a consensus on a politically acceptable regulatory structure for payday lending. This consensus has proved to be politically vulnerable because of the continuing normative conflicts embedded in official financial policy discourse, and inter alia, in the legitimation imperatives which have permeated the policy-making process.