Two Essays on Financial Institutions and Financial Markets


Student thesis: Doctoral Thesis

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Award date25 Apr 2023


This dissertation investigates the financial institutions and financial markets and is composed of two essays. One examines the impact of product market concentration on life insurers’ portfolio allocation. The other studies how competition among underwriters shapes the process of institutional loan origination.

The first essay studies how product-market concentration affects life insurers’ investment portfolio allocation. There are two major types of risk for insurance companies: underwriting risk (product-market risk), which is on the liability side, and investment risk, which is on the asset side. I show how the two types of risk are interplayed. Using a sample of U.S. life insurers from 2003 to 2018, I find that those with more concentrated geographic product markets tend to invest less in risky bonds and hold more cash and liquid securities. For their bond investments, such insurers are tilted towards a set of geographically concentrated issuers headquartered outside their product markets. They also exhibit lower commonalities and less correlated trading with other insurers. Results are more pronounced for insurers that are less capitalized or faced with higher cash-flow uncertainty in insurance underwriting. These findings indicate a novel factor in life insurers' risk management.

The second essay is co-authored with Dr. LIU Will, Prof. SUN Zheng, and Dr. ZHU Qifei, we examine how competition among underwriters shapes the process of institutional loan origination. We find that the intensity of underwriter competition negatively affects initial loan spreads and is associated with more upward rate adjustments. Underwriter competition also affects the non-price dimensions of institutional loans. We document that deals are more likely to have the “cov-lite” feature when underwriter competition is more intense. The impact of underwriter competition is moderated by banking relationship and uncertainty about investor demand.