We examine how banks use loan sales to manage liquidity during periods of marketwide stress and the associated spillovers to market prices. We track the dynamics of loan share ownership in the secondary market using data from a U. S. supervisory register of syndicated loans. Controlling for loan quality using loan-year fixed effects, we find that banks reliant on wholesale funding were more likely to exit syndicates through sales during 2007/08. This effect is stronger for banks dependent on short-term funding and holding fewer liquid securities. In addition, secondary market prices decrease significantly more for loans funded by liquidity-strained banks.

We examine how banks use loan sales to manage liquidity during periods of marketwide stress and the associated spillovers to market prices. We track the dynamics of loan share ownership in the secondary market using data from a U.S. supervisory register of syndicated loans. Controlling for loan quality using loan-year fixed effects, we find that banks reliant on wholesale funding were more likely to exit syndicates through sales during 2007/08. This effect is stronger for banks dependent on short-term funding and holding fewer liquid securities. In addition, secondary market prices decrease significantly more for loans funded by liquidity-strained banks. Received November 16, 2015; editorial decision January 9, 2017 by Editor Itay Goldstein.

We examine a change in the European Central Bank’s collateral framework, which significantly lowered the rating requirement for eligible residential mortgage-backed securities (RMBS), and its impact on bank lending and risk-taking in the Netherlands. Banks most affected by the policy increase loan supply and lower interest rates on new mortgage originations. These lower-interest-rate loans serve as collateral for newly issued RMBS with lower-rated tranches and subsequently experience worse repayment performance. The performance deterioration is pronounced among loans with state guarantees, which suggests that looser collateral requirements may lead to undesired credit risk transfer to the sovereign.

We examine a change in the European Central Bank’s collateral framework, which significantly lowered the rating requirement for eligible residential mortgage-backed securities (RMBS), and its impact on bank lending and risk-taking in the Netherlands. Banks most affected by the policy increase loan supply and lower interest rates on new mortgage originations. These lower-interest-rate loans serve as collateral for newly issued RMBS with lower-rated tranches and subsequently experience worse repayment performance. The performance deterioration is pronounced among loans with state guarantees, which suggests that looser collateral requirements may lead to undesired credit risk transfer to the sovereign. Received June 14, 2016; editorial decision September 8, 2017 by Editor Philip Strahan.

We examine entrepreneurial activity following the staggered adoption of modern-day fraudulent transfer laws in the United States. These laws strengthen unsecured creditors’ rights and are particularly important for entrepreneurs whose personal assets commingle with the firm’s. Using administrative data from the U.S. Census Bureau, we document declines in startup entry—particularly among riskier entrants—and closures of existing firms after these laws pass. Firm financial data shows that entrepreneurs lower leverage by reducing demand for unsecured credit. Our results suggest that strong creditor protections can limit entrepreneurs’ appetite for risk, which may reduce churning along the extensive margin among the smallest firms in the economy.

We investigate the connections between bank capital regulation and the prevalence of lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For identification, we exploit a supervisory credit register of syndicated loans, loan-time fixed effects, and shocks to capital requirements arising from surprise features of the U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention, particularly among loans with higher capital requirements and at times when capital is scarce, and nonbanks step in. This reallocation is associated with important adverse effects during the 2008 crisis: loans funded by nonbanks with fragile liabilities are less likely to be rolled over and experience greater price volatility.

Previous research shows that incentives to meet short-term earnings targets can cause firms to increase share buybacks, leading to cuts in investments and employment. Using plant-level census data, we find that incentives to engage in earnings-per-share-motivated buybacks result in lower productivity at both the plant and firm level. We attribute this productivity drop to two mechanisms: reduced investment in productivity-augmenting technology, and inefficient allocation of resources across a firm’s plants. We identify multiple frictions—including labor unions, financial constraints, agency problems, and adjustment costs—that can constrain efficient reallocations across plants and thus exacerbate the consequences of firms’ short-term incentives.