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on Corporate Finance |
| By: | Arito Ono (Chuo University); Kosuke Aoki (University of Tokyo); Shinichi Nishioka (Bank of Japan); Kohei Shintani (Bank of Japan); Yosuke Yasui (Bank of Japan) |
| Abstract: | This paper examines the effects of long-term interest rates on bank loan supply. Using a simple mean-variance model of bank portfolio selection subject to the value-at-risk (VaR) constraint, we make theoretical predictions on two transmission channels through which lower long-term interest rates increase loan supply: (i) the portfolio balance channel and (ii) the bank balance sheet channel. We construct a unique and massive firm-bank loan-level panel dataset for Japan spanning the period 2002-2014 and test our theoretical predictions to find the following. First, an unanticipated reduction in long-term interest rates increased bank loan supply, which lends support to the existence of the portfolio balance channel. Second, banks that enjoyed larger capital gains on their bond holdings due to a decline in interest rates significantly increased their loan supply, which lends support to the existence of the bank balance sheet channel. Further, the bank balance sheet channel was stronger in the case of loans to smaller, more leveraged, and less creditworthy firms, which suggests that a stronger balance sheet leads banks to increase their loan supply to credit-constrained and riskier firms. |
| Keywords: | portfolio balance channel, bank balance sheet channel, value-at-risk constraint |
| JEL: | E44 E52 G11 G21 |
| Date: | 2016–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp16e02&r=cfn |
| By: | Hasan, Iftekhar; Hoi, Chun-Keung (Stan); Wu, Qiang; Zhang, Hao |
| Abstract: | We find that firms headquartered in U.S. counties with higher levels of social capital incur lower bank loan spreads. This finding is robust to using organ donation as an alternative social-capital measure and incremental to the effects of religiosity, corporate social responsibility, and tax avoidance. We identify the causal relation using companies with a social-capital-changing headquarter relocation. We also find that high-social-capital firms face loosened nonprice loan terms, incur lower at-issue bond spreads, and prefer bonds over loans. We conclude that debt holders perceive social capital as providing environmental pressure constraining opportunistic firm behaviors in debt contracting. |
| Keywords: | social capital, cooperative norm, moral hazard, cost of bank loans, public bonds |
| JEL: | G21 G32 Z13 |
| Date: | 2015–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:urn:nbn:fi:bof-201511201442&r=cfn |
| By: | Gyanendra Prasad Paudel (Nepal merchant Cooperative Ltd.); Suvash Khanal (Kist College) |
| Abstract: | Due to a poor capital standard some depository institutions (DIs) failed recently. Therefore,stakeholders such as regulators, managers, researchers, etc. are concerned to fix a precise level of long-term sources of fund in their capital structure. DIs are highly levered firm because major portion of their capital structure consists of debt collected from deposits. Thus, capital adequacy ratio is a significant measure to evaluate efficiency and stability which affects the likelihood of insolvency for those institutions. Nepalese banks are applying Basel framework in order to maintaining a precise level capital standard. But, Nepalese cooperatives such as saving and credit cooperatives, multipurpose cooperatives, etc. are not regulated by the central bank, and thus, are not subjected to follow the Basel. In this regard, we evaluated the determinants of the capital adequacy ratio of Nepalese cooperative societies through descriptive, correlation, and regression analysis using an unbalance panel data of 126 co-operatives from 2009 to 2013. The core determinants of capital adequacy ratio for the Nepalese cooperatives are credit to deposit ratio, net interest margin and types of cooperative in positive direction, whereas assets utilization ratio, size and return on equity in negative direction. Though, the big sized cooperatives have poor strategic capital, the resulted mean and standard deviation suggest cooperatives’ capital adequacy ratio is higher but inconsistent than commercial banks. |
| Keywords: | Capital Adequacy Ratio; Nepalese Cooperative Societies; Financial Ratios; Microfinance Governance and Regulation. |
| JEL: | C30 G21 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:3205910&r=cfn |
| By: | Luisa Carpinelli (Banca d'Italia); Giuseppe Cascarino (Banca d'Italia); Silvia Giacomelli (Banca d'Italia); Valerio Vacca (Banca d'Italia) |
| Abstract: | This study presents the results of a survey carried out by the Bank of Italy in 2015 on the efficiency of credit recovery procedures undertaken by the main Italian banking groups. The recovery rate for liquidations in the years 2011-2014 was slightly above 40 per cent, and the largest share of the recovery was obtained within the first five years from the start of the procedure. Four years after the debt restructurings began, almost two thirds are still underway. The average age of liquidations at the end of 2014 was twice that of debt restructurings and eight percentage points more of loans being restructured are collateralized than those being liquidated. In 2014 the management of non-performing loans absorbed 2.8 per cent of banks’ operating costs, a larger share than in previous years. The study found not only differences in the systems adopted by the banks for managing non-performing loans but also differences in the amount of information available on the topics covered by the survey. |
| Keywords: | Credit recovery, banks, corporate financing |
| JEL: | G21 G33 K22 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_311_16&r=cfn |
| By: | Francesca Lotti (Banca d'Italia); Francesco Manaresi (Banca d'Italia) |
| Abstract: | In this paper we provide new evidence on the relationship between market concentration in the banking industry and firm dynamics. In Italy, in the case of a banking merger or acquisition, the antitrust authorities can require the sale of bank branches if the joint market share of the banks involved in the merger exceeds a specific threshold. We exploit this feature to carry out RDD estimates of (i) the effect of intervention by antitrust authorities on banking market concentration, and (ii) the effect of the level of bank concentration on various measures of firm dynamics. The results show that, in those areas where the authorities forced branch sales, firm's entry rates increase, reallocation of employees from incumbent to entrant firms is higher, and the survival rate of newly formed businesses increases. The overall allocative efficiency, as measured by an Olley-Pakes decomposition of labor productivity, is found to improve. |
| Keywords: | bank competition, firm dynamics, entry, exit, firm size, regression discontinuity |
| JEL: | G21 L11 M13 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_299_15&r=cfn |
| By: | Zhiguo He; Bryan Kelly; Asaf Manela |
| Abstract: | We find that shocks to the equity capital ratio of financial intermediaries—Primary Dealer counterparties of the New York Federal Reserve—possess significant explanatory power for crosssectional variation in expected returns. This is true not only for commonly studied equity and government bond market portfolios, but also for other more sophisticated asset classes such as corporate and sovereign bonds, derivatives, commodities, and currencies. Our intermediary capital risk factor is strongly pro-cyclical, implying counter-cyclical intermediary leverage. The price of risk for intermediary capital shocks is consistently positive and of similar magnitude when estimated separately for individual asset classes, suggesting that financial intermediaries are marginal investors in many markets and hence key to understanding asset prices. |
| JEL: | G01 G12 G21 G24 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21920&r=cfn |
| By: | Panteghini, Paolo M.; Vergalli, Sergio |
| Abstract: | In this article we focus on a representative firm that can decide when to invest under default risk. On the one hand, this firm can benefit from generous tax depreciation allowances, on the other hand it faces a default risk. Our aim is to study the effects of tax depreciation allowances in a risky environment. As will be shown in our numerical analysis, generous tax depreciation allowances lead to a decrease in a firm’s leverage and, in most cases, cause a reduction in default risk. This result has a strong policy implication, in that it shows that an investment stimulus pack is expected neither to increase the default risk nor to cause financial instability. |
| Keywords: | Capital Structure, Contingent Claims, Corporate Taxation and Hybrid Securities, Risk and Uncertainty, H2, |
| Date: | 2016–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemet:232220&r=cfn |
| By: | Fungácová, Zuzana; Godlewski, Christophe J.; Weill, Laurent |
| Abstract: | We study the effect of bank loan and bond announcements on borrower'€™s stock price. We apply an event study methodology on a sample of companies from 17 European countries and find that debt announcement generates a positive stock market reaction. However, our main conclusion is that the issuance of a loan exerts a significantly stronger reaction than does the issuance of a bond. This finding supports the hypothesis that loan issuance has a positive certification effect. The analysis of determinants of abnormal returns following debt announcements shows a positive impact of financial development and a negative effect of the Eurozone crisis. |
| Keywords: | corporate bonds, syndicated loans, event study, stock returns, Europe |
| JEL: | G14 G20 |
| Date: | 2015–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:urn:nbn:fi:bof-201508211366&r=cfn |
| By: | Corbisiero, Giuseppe (Central Bank of Ireland) |
| Abstract: | This paper provides a theory to investigate the transmission of non-standard monetary policy to corporate lending in a monetary union where financial frictions limit firms’ access to external finance. The model incorporates a banking-sovereign nexus by assuming that sovereign default would generate a liquidity shock severely hitting domestic banks’ balance sheet. I find that this feature crucially impairs the transmission of monetary policy, generating asymmetric lending responses and the risk of contagion across economies. In particular I show that, in some circumstances, the liquidity injected into the risky country’s banks results in financing the sovereign rather than boosting lending, and sovereign risk in one country generates negative spillover effects on lending throughout the monetary union via the collateral channel. The model sheds light on the troubled transmission of the ECB’s policy measures to the economy of stressed countries during the euro sovereign debt crisis. |
| Keywords: | Bank Lending, Sovereign Risk, Monetary Policy, Crisis, Euro Area |
| JEL: | E44 E52 F36 G01 G33 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:02/rt/16&r=cfn |