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on Corporate Finance |
| By: | Kilian Huber |
| Abstract: | The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in postwar Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers. |
| JEL: | E24 E44 G21 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8746&r=all |
| By: | David Newton (University of Bath - School of Management); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Ru Xie (University of Bath, School of management); Binru Zhao (University of Bath - School of Management) |
| Abstract: | The economic downturn caused by the Covid-19 pandemic accentuates extant concerns about the leveraged loan market. Using a novel dataset, we show that leveraged loan spreads have declined for nonbank-facilities since the introduction of the Interagency Guidance on Leveraged Lending (IGLL) and the ensuing “frequently asked questions for implementing the March 2013 guidance”. The decline in leveraged loan spreads is significant for highly leveraged borrowers, especially when involving term loans. We further demonstrate that risk shifting issues associated with the high level of Collateralized Loan Obligations issuance strongly explain the decline of nonbank leveraged loan spreads. In addition, a higher degree of information asymmetry, driven by an increase in covenant-lite loan issuance and weaker investor protection, are strongly associated with the narrowed leverage risk premium. |
| Keywords: | Leverage Risk, Syndicated Loan Pricing, Leveraged Loan, Risk Shifting |
| JEL: | G21 D82 G34 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp20111&r=all |
| By: | van der Plaat, Mark; Spierdijk, Laura |
| Abstract: | Recourse is often included in loan sales and securitization in order to reduce potential problems arising from information asymmetries. Recent literature has shown, however, that recourse was ineffective in preventing such problems. In this paper we empirically study the recourse cyclicality hypothesis, which states that recourse is only effective in signaling asset quality and thereby reducing information asymmetries in a recession. Using data between 2001 and 2016 on U.S. commercial banks, we find that recourse is only effective in signaling asset quality during a recession. When the economy is booming, recourse is ineffective and cannot prevent the build-up of risky assets on- and off-balance sheet of banks. Our results are robust to several specifications. |
| Keywords: | Recourse; Loan Sales; Securitization; Asymmetric Information; Adverse Selection; Moral Hazard; Credit Risk; Banking; Cyclicality |
| JEL: | G21 G32 |
| Date: | 2020–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104718&r=all |
| By: | Armerin, Fredrik (Department of Real Estate and Construction Management, Royal Institute of Technology); Song, Han-Suck (Department of Real Estate and Construction Management, Royal Institute of Technology) |
| Abstract: | Many irreversible investment problems studied in finance has the property that the cash flow representing the cost and the revenue of the investment occur at one time (either at the same time, or at two different times). In this note we present a framework in which the cash flows are allowed to be spread out in time, thus yielding a more realistic model. We show the effect of this extension in an investment case study example. |
| Keywords: | Optimal Stopping; Irreversible Investments; Cash Flow Lags; Time-to-build |
| JEL: | G11 G13 R30 |
| Date: | 2020–12–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:kthrec:2020_017&r=all |