We propose a model of collateralized lending in which (1) borrowers endogenously determine collateral quality and (2) lenders can produce costly information about collateral payoffs. Our model yields several novel predictions: wealthier economies use lower quality collateral in equilibrium, have more severe financial crises, and have less frequent crises. We provide both micro and macro empirical evidence. In the U.S. mortgage market wealthier lenders accept lower quality collateral, and, looking across countries, wealthier economies use lower quality collateral and the collateral channel explains the link between wealth and crisis severity.
- Ph.D., Yale University
- M.Acc., University of Waterloo
- Hons. B.Sc., University of Toronto
Dr. Andrew SINCLAIR received his Ph.D. degree in financial economics from Yale University in 2017. He also holds a master’s degree in finance from the University of Waterloo, and a bachelor’s degree in actuarial science from the University of Toronto.
His research studies the financial intermediation, asset management, and the Chinese economy.
- Financial Intermediation
- Asset Management
- The Chinese Economy
- Financial History
- “Do prime brokers intermediate capital”, Journal of Financial Intermediation, 2022, 53, 101004.
- “Wealth, Endogenous Collateral Quality, and Financial Crises,” (with Zehao Liu), Journal of Economic Theory, 2022, 204, 105526.
- “Banking on the Confucian Clan: Why China Developed Financial Markets So Late,” (with Zhiwu Chen and Chicheng Ma), The Economic Journal, 2022, 132(644), 1378-1413.
Over the past millennium, China has relied on the Confucian clan to achieve interpersonal cooperation, focusing on kinship and neglecting the development of impersonal institutions needed for external finance. In this paper, we test the hypothesis that the Confucian clan and financial markets are competing substitutes. Using the large cross-regional variation in the adoption of modern banks, we find that regions with historically stronger Confucian clans established significantly fewer modern banks in the four decades following the founding of China's first modern bank in 1897. Our evidence also shows that the clan continues to limit China's financial development today.
Initial public offerings in China have undervalued companies by up to $200bn over the past six years, academic research indicates, reflecting a struggle to price listings in the world’s second-biggest equity market. Limits on the valuations at which companies can sell shares in IPOs on most Chinese bourses mean that groups listing onshore may have raised just a quarter of what they otherwise could have, according to a working paper provided exclusively to the Financial Times by researchers at the University of Hong Kong.