Amir Sufi

Bio: Amir Sufi is an academic researcher from University of Chicago. The author has contributed to research in topics: Debt & Household debt. The author has an hindex of 54, co-authored 118 publications receiving 17164 citations. Previous affiliations of Amir Sufi include National Bureau of Economic Research & Massachusetts Institute of Technology.

Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans

Abstract: I empirically explore the syndicated loan market, with an emphasis on how information asymmetry between lenders and borrowers influences syndicate structure and on which lenders become syndicate members. Consistent with moral hazard in monitoring, the lead bank retains a larger share of the loan and forms a more concentrated syndicate when the borrower requires more intense monitoring and due diligence. When information asymmetry between the borrower and lenders is potentially severe, participant lenders are closer to the borrower, both geographically and in terms of previous lending relationships. Lead bank and borrower reputation mitigates, but does not eliminate information asymmetry problems. SYNDICATED LOANS ARE A LARGE and increasingly important source of corporate finance. Nonfinancial U.S. businesses obtain almost $1 trillion in new syndicated loans each year, which represents approximately 15% of their aggregate debt outstanding, and of the largest 500 nonfinancial firms in the Compustat universe in 2002, almost 90% obtained a syndicated loan between 1994 and 2002. Indeed, according to the American Banker, syndicated lending represents 51% of U.S. corporate finance originated, and generates more underwriting revenue for the financial sector than both equity and debt underwriting (Weidner (2000)). The market for syndicated loans has also experienced strong growth, going from $137 million in 1987 to over $1 trillion today. However, despite the importance of syndicated loans, research on their role in U.S. corporate finance is limited. A syndicated loan is a loan whereby at least two lenders jointly offer funds to a borrowing firm. The “lead arranger” establishes a relationship with the firm, negotiates terms of the contract, and guarantees an amount for a price range.

Household Balance Sheets, Consumption, and the Economic Slump*

Abstract: lapse using the highly unequal geographic distribution of wealth losses across the United States. We estimate a large elasticity of consumption with respect to housing net worth of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk-sharing. The average marginal propensity to consume (MPC) out of housing wealth is 5–7 cents with substantial heterogeneity across ZIP codes. ZIP codes with poorer and more levered households have a significantly higher MPC out of housing wealth. In line with the MPC result, ZIP codes experiencing larger wealth losses, particularly those with poorer and more levered households, experience a larger reduction in credit limits, refinancing likelihood, and credit scores. Our findings highlight the role of debt and the geographic distribution of wealth shocks in explaining the large and unequal decline in consumption from 2006 to 2009. JEL Codes: E21, E32, E44, E60.

The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis

Abstract: We conduct a within-county analysis using detailed ZIP code—level data to document new findings regarding the origins of the biggest financial crisis since the Great Depression. The sharp increase in mortgage defaults in 2007 is significantly amplified in subprime ZIP codes, or ZIP codes with a disproportionately large share of subprime borrowers as of 1996. Prior to the default crisis, these subprime ZIP codes experience an unprecedented relative growth in mortgage credit. The expansion in mortgage credit from 2002 to 2005 to subprime ZIP codes occurs despite sharply declining relative (and in some cases absolute) income growth in these neighborhoods. In fact, 2002 to 2005 is the only period in the past eighteen years in which income and mortgage credit growth are negatively correlated. We show that the expansion in mortgage credit to subprime ZIP codes and its dissociation from income growth is closely correlated with the increase in securitization of subprime mortgages.

House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis

Abstract: Using individual-level data on homeowner debt and defaults from 1997 to 2008, we show that borrowing against the increase in home equity by existing homeowners is responsible for a significant fraction of both the rise in U.S. household leverage from 2002 to 2006 and the increase in defaults from 2006 to 2008. Employing land topology-based housing supply elasticity as an instrument for house price growth, we estimate that the average homeowner extracts 25 cents for every dollar increase in home equity. Home equity-based borrowing is stronger for younger households, households with low credit scores, and households with high initial credit card utilization rates. Money extracted from increased home equity is not used to purchase new real estate or pay down high credit card balances, which suggests that borrowed funds may be used for real outlays. Lower credit quality households living in high house price appreciation areas experience a relative decline in default rates from 2002 to 2006 as they borrow heavily against their home equity, but experience very high default rates from 2006 to 2008. Our conservative estimates suggest that home equity-based borrowing added $1.25 trillion in household debt, and accounts for at least 39% of new defaults from 2006 to 2008.

House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis

Abstract: US household leverage sharply increased in the years preceding the 2007 eco nomic recession. The top panel of Figure 1 shows the steady rise in household debt since 1975, which accelerated beginning in 2002. In just five years, the household sector doubled its debt balance. In comparison, the contemporaneous increase in corporate debt was modest. The middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt-to-income ratio. During the same time period, corporate leverage declined. The dramatic absolute and relative rise in US household leverage from 2002 to 2007 is unprecedented compared to the last 25 years. One reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers (Mian and Sufi 2009). Strong house price appreciation from 2002 to 2006, however, which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers, could also have had an important feedback effect on household lever age through existing homeowners. Given that 65 percent of US households already owned their primary residence before the acceleration in house prices, the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn. Our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively. We examine this home equity-based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency. We follow a random sample of over 74,000 US homeowners (who owned their homes as of 1997) at an annual frequency from the end of 1997 until the end of 2008. The bottom panel of Figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006. While the aggregate trend is suggestive

Unobservable Selection and Coefficient Stability: Theory and Evidence

Abstract: A common approach to evaluating robustness to omitted variable bias is to observe coefficient movements after inclusion of controls. This is informative only if selection on observables is informative about selection on unobservables. Although this link is known in theory in existing literature, very few empirical articles approach this formally. I develop an extension of the theory that connects bias explicitly to coefficient stability. I show that it is necessary to take into account coefficient and R-squared movements. I develop a formal bounding argument. I show two validation exercises and discuss application to the economics literature. Supplementary materials for this article are available online.

Bank Lending During the Financial Crisis of 2008

Abstract: This paper documents that new loans to large borrowers fell by 47% during the peak period of the financial crisis (fourth quarter of 2008) relative to the prior quarter and by 79% relative to the peak of the credit boom (second quarter of 2007). New lending for real investment (such as working capital and capital expenditures) fell by only 14% in the last quarter of 2008, but contracted nearly as much as new lending for restructuring (LBOs, M&A, share repurchases) relative to the peak of the credit boom. After the failure of Lehman Brothers in September 2008 there was a run by short-term bank creditors, making it difficult for banks to roll over their short-term debt. We document that there was a simultaneous run by borrowers who drew down their credit lines, leading to a spike in commercial and industrial loans reported on bank balance sheets. We examine whether these two stresses on bank liquidity led them to cut lending. In particular, we show that banks cut their lending less if they had better access to deposit financing and thus they were not as reliant on short-term debt. We also show that banks that were more vulnerable to credit line drawdowns because they co-syndicated more of their credit lines with Lehman Brothers reduced their lending to a greater extent.

Bank Lending During the Financial Crisis of 2008

Abstract: This paper documents that new loans to large borrowers fell by 37% during the peak period of the financial crisis (September-November 2008) relative to the prior three-month period and by 68% relative to the peak of the credit boom (Mar-May 2007). New lending for real investment (such as capital expenditures) fell to the same extent as new lending for restructuring (LBOs, M&A, share repurchases). Banks that have access to deposit financing cut their lending less than banks with less access to deposit financing. In addition, there is a large overhang of revolving credit facilities, which may also have curtailed lending. We document an increase in drawdowns of revolving credit facilities. Many of these drawdowns were undertaken by low credit quality firms concerned about their access to funding. While helpful to these borrowers, they may limit the ability of banks to make other loans. Banks with more revolving lines outstanding relative to deposits reduced their lending more than those with less revolving line exposure.

The Real Effects of Financial Constraints: Evidence from a Financial Crisis

Abstract: We survey 1,050 CFOs in the US, Europe, and Asia to directly assess whether their firms are credit constrained during the global financial crisis of 2008 We study whether corporate spending plans differ conditional on this survey-based measure of financial constraint Our evidence indicates that constrained firms planned deeper cuts in tech spending, employment, and capital spending Constrained firms also burned through more cash, drew more heavily on lines of credit for fear banks would restrict access in the future, and sold more assets to fund their operations We also find that the inability to borrow externally caused many firms to bypass attractive investment opportunities, with 86% of constrained US CFOs saying their investment in attractive projects was restricted during the credit crisis of 2008 More than half of the respondents said they canceled or postponed their planned investments Our results also hold in Europe and Asia, and in many cases are stronger in those economies Our analysis adds to the portfolio of approaches and knowledge about the impact of credit constraints on real firm behavior

Endogeneity in Empirical Corporate Finance1

Abstract: This chapter discusses how applied researchers in corporate finance can address endogeneity concerns. We begin by reviewing the sources of endogeneity—omitted variables, simultaneity, and measurement error—and their implications for inference. We then discuss in detail a number of econometric techniques aimed at addressing endogeneity problems, including instrumental variables, difference-in-differences estimators, regression discontinuity design, matching methods, panel data methods, and higher order moments estimators. The unifying themes of our discussion are the emphasis on intuition and the applications to corporate finance.