What are the social consequences of liquidity shocks? We answer this question relying on a natural experiment from 1930s China, where the money supply contracted as a consequence of the 1933 US Silver Purchase program. Using a novel, hand-collected data set of loan contracts to individual Chinese firms and labour unrest, we find that the resulting bank liquidity shock led to a widespread, large credit contraction. We also find that firms borrowing from banks with a larger exposure to the monetary shock were more likely to experience labour unrest. These findings support Milton Friedman’s (1992) conjecture that the US Silver Purchase program exacerbated social tensions in 1930s China, and contribute to our understanding of the (unintended) social consequences of liquidity shocks.
Alberto Manconi is assistant professor of finance at Tilburg University (Netherlands), where he has been working since obtaining his PhD from INSEAD (France) in 2010. Dr Manconi is a regular contributor to the academic literature; his work has been presented multiple times at international conferences, including all the major finance conferences (AFA, WFA, EFA), and has been published in the Journal of Financial Economics, Journal of Financial and Quantitative Analysis, and Review of Finance. His research interests centre around empirical corporate finance and financial intermediation. In his work, Dr Manconi addresses a variety of issues, including the role of institutional investors in propagating financial crises, the impact of mutual funds in shaping firm policies and governance, learning by mutual fund managers, consolidation in the asset management industry, and the impact of bank liquidity shocks on the real economy.