Knowledge that Transforms

This paper explores how geopolitical risk affects corporate maturity mismatch using a sample of Chinese listed corporations. We find that geopolitical risk significantly exacerbates corporate maturity mismatch. Specifically, GPR increases corporate long-term investment and short-term debt, while decreasing corporate short-term investment and long-term debt. Further, the impact of GPR is amplified by R&D investment, industry competitiveness, and financial constraint, but weakened by corporate credit quality. The results of the mechanism test suggest that geopolitical risk exacerbates corporate maturity mismatch by increasing corporate information asymmetry and default risk. Additionally, we find that the impact of GPR on corporate maturity mismatch exhibits industry heterogeneity, and the positive effect of geopolitical risk on corporate maturity mismatch is more significant for high-growth corporations, non-state-owned corporations, small corporations, multinational corporations, and capital-intensive corporations. Finally, based on the extended Fama-French models, we construct two firm-level GPR indicators and the results indicate that individual GPR exacerbates maturity mismatch. Our paper enriches the research on the factors affecting maturity mismatch and helps corporations better manage operational and uncertainty risks.

We investigate the impact of policy uncertainty (PU) on the economic impact of bank mergers and acquisitions (M&A). Using a sample of 3142 deals announced by US banks between 1986 and 2020, we find a significant positive effect of PU on acquirer short- and long-term market value. PU also positively affects acquirer post-merger accounting performance and increases the incentives for synergy-driven bank M&A. Amid PU, acquirers avoid stock-only financed deals, delay deal completion, and pay higher bid premiums. Our results are robust to model specifications that control for different proxies of PU, endogeneity, asset pricing models, and event windows surrounding deal announcements.

The existing literature provides inconclusive theoretical predictions regarding whether central banks’ monetary policy should address financial stability. We therefore empirically evaluate the effect of central banks’ financial stability orientation (“leaning against the wind”) on bank risk-taking. Our baseline results from cross-country, bank-level panel data suggest that higher central banks’ financial stability orientation significantly reduces bank risk-taking. Further investigation shows that monetary policy aimed at achieving financial stability complements macroprudential policy in reducing bank risk-taking, particularly during macroprudential policy tightening. These results offer novel insights into the effect of central bank’s monetary policy on bank stability and provide empirical evidence to prior theoretical works.

What drives macro-financial vulnerabilities? Inspired by Minsky–Kindleberger narratives, one prominent view emphasizes that lending standards repeatedly deteriorate in good times, creating exposure to widespread reassessments of risk. Another emphasizes that leverage amplifies negative shocks. This paper constructs panel data on lending standards and uses it to show that Minsky–Kindleberger dynamics interact with leverage. Standards erode with improving economic performance, but do not always co-move with aggregate leverage. The combination of deteriorating standards and leverage—above and beyond leverage alone—signals poor subsequent macroeconomic performance. Inconsistent with models incorporating rational expectations, this poor subsequent performance is systematically reflected in forecast errors.

In this study, we examine the impact of liquidity support from the Federal Reserve on the capital structures of firms of varying sizes. Our findings suggest that large firms tend to increase their debt financing and leverage ratios in response to significant shocks triggered by the large-scale asset purchases (LSAPs) of the US Federal Reserve. By contrast, small firms with preexisting banking relationships are more likely to receive liquidity support. Notably, small firms associated with smaller banks exhibit increased default risks. Furthermore, large firms exhibited weaker operating performance but received greater managerial compensation following the LSAP. This trend indicates potential inefficiencies in the distribution of funding facilitated by unconventional monetary policies.

The 2023 banking turmoil highlighted how technological advancements have significantly accelerated the speed of bank runs. This paper investigates the impact of these faster bank runs on the effectiveness of policy interventions by interpreting them as a constraint on the relative speed of policy responses. Using a model of bank runs and ex-post policy responses, we examine how delays caused by this constraint affect financial fragility and welfare. We find that while delays exacerbate welfare loss by distorting allocations, they may also decrease fragility by making banks more cautious. We study the optimal level of structural delay, balancing the trade-off between distributional distortions and financial fragility. Furthermore, we extend this model to explore the roles of liquidity regulations and capital injections given such a delay. We show that regulation may be more desirable than a capital injection if the delay is substantial because the benefit of decreased fragility is particularly potent.

This study aims to empirically identify the state of the US housing market. I do so by estimating a Markov switching model of housing prices, in which mortgage debt affects house prices nonlinearly and drives state transition probabilities. Second, I compute a state-contingent housing risk measure fed with the probability of being in each state. Finally, I show that such risk measure contains early warning information in a forecasting exercise to predict the charge-off rates of real estate residential loans and a financial stress index. The significance of this study is that it informs economic agents and policymakers about the state of the housing market mechanically.