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We study the relationship between exporters' organizational structure and output quality. If only input quantity is observable, theory predicts that vertical integration may be necessary to incentivize suppliers to increase input quality. Using data on suppliers' behavior, supplier ownership, supply transactions, and manufacturers' output by quality grade and exports from the Peruvian fishmeal industry, we show the following. After integrating with the plant being supplied and losing access to alternative pay-per-kilo buyers, suppliers take more quality-increasing and less quantity-increasing actions. Integration consequently causally increases output quality, and manufacturers integrate suppliers when facing high relative demand for high quality grades.

Zonder onderwerpscode: economie

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Research on leverage and asset-price fluctuations focuses on the direct effect of lax bank lending enabling financially-constrained investors to take excessive risks. Ignored are unconstrained investors speculating on higher prices during credit booms. To identify these two effects, we utilize China's staggered liberalization of stock-margin lending from 2010-2015--which encouraged a bank/brokerage-credit-fueled stock-market bubble. The direct effect is a 25 cent increase in a stock's market capitalization for each dollar of margin debt. Unconstrained investors led to an even larger increase in valuations of an additional 32 cents as they speculated on stocks likely to qualify for lending.

Zonder onderwerpscode: economie

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We study the relationship between firms' output quality and their choice of organizational structure. To do so, we use data on each step of the production and transaction chain that makes up Peruvian fishmeal manufacturing. We first show that quality upgrading is an important motive for vertically integrating. Firms integrate suppliers when the quality premium--the relative price of high quality output--rises for exogenous reasons, but not when average or low quality prices rise. The greater a firm's scope for shifting low to high quality production, the greater its integration response. We then show that integration changes suppliers' production behavior. A given supplier's actions are less geared towards increasing quantity and more geared towards maintaining input quality after the supplier is integrated and loses access to alternative pay-per-kilo buyers. Finally, we show that firms and individual plants that use integrated suppliers at the time of production ultimately produce a significantly higher share of high quality output. In sum, our results suggest that firms change their organizational structure when their output quality objectives change because controlling the incentives of independent suppliers facing a quantity-quality trade-off is difficult, as classical theories of the firm predict.

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Household credit expansions often coincide with high stock-market valuations, but identifying a causal relationship remains challenging. Because unconstrained arbitrageurs play a pivotal role in stock-pricing, the impact of credit is not obvious (despite evidence in less-liquid housing markets). Further, given margin restrictions, credit may leak into stock prices in difficult-to-measure ways. We address these issues using an unprecedented 2010-2015 regulatory expansion of margin lending in China. Institutional fund trades and regression discontinuity evidence suggest a positive impact on prices that was largely anticipated by unconstrained investors. We develop a dynamic panel model of stock prices and recover large causal estimates.