Works in progress

State Ownership: a Blessing Kitty but a Worrying Lion 

Work with Jie Li, Central University of Finance and Economics,  click here for the slides.

We provide firm-level evidence that a private exporter may lower its financing costs by introducing a small (kitty) share of state ownership. However, if the state acquires a lion share, the exporter becomes inefficient. Therefore, there exists an inverse U-shape relationship between a firm's export performance and its share of state ownership. Specifically, a firm with a small share of state ownership has better export performance than a pure private firm in financially dependent sectors. But this superior performance deteriorates quickly and even turns negative, as the share of state ownership increases. These results are not driven by firm, sector, or time characteristics. This paper reconciles these findings with the fact that although a firm with state ownership is less liquidity constrained due to its low financing cost, while inefficiency, a frequent concomitant of state ownership, eventually outweighs this credit advantage as the share of state ownership rises.

To be Saved or Not: the Role of Employment in a Crisis-rescue Plan 

Work with Jie Li, Central University of Finance and Economics and Hongchang Hou, Central University of Finance and Economics

What does a government "implicitly" guarantee? Employment. To avoid potential social unrest associated with massive layoffs during a crisis, banks, with the government's guidance, may have to extend more loans to those firms with higher employment. We focus on crisis-rescue periods because they often reveal the government's implicit commitments most prominently. Using the firm-level dataset that accounts for the majority of China's manufacturing firms, we document that the number of employees plays a more important role in determining the amount of firms' credit during the crisis-rescue period than before. Moreover, the heterogeneity tests indicate that this effect is particularly significant among state-owned enterprises (SOEs) compared to non-SOEs.  We attribute this difference to SOEs' natural inclination to maintain a workforce, the higher social costs associated with their layoffs, and the stricter risk management practices adopted by banks during crisis-rescue period.  In essence, we interpret an "implicit" government guarantee as an explicit commitment to meet the credit needs of firms with higher employment during crisis-rescue periods.

Learning Effect of Processing Trade

Work with Jie Li, Central University of Finance and Economics and Zeyu Wang, China Construction Bank 

We provide firm-level evidence of the existence of processing trade's learning effect. We find that the higher share of processing trade would increase a firm's total factor productivity. A firm engaged in processing trade imports all or part of intermediate goods and exports finished products. Through import and export, this processing-trade firm gains two opportunities to get access to and learn from international markets, while ordinary-trade firms can only learn via exporting. Our findings highlight the importance of processing trade in firms' productivity, particularly in developing countries. We establish a Melitz-type model to confirm the learning effect associated with processing trade.