nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒10‒30
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions By Olivier De Jonghey; Hans Dewachterz; Steven Ongenax
  2. Empty creditors and strong shareholders: The real effects of credit risk trading. Third draft By Colonnello, Stefano; Efing, Matthias; Zucchi, Francesca
  3. Tail Systemic Risk And Banking Network Contagion: Evidence From the Brazilian Banking System By Miguel Rivera-Castro; Andrea Ugolini; Juan Arismendi Z
  4. Import Competition and the Composition of Firm Investments By Fromenteau, Philippe; Schymik, Jan; Tscheke, Jan
  5. Volatility Spillover and Multivariate Volatility Impulse Response Analysis of GFC News Events By David E. Allen; Michael McAleer; Robert Powell; Abhay K. Singh
  6. The levels of application of prudential requirements: a comparative perspective By McPhilemy, Samuel; Vaughan, Rory
  7. The trade-off between monetary policy and bank stability By Martien Lamers; Frederik Mergaerts; Elien Meuleman; Rudi Vander Vennet

  1. By: Olivier De Jonghey (Corresponding author, CentER, European Banking Center, Tilburg University); Hans Dewachterz (National Bank of Belgium, Research Department, KULeuven); Steven Ongenax (University of Zurich, SFI, CEPR)
    Abstract: We analyze how time-varying bank-speci_c capital requirements a_ect banks' balance sheet adjustments as well as bank lending to the non-_nancial corporate sector. To do so, we relate Pillar 2 capital requirements to bank balance sheet data, a fully documented corporate credit register and _rm balance sheet data. Our analysis consists of three components. First, we examine how time-varying bank-speci_c capital requirements a_ect banks' balance sheet composition. Subsequently, we investigate how capital requirements a_ect the supply of bank credit to the corporate sector, both on the intensive and extensive margin, as well as for di_erent types of credit. Finally, we document how bank characteristics, _rm characteristics and the stance of monetary policy impact the relationship between bank capital requirements and credit supply.
    Keywords: Capital requirements, credit supply, credit register, bank, regulation
    JEL: G01 G21 G28 F02 L5
    Date: 2016–10
  2. By: Colonnello, Stefano; Efing, Matthias; Zucchi, Francesca
    Abstract: Credit derivatives give creditors the possibility to transfer debt cash flow rights to other market participants while retaining control rights. We use the market for credit default swaps (CDSs) as a laboratory to show that the real effects of such debt unbundling crucially hinge on shareholder bargaining power. We find that creditors buy more CDS protection when facing strong shareholders to secure themselves a valuable outside option in distressed renegotiations. After the start of CDS trading, the distance-to-default, investment, and market value of firms with powerful shareholders drop by 7.9%, 7%, and 8.8% compared to other firms.
    Keywords: debt decoupling,empty creditors,credit default swaps,shareholder bargaining power,real effects
    JEL: G32 G33 G34
    Date: 2016
  3. By: Miguel Rivera-Castro (ICMA Centre, Henley Business School, University of Reading); Andrea Ugolini (Dipartimento di Statistica, Informatica, Applicazioni ‘G. Parenti’, Universita di Firenze); Juan Arismendi Z (ICMA Centre, Henley Business School, University of Reading)
    Abstract: In this study the tail systemic risk of the Brazilian banking system is examined, using the conditional quantile as the risk measure. Multivariate conditional dependence between Brazilian banks is modelled with a vine copula hierarchical structure. The results demonstrate that Brazilian nancial systemic risk increased drastically during the global nancial crisis period. Our empirical ndings show that Bradesco and Itau are the origin of the larger systemic shocks from the banking system to the nancial system network. The results have implications for the capital regulation of nancial institutions and for risk managers' decisions.
    Keywords: Systemic Risk, Brazilian Banking System, Banking Network, Financial Contagion, Financial Crisis
    JEL: G01 G21 G32 G38
    Date: 2016–09
  4. By: Fromenteau, Philippe; Schymik, Jan; Tscheke, Jan
    Abstract: We study how foreign competition affects the composition of investments inside firms. A parsimonious model predicts that firms have an incentive to shift their investments towards more short-term assets when exposed to tougher competition. Using data on expenditures of listed US companies into various asset classes with different lifespans, we document empirical evidence that is consistent with this prediction. Over a fifteen year period between 1995 and 2009, the rise in import competition is associated with a reduction of the firm-specific asset lifespan by about 4.5% on average. We additionally exploit the Chinese WTO accession as an exogenous shock in firm expectations about future exposure to competition.
    Keywords: import competition; firm investment behavior; investment life-span; shorttermism
    JEL: F14 F36 F65 G32 L20 D22
    Date: 2016–10–12
  5. By: David E. Allen (School of Mathematics and Statistics, University of Sydney, School of Business, University of South Australia.); Michael McAleer (Department of Quantitative Finance, National Tsing Hua University, Taiwan, Econometric Institute, Erasmus School of Economics, Erasmus University, Rotterdam, The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, Spain, Institute of Advanced Sciences, Yokohama National University, Japan.); Robert Powell; Abhay K. Singh
    Abstract: This paper applies two measures to assess spillovers across markets: the Diebold Yilmaz (2012) Spillover Index and the Hafner and Herwartz (2006) analysis of multivariate GARCH models using volatility impulse response analysis. We use two sets of data, daily realized volatility estimates taken from the Oxford Man RV library, running from the beginning of 2000 to October 2016, for the S&P500 and the FTSE, plus ten years of daily returns series for the New York Stock Exchange Index and the FTSE 100 index, from 3 January 2005 to 31 January 2015. Both data sets capture both the Global Financial Crisis (GFC) and the subsequent European Sovereign Debt Crisis (ESDC). The spillover index captures the transmission of volatility to and from markets, plus net spillovers. The key difference between the measures is that the spillover index captures an average of spillovers over a period, whilst volatility impulse responses (VIRF) have to be calibrated to conditional volatility estimated at a particular point in time. The VIRF provide information about the impact of independent shocks on volatility. In the latter analysis, we explore the impact of three different shocks, the onset of the GFC, which we date as 9 August 2007 (GFC1). It took a year for the financial crisis to come to a head, but it did so on 15 September 2008, (GFC2). The third shock is 9 May 2010. Our modelling includes leverage and asymmetric effects undertaken in the context of a multivariate GARCH model, which are then analysed using both BEKK and diagonal BEKK (DBEKK) models. A key result is that the impact of negative shocks is larger, in terms of the effects on variances and covariances, but shorter in duration, in this case a difference between three and six months.
    Keywords: Spillover Index, Volatility Impulse Response Functions (VIRF), BEKK, DBEKK, Asymmetry, GFC, ESDC.
    JEL: C22 C32 C58 G32
    Date: 2016–10
  6. By: McPhilemy, Samuel (Bank of England); Vaughan, Rory (Bank of England)
    Abstract: International standards for banking regulation leave individual countries with discretion to determine how the separate legal entities within a banking group should be brought together for the purposes of prudential regulation and supervision. This paper documents differences in the levels of application of prudential requirements drawing on a survey of national rules and regulations in eight jurisdictions. Most jurisdictions apply prudential requirements on a consolidated basis, meaning that they require groups to meet standards for minimum capital and liquidity adequacy as if they constituted a single financial unit. However, consolidated requirements do not account for potential impediments to the transferability of financial resources within banking groups. Reflecting this, international banking standards suggest prudential requirements should be applied also at lower levels. The Basel Accord sets out two alternatives for applying prudential requirements beneath the consolidated level: solo application and sub-consolidation. Solo application involves applying prudential standards to individual operating banks within a group, as if those banks were separate standalone entities; sub-consolidation involves regulating sub-groupings of entities as if those sub-groupings were themselves a single financial unit. These approaches have differing implications with respect to the allocation of financial resources across the legal entities within banking groups. However, in practice different jurisdictions arrive at similar outcomes through their differentiated application of certain other regulations, notably restrictions on intragroup exposures. The final part of the paper considers how forthcoming standards on bank resolution affect the economic rationales for sub-consolidated and solo application of prudential requirements.
    Keywords: Banks; regulation; scope of regulatory consolidation; solo requirements; sub-consolidation levels of application.
    JEL: G21 G28 G38
    Date: 2016–10–21
  7. By: Martien Lamers (University of Groningen, Netherlands); Frederik Mergaerts (Ghent University, Belgium); Elien Meuleman (Ghent University, Belgium); Rudi Vander Vennet (Ghent University, Belgium)
    Abstract: This paper investigates how monetary policy interventions by the European Central Bank and the Federal Reserve affect the stock market perception of bank systemic risk. In a first step, we identify monetary policy shocks using a structural VAR approach by exploiting the changes of the volatility of these shocks on days on which there are monetary policy announcements. The second step consists of a panel regression analysis, in which we relate monetary policy shocks to market-based measures of bank systemic risk. Our sample includes information on both Euro Area and U.S. listed banks, covering a sample period from October 2008 to December 2015. We condition the impact of the monetary policy shocks on a set of bank-specific variables, thereby allowing for a heterogeneous transmission of monetary policy. We furthermore use the differences between Euro Area core and periphery countries and the additional granularity of U.S. accounting data to assess which channels determine the transmission of monetary policy. Our results indicate that by supporting weaker banks and allowing banks to delay recognizing bad loans, accommodative monetary policy may contribute to the buildup of vulnerabilities in the banking sector and may make an eventual policy tightening more difficult. On the other hand, a continuation of expansionary monetary policy may increase risk-taking incentives by further compressing banks’ net interest margins.
    Keywords: Triffin, European Payments Union (EPU), international monetary system (IMS)
    JEL: G21 G32 E52
    Date: 2016–09

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