Two essays on money market funds reforms
This dissertation has two chapters. The first chapter examines the impact of large exogenous outflows from money market funds (MMFs) on their borrowers due to the 2016 Securities and Exchange Commission (SEC) reforms. By exploiting cross-MMF outflow variation, the study documents the financial distress that MMFs transmit to the broader economy. It shows that the MMF, experiencing a one percent more decrease in liquidity as measured by the change in asset under management, cuts lending to the borrower by an additional 0.40 percent. Moreover, borrowers having strong relationships with the family do not experience any significant negative spillover due to these large outflows. The second chapter explores the impact of similar reforms on the commercial paper market. By exploiting the differential time effect, we document a rise in the commercial paper (CP) rates. The rise in CP rates is more pronounced when the shadow floating NAV period starts and is similar across different types of commercial paper. Our cross-sectional analysis finds support for relationship-based lending in both commercial paper holdings and rates. We find that big issuers experienced a decrease and small issuers observed an increase in commercial paper outstanding from MMFs in the post-period. We find no evidence that rates vary across the size of the issuer in the post-period. Finally, financial institutions pay higher rates in the post-period than non-financial institutions.
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