nep-cfn New Economics Papers
on Corporate Finance
Issue of 2011‒08‒02
two papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Securitization and lending standards - evidence from the wholesale loan market By Alper Kara; David Marqués-Ibáñez; Steven Ongena
  2. How Do Firm Financial Conditions Affect Product Quality and Pricing? By Gordon M. Phillips; Giorgo Sertsios

  1. By: Alper Kara (Hull University Business School, United Kingdom.); David Marqués-Ibáñez (European Central Bank, Financial Research Division, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Steven Ongena (Tilburg University, Department of Finance, Faculty of Economics and Business Administration, Netherlands.)
    Abstract: We investigate the effect of securitization activity on banks’ lending standards using evidence from pricing behavior on the syndicated loan market. We find that banks more active at originating asset-backed securities are also more aggressive on their loan pricing practices. This suggests that securitization activity lead to laxer credit standards. Macroeconomic factors also play a large role explaining the impact of securitization activity on bank lending standards: banks more active in the securitization markets loosened more aggressively their lending standards in the run up to the recent financial crisis but also tightened more strongly during the crisis period. As a continuum of this paper we are examining whether individual loans that are eventually securitized are priced more aggressively by using unique European data on individual loans from all major trustees. JEL Classification: G21, G28.
    Keywords: securitization, bank risk taking, syndicated loans, financial crisis.
    Date: 2011–07
  2. By: Gordon M. Phillips; Giorgo Sertsios
    Abstract: We analyze the interaction of firm product quality and pricing decisions with financial distress and bankruptcy in the airline industry. We consider an airline's choices of quality and price as dynamic decisions that trade off current cash flows for future revenue. We examine how airline mishandled baggage, on-time performance and pricing are related to financial distress and bankruptcy, controlling for the endogeneity of financial distress and bankruptcy. We find that an airline's quality decisions are differentially affected by financial distress and bankruptcy. Product quality decreases when airlines are in financial distress, consistent with financial distress reducing a firm's incentive to invest in quality. In contrast, in bankruptcy product quality increases relative to financial distress. In addition, we find that firms price more aggressively when in financial distress consistent with firms trying to increase short-term market share and revenues.
    JEL: G33 L1 L21 L22 L93
    Date: 2011–07

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