Wei Xiong, Trumbull-Adams Professor of Finance and Professor of Economics, Department of Economics, Bendheim Center for Finance, Princeton University
By comparing a sample of big tech business loans with a sample of conventional bank loans in China, we find that big tech lending facilitates credit to borrowers unserved or underserved by traditional banks, without experiencing more severe adverse selection and incurring greater risks (even after COVID-19.) Additionally, we provide a sharp characterisation of the big tech lending model: big tech loans tend to be smaller in size and have substantially higher interest rates, and borrowers tend to repay their big tech loans far before the debt matures and borrow more frequently. These characteristics remain even for the big tech loans made to borrowers with access to cheaper alternative credit. Our findings highlight the restrained advantages of the big tech lender in serving the short-term liquidity needs of borrowers in its ecosystem rather than competing with traditional banks to finance borrowers’ activities outside its ecosystem.
Wei Xiong is now a Visiting Professor and Director of Research in the Faculty of Economics at the University of Cambridge. He is the Trumbull-Adams Professor of Finance and Professor of Economics in the Department of Economics and Bendheim Center for Finance at Princeton University in the United States. His current research interests centre on financial crises, digital economy and the Chinese economy. He has published in top economics and finance journals on a wide range of research topics, such as speculative bubbles, asset pricing with heterogeneous beliefs, asset market contagion, limited investor attention, non-standard investor preferences, rollover risk and other financing frictions faced by firms.