Using a panel of Chinese banks over the 1997–2004 period, we assess the effect of bank ownership on performance. Specifically, we conduct a joint analysis of the static, selection, and dynamic effects of (domestic) private, foreign and state ownership. We find that the “Big Four” state-owned commercial banks are less profitable, are less efficient, and have worse asset quality than other types of banks except the “policy” banks (static effect). Further, the banks undergoing a foreign acquisition or public listing record better pre-event performance (selection effect); however, we find little performance change in either the short or the long term.

Going public reduces information asymmetry between a firm’s incumbent and potential new lenders. However, we show that while loan spreads are lower in post-IPO loans due to increased lender competition, the likelihood of having interest-increasing performance-pricing, which automatically increases spreads if firm performance deteriorates, is substantially heightened, only for loans from new lenders. This indicates that new lenders remain skeptical despite a more “level playing field.” Newly public firms need to commit to performance-sensitive debt to convince outside lenders, despite gaining a credible mechanism to disseminate information to them. Pricing grids do get amended more often ex-post for such loans, reflecting a lender learning process. Newly public firms are indeed still more likely to obtain loans from new lenders post-IPO. Our results suggest that performance pricing can serve to address the remaining information gap with new lenders beyond hard-information disclosure, allowing firms to better diversify their lender base.

We investigate the resilience of the South African banking sector by applying a dynamic agent-based model and the DebtRank algorithm. In contrast to previous studies focusing on listed banks, our methodology includes both listed and non-listed institutions that make up the banking industry, thereby capturing the systemic importance and vulnerability of all banks within the interbank market network. Our findings indicate that while larger banks exhibit greater systemic importance, a statistically significant correlation exists between a bank’s interbank-lending-to-equity ratio and vulnerability. Moreover, a bank’s size and specific interbank activities influence its systemic contribution, both in terms of importance and vulnerability. These insights offer policymakers an empirically grounded framework for improving financial stability monitoring and risk mitigation efforts.

ABSTRACT This study exploits the staggered adoption of the inevitable disclosure doctrine (IDD) by U.S. state courts as an exogenous shock that generates variations in the proprietary costs of disclosure. We find that firms respond to IDD adoption by reducing the level of disclosure regarding their customers’ identities, supporting the proprietary cost hypothesis. Our results are stronger for firms in industries with a higher degree of entry threats, for firms in more volatile industries, and for firms with a lower degree of external financing dependence. Overall, this study represents one of the first efforts in identifying the causal effect of proprietary costs of disclosure on the supply of disclosure.

The changing face of responsible investing (RI) raises an important question concerning whether social responsibility influences the decision making of institutional investors in the “sin” industries. This study addresses this issue by investigating whether and how the implementation of various government initiatives concerning environmental, social, and governance (ESG) issues affect the institutional ownership of casino firms in Macao, the world's gaming capital. Employing structural equation modeling, this study further examines whether and how RI makes financial sense in this special industry. The results show that the implementation of all four ESG-improving government initiatives (including an anticorruption campaign, visa restriction, smoking bans, and responsible gambling) leads to a significant increase in the institutional ownership of casino firms in general, demonstrating the presence and mechanism of RI in the “sin” industries. Such RI is then found to be conducive to a lower equity risk of casino firms in general. The results also illustrate that these intuitional investors are not one homogeneous group. The norm-constrained institutions are the prominent responsible investors and can help strengthen the equity risk management of casino companies whereas the natural arbitrageurs do not undertake any significant role in this regard. The results are robust across various estimation techniques, model specifications and alternative measures of firm risk.

We find that a borrower default causes an increase in investors' EDGAR searches for non-defaulting borrowers that share the same relationship bank. This effect is more pronounced when the lending relationship between the defaulting borrower and the defaulted-upon bank is stronger and when the reliance of non-defaulting borrowers on the defaulted-upon bank is greater. The co-movement of information acquisition for non-defaulting borrowers increases after the peer default, which leads to a co-movement in the issuance of management forecasts and a co-movement in stock returns. In sum, our research supports a network effect of peer defaults on information acquisition.

Abstract We find that mortgage loans originated after the adoption of the inevitable disclosure doctrine (IDD; a mechanism discouraging loan officers’ labor mobility) have a lower default probability, a higher loan modification rate, and a lower foreclosure rate. These effects are unaccompanied by any reduction in loan supply and contribute to more stable housing prices. Using the adoption of the Uniform Trade Secrets Act as an alternative identification generates consistent results. Overall, our findings suggest that restricting loan officers’ labor mobility leads to better ex ante screening and ex post monitoring, improving the origination efficiency for U.S. residential mortgage loans.

ABSTRACT This paper examines the credit supply-side effect of the U.S. 2003 dividend tax cut on the real economy through the banking sector. We show that C-corporation banks (treatment group), particularly those capital-constrained, increase the supply of small business loans more than S-subchapter banks (control group) following the tax cut, aligning with the old view of dividend taxation and the supply-side effect rooted in credit rationing. Such an enhanced small business loan supply stemming from the tax cut translates into real effects on the economy. We find that areas with a greater presence of C-corporation banks exhibit more small business formations, employment, and innovations. The positive real effects are concentrated in subsamples when business growth opportunities are more abundant or international trade exposures are higher. Overall, our findings add to the literature on the real effects of the tax cut by showing an important yet unexplored bank credit supply channel.