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I analyze the impact of the formation of universal banks on corporate investment by looking at the gradual dismantling of the Glass-Steagall Act's separation between commercial and investment banking. Using a sample of US firms an...
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I analyze the impact of the formation of universal banks on corporate investment by looking at the gradual dismantling of the Glass-Steagall Act's separation between commercial and investment banking. Using a sample of US firms and their relationship banks, I show that firms curtail debt issuance and investment after positive shocks to the underwriting capacity of their main bank. This result is driven by unrated firms and is strongest immediately after a shock. These findings suggest that universal banks may pay more attention to large firms providing more underwriting opportunities while exacerbating financial constraints of opaque firms, in line with a shift to a banking model based on transactional lending.
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We develop an ethical preference-based model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any c...
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We develop an ethical preference-based model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any company while trading off dividends against ethicalness. When dividends and ethicalness are complementary goods and investors are sufficiently risk averse, the model predicts that the dividend share of sin companies exhibits a positive relation with the future return and volatility spreads. An empirical analysis supports the model's predictions. Taken together, our results point to the importance of ethical preferences for investors' portfolio choices and asset prices. (C) 2019 Elsevier B.V. All rights reserved.
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Credit default swaps (CDSs) can create empty creditors who potentially force borrowers into inefficient bankruptcy but also reduce shareholders' incentives to default strategically. We show theoretically and empirically that the p...
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Credit default swaps (CDSs) can create empty creditors who potentially force borrowers into inefficient bankruptcy but also reduce shareholders' incentives to default strategically. We show theoretically and empirically that the presence and the effects of empty creditors on firm outcomes depend on the distribution of bargaining power among claimholders. If creditors would face powerful shareholders in debt renegotiation, firms are more likely to face the empty creditor problem. The empirical evidence confirms that more CDS insurance is written on firms with strong shareholders and that CDSs increase the bankruptcy risk of these same firms. The ensuing effect on firm value is negative. (C) 2019 Published by Elsevier B.V.
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Theoretically, bank's loan monitoring activity hinges critically on its capitalization. To proxy for monitoring intensity, we use changes in borrowers' investment following loan covenant violations, when creditors can intervene in...
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Theoretically, bank's loan monitoring activity hinges critically on its capitalization. To proxy for monitoring intensity, we use changes in borrowers' investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank-firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalized banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands-off approach is associated with improved borrowers' performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks.(JELG21, G32, G33, G34)
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Using data on US public firms, I uncover a strong and positive correlation between executive compensation and labor expenses. On average, a 1 % increase in the wage bill translates into a 0.3 % raise in total executive pay. This a...
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Using data on US public firms, I uncover a strong and positive correlation between executive compensation and labor expenses. On average, a 1 % increase in the wage bill translates into a 0.3 % raise in total executive pay. This association is driven by wages rather than by employment growth, is stronger for the incentive than for the salary component of executive compensation, and is particularly pronounced in the financial sector.
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