Competition and the Use of Credit Lines
On Wednesday 8 June 2022 Zhou Lu will hold a trial lecture on a prescribed topic and defend his thesis for the PhD degree at NHH.
Prescribed topic for the trial lecture:
"Special purpose acquisition company (SPACS)"
Title of the thesis:
"Competition and the Use of Credit Lines, Modelling of Chinese Corporate Bond Default—A Machine Learning Approach, Market smart: How firms respond to the IPO P/E price-cap regulations in China"
Zhou Lu´s thesis consists of three essays. The first essay “Modeling of Chinese corporate bond default – A machine learning approach” applies machine learning techniques to construct a series of models of corporate bond defaults. Lu constructs an out-of-sample forecast that significantly improves the identification rate of corporate bond defaults, with an area under the receiver operating characteristics curve greater than 90 percent. The models are robust to different machine learning (ensemble) models.
His second essay studies competition and the use of credit lines. Credit lines and cash holdings are the two main sources of corporate liquidity. Theory predicts that a firm should demand more liquidity to strengthen its competitive position against rivals when facing more intense competition. In contrast to the widely documented evidence that competition increases cash holdings, competition significantly reduces firms' use of credit lines.
This finding is robust to alternative competition measures and exogenous variation in competition. Further analysis suggests that the negative effect of competition on credit line usage is mainly driven by banks' restricted credit supply rather than firms' reduced demand. Competition induces negative pressures on firm performance, making it more difficult to obtain credit lines from banks.
In his last essay, “How firms respond to the IPO P/E price-cap regulations in China” Lu studies market dynamics in China.
China represents a special case in which market dynamics and government intervention coexist to provide insights into (1) how firms respond to government regulation and (2) how the market helps firms minimize the impact of government intervention. The result of Lu´s study shows that IPO pricing caps could artificially lower the listing price and are less likely to result in a price cascade in the post-IPO period. Firms may seek alternative financing channels and actively disclose information in response which helps to mitigate the negative impact. In the long-term, borrowing cost, investment, and willingness to go public are not affected by the regulation, showing that strategic response effectively reduces the negative impact of government regulation.
17:15, Aud M at NHH
Members of the evaluation committee:
Associate Professor Carsten Bienz (leader of the committee), Department of Finance, NHH
Assistant Professor Emma Xu, University of New Mexico, USA
Assistant Professor Daniel Kim, BI Norwegian Business School
Associate Professor Xunhua Su, Department of Finance, NHH (Su passed away August 2021)
The trial lecture and thesis defense will be open to the public.