I am thrilled to share that I will join the Department of Finance at the CUHK Business School as an assistant professor. I am incredibly grateful to my advisors at MIT: Rob Townsend, Dave Donaldson, and Tong Liu. I am excited to join a great and growing department in a beautiful location!
In my other research, I study environmental topics in macro-finance, using rich microdata to estimate firms’ and intermediaries’ responses to environmental and policy shocks. Thank you for reading this thread! Feel free to learn more at my website: economics.mit.edu/people/phd-s... 15/15
Policy importance of cheaper factoring: (1) central banks want to create platforms and ledgers to share data, reducing verification costs and information asymmetries; and (2) financial technologies like programmable payments and tokenization promise to reduce transaction costs further. 14/15
The borrowing constraint amplifies the partial equilibrium impact of cheaper factoring. We consider the general equilibrium impacts of cheaper factoring for all firms: we show that a one basis point lower spread leads to 0.3 to 0.5 basis point increases in aggregate output and wages. 13/15
Our model has a morning-afternoon structure, with trade credit in the morning and spot payments in the afternoon. The key feature is that the borrowing constraint for factoring is the amount of morning receivables, which is inherently endogenous. 12/15
In the paper, we show distributional effects with heterogeneity tests and quantile regressions. The takeaway is that the smallest firms had the largest effects, but all firms responded to cheaper factoring in the same qualitative ways. 11/15
In the short term, firms substitute away from temporary contract labor and towards permanent contract labor, but this reverts in the longer term as firms’ labor demand permanently increases. 10/15
We construct our instrument for the factoring interest rate by using investors’ flows to FIDCs as “shifts” and past purchases as “shares.” Then, we use IV local projections to assess the dynamic and distributional impacts on firms. 8/15
Now onto the methodology! Investors’ liquidity shocks and asset allocation constraints drive flows to FIDCs, which have sticky relationships with hundreds to thousands of firms in purchasing receivables. 7/15
We show that the firms most dependent on factoring are small with low credit score; these firms likely face tighter financial constraints. 6/15
We construct a new dataset of all factoring transactions, FIDC operations, other credit operations, sales, electronic payments, and labor for all formally registered firms in Brazil. Our main dataset consists of almost 600 thousand firms over 65 months from November 2018 through March 2024. 5/15
FIDCs purchase over 30% of firms’ receivables, while banks purchase the remainder. FIDCs securitize receivables for Brazilian institutional investors, similarly to how trusts securitize mortgage-backed securities in the US. 4/15
Our empirical setting is Brazil, where factoring is the most commonly used type of short-term intermediated financing. Factoring is also increasingly important worldwide. A unique feature of the institutional environment in Brazil is the receivables fund (FIDC). 3/15
Overview: Using a shift-share instrument, we show that a temporary decrease in the factoring interest rate has positive effects on firms’ outcomes through managing cash flow volatility. 2/15
What are the real effects of cheaper short-term financing? My job market paper studies this in the context of factoring, defined as the sale of accounts receivable arising from trade credit. In this thread, I discuss the setting, methodology, and policy importance: henryhzhang.com/files/JMP.pdf 1/15
In my other research, I study environmental topics in macro-finance, using rich microdata to estimate firms’ and intermediaries’ responses to environmental and policy shocks. Thank you for reading this thread! Feel free to learn more at my website: economics.mit.edu/people/phd-s... 15/15
Policy importance of cheaper factoring: (1) central banks want to create platforms and ledgers to share data, reducing verification costs and information asymmetries; and (2) financial technologies like programmable payments and tokenization promise to reduce transaction costs further. 14/15
The borrowing constraint amplifies the partial equilibrium impact of cheaper factoring. We consider the general equilibrium impacts of cheaper factoring for all firms: we show that a one basis point lower spread leads to 0.3 to 0.5 basis point increases in aggregate output and wages. 13/15
Our model has a morning-afternoon structure, with trade credit in the morning and spot payments in the afternoon. The key feature is that the borrowing constraint for factoring is the amount of morning receivables, which is inherently endogenous. 12/15
In the paper, we show distributional effects with heterogeneity tests and quantile regressions. The takeaway is that the smallest firms had the largest effects, but all firms responded to cheaper factoring in the same qualitative ways. 11/15
In the short term, firms substitute away from temporary contract labor and towards permanent contract labor, but this reverts in the longer term as firms’ labor demand permanently increases. 10/15
In response to a shock that causes a 1-basis-point decrease in the factoring interest rate (for two months, dissipating to 0.5 after three months and 0 after six months), firms’ input expenditure and sales increase 3 to 6 basis points contemporaneously and 1.5 to 2.5 basis points longer-term. 9/15
We construct our instrument for the factoring interest rate by using investors’ flows to FIDCs as “shifts” and past purchases as “shares.” Then, we use IV local projections to assess the dynamic and distributional impacts on firms. 8/15
Now onto the methodology! Investors’ liquidity shocks and asset allocation constraints drive flows to FIDCs, which have sticky relationships with hundreds to thousands of firms in purchasing receivables. 7/15
We show that the firms most dependent on factoring are small with low credit score; these firms likely face tighter financial constraints. 6/15
We construct a new dataset of all factoring transactions, FIDC operations, other credit operations, sales, electronic payments, and labor for all formally registered firms in Brazil. Our main dataset consists of almost 600 thousand firms over 65 months from November 2018 through March 2024. 5/15
FIDCs purchase over 30% of firms’ receivables, while banks purchase the remainder. FIDCs securitize receivables for Brazilian institutional investors, similarly to how trusts securitize mortgage-backed securities in the US. 4/15
Our empirical setting is Brazil, where factoring is the most commonly used type of short-term intermediated financing. Factoring is also increasingly important worldwide. A unique feature of the institutional environment in Brazil is the receivables fund (FIDC). 3/15
Overview: Using a shift-share instrument, we show that a temporary decrease in the factoring interest rate has positive effects on firms’ outcomes through managing cash flow volatility. 2/15
