nep-fmk New Economics Papers
on Financial Markets
Issue of 2010‒04‒11
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Stressed, not frozen: the Federal Funds market in the financial crisis By Gara Afonso; Anna Kovner; Antoinette Schoar
  2. Does the Tenure of Private Equity Investment Improve the Performance of European Firms? By Oleg Badunenko; Christopher F. Baum; Dorothea Schäfer

  1. By: Gara Afonso; Anna Kovner; Antoinette Schoar
    Abstract: This paper examines the impact of the financial crisis of 2008, specifically the bankruptcy of Lehman Brothers, on the federal funds market. Rather than a complete collapse of lending in the presence of a market-wide shock, we see that banks became more restrictive in their choice of counterparties. Following the Lehman bankruptcy, we find that amounts and spreads became more sensitive to a borrowing bank's characteristics. While the market did not contract dramatically, lending rates increased. Further, the market did not seem to expand to meet the increased demand predicted by the drop in other bank funding markets. We examine discount window borrowing as a proxy for unmet fed funds demand and find that the fed funds market is not indiscriminate. As expected, borrowers who access the discount window have a lower return on assets. On the lender side, we do not find that the characteristics of the lending bank significantly affect the amount of interbank loans it makes. In particular, we do not find that worse performing banks began hoarding liquidity and indiscriminately reducing their lending.
    Keywords: Federal funds ; Financial crises ; Bank liquidity ; Interbank market ; Discount window
    Date: 2010
    URL: http://d.repec.org/n?u=RePEc:fip:fednsr:437&r=fmk
  2. By: Oleg Badunenko; Christopher F. Baum; Dorothea Schäfer
    Abstract: The paper investigates whether the presence and tenure of Private Equity (PE) investment in European companies improves their performance. Previous studies documented the unambiguous merit of a buyout during the 1980s and 1990s for listed firms in the US and UK markets. This study analyzes such influences in both listed and unlisted European firms during 2002-2007. Our analysis suggests that shortterm PE investments have, on average, a detrimental effect on firm performance. The performance of a firm that has PE backing is lower than that of a firm without PE backing in the first year of PE investment. Such an effect disappears if PE investments remain in the firm for an uninterrupted six-year term
    Keywords: Private equity financing, corporate finance
    JEL: M14 G24 G34
    Date: 2010
    URL: http://d.repec.org/n?u=RePEc:diw:diwwpp:dp990&r=fmk

This nep-fmk issue is ©2010 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.