Essays on Financial Economics

Abstract

The thesis studies the topics of financial stability and their implication for financial economics. An exogenous shock to the financial system is critical because it can further result in an economic downturn. One of the reasons is that the financial system acts as a hub connecting all financial activities in the economy. In this thesis, I explain the mechanism of the shock transmission in the interconnected financial system and the real effect on the economy. In the first chapter, I discuss the impact of the oil price shock in 2014, which acted as a credit supply shock. Using the syndicated loan data, I find that the banks with high exposure to the oil price shock increased the loan interest rates for the new loans more than the banks with low exposure. In the second chapter, I investigate the real effects to the corporate borrowers after the credit supply shock. I find that the borrowing firms' investment spending decreased after the credit supply shock and the amount of cash holding mitigates the impact of the shock. Lastly, in the third chapter, I take a broader approach of studying financial stability. I investigate how the commonality of asset holdings of the banks can increase the systemic risk. In particular, I argue that the commonality of asset holdings make the financial system more vulnerable to a systemic event.