Juan Pablo Gorostiaga

My main research interests are related to corporate finance and financial intermediation

Working Papers

• “Banking on Peers”: Industry Spillovers and Loan Portfolio Risk. (SSRN link) 

Single-authored Job Market Paper. (Submitted). I show lenders with high exposure to a particular industry extend loans with stricter non-monetary contract terms. Specifically, these lenders deter debt-funded growth and induce a more conservative behavior by including tighter covenants, over and above the optimal level from a bilateral perspective, being incrementally stricter when rival borrowers are closer to financial distress. This is consistent with lenders using loan contract terms to tame borrowers’ growth appetite, thus reducing the risk of their industry-wide exposure. Exploiting bank mergers as an exogenous change in lender exposure, I verify that these findings are robust to endogeneity concerns and alternative explanations.

• • Presented at ASSA 2022 Annual Meeting – AFA PhD Session, NFA 2022, FDIC Annual Bank Research Conference 2022, FMA Atlanta 2022, FMA Europe 2022, Finance Forum 2022, FMCG Conference 2022, Conference on Credit Risk Evaluation 2022, UdeSA Annual Meeting 2021, and seminars  at Imperial College, U. Pompeu Fabra, Sveriges Riksbank, Banco de España, Paris Dauphine PSL, ESCP, CUNEF, UTDT, UdeSA, and IESE.
    
    

• "Concentrating on Bailouts": Government Guarantees and Bank Asset Composition.  (SSRN link)
  With Christian Eufinger and Björn Richter. (Submitted). This paper shows that expectations of government bailouts incentivize banks to concentrate their portfolios, a behavior we term "risk-taking via asset concentration." Using U.S. bank panel data and exploiting exogenous variation in political connections, we find that banks expand their exposure to asset categories that already constitute a significant share of their portfolios when bailout expectations rise, resulting in greater portfolio concentration. In mortgage lending, banks similarly intensify lending to counties that are highly correlated with their pre-existing mortgage holdings. Concentrated exposures increase bank insolvency risk, amplify systemic risk, and may remain undetected without portfolio-level risk assessments.

  • Presented at EFA 2023, EEA 2023, FMA 2023, FINEST 2023, MadBar 2023 and PET 2024.
     

• "Banking on Bailouts". (link) 

With Christian Eufinger and Zhiqiang Ye. Banks have a significant funding-cost advantage if their liabilities are protected by bailout guarantees. We construct a corporate finance-style model showing that banks can exploit this funding-cost advantage by just intermediating funds between investors and ultimate borrowers, thereby earning the spread between their reduced funding rate and the competitive market rate. This mechanism leads to a crowding-out of direct market finance and real effects for bank borrowers at the intensive margin: banks protected by bailout guarantees induce their borrowers to leverage excessively, to overinvest, and to conduct inferior high-risk projects. We confirm our model predictions using U.S. panel data, exploiting exogenous changes in banks’ political connections, which causes variation in bailout expectations. At the bank level, we find that higher bailout probabilities are associated with more wholesale debt funding and lending. Controlling for loan demand, we confirm this effect on bank lending at the bank-firm level and find evidence on loan pricing consistent with a shift towards riskier borrower real investments. Finally, at the firm level, we find that firms linked to banks that experience an expansion in their bailout guarantees show an increase in their leverage, higher investment levels with indications of overinvestment, and lower productivity.

• • To be presented at Finance UC 2025 and Finance Forum 2025.