Knowledge that Transforms

In this paper, we address the question of whether the gender of a firm’s leader affects the cost of bank funding faced by small and medium enterprises in Europe. Using a large sample of observations of non-financial firms, during the years 2009–2013, we empirically test for the presence of discrimination, comparing female-led and male-led firms. After controlling for a rich set of variables and addressing potential endogeneity, our results show that i) female-led enterprises are more likely to face worse price conditions for bank financing compared to their male-led counterparts and, ii) firms whose leadership changes from female to male are more likely to benefit from an improvement in interest rate levels. This evidence is robust to different model specifications and various methodological approaches. The existence of such bias in the credit markets highlights the need of policy measures addressing female-led businesses, thus reducing their bank financing burdens and enhancing their entrepreneurial opportunities.

We document that transient, dedicated and quasi-indexed institutional investors exhibit a high degree of within-group heterogeneity with respect to their investment styles (i.e., growth, value, and balanced). We find that growth institutional investors enhance firm innovation in terms of R&D expenditures, R&D intensity, quantity and quality of patents and patent radicalness while value institutional investors impede innovation. Balanced investors have no significant association with innovation. Findings are consistent with style investing literature that growth and value styles are substitutes. Using investment styles, we present evidence that reconcile literature’s mixed findings on how transient and dedicated investors affect R&D and innovation, and why quasi-indexed investors, the largest group among all investors, have an insignificant effect. We also show that the effect of institutional investors depends on the firm’s relative level of innovativeness.

We introduce time-varying systemic risk (à la He and Krishnamurthy, 2014) in an otherwise standard New-Keynesian model to study whether simple leaning-against-the-wind interest rate rules can reduce systemic risk and improve welfare. We find that while financial sector leverage contains additional information about the state of the economy that is not captured in inflation and output leaning against financial variables can only marginally improve welfare because rules are detrimental in the presence of falling asset prices. An optimal macroprudential policy, similar to a counter cyclical capital requirement, can eliminate systemic risk raising welfare by about 1.5%. Also, a surprise monetary policy tightening does not necessarily reduce systemic risk, especially during bad times. Finally, a volatility paradox a la Brunnermeier and Sannikov (2014) arises when monetary policy tries to excessively stabilize output.

This paper evaluates the model risk of models used for forecasting systemic and market risk. Model risk, which is the potential for different models to provide inconsistent outcomes, is shown to be increasing with market uncertainty. During calm periods, the underlying risk forecast models produce similar risk readings; hence, model risk is typically negligible. However, the disagreement between the various candidate models increases significantly during market distress, further frustrating the reliability of risk readings. Finally, particular conclusions on the underlying reasons for the high model risk and the implications for practitioners and policy makers are discussed.

Around the world, investors, practitioners, regulators and policy makers seek to understand whether, when and why recently listed stocks, initial public offerings (IPOs) are delisted rather than continue trading (survive). Using data on 7,627 IPOs issued during 2000–2008 across 32 countries, we explore the impact of the legal system on IPO survival. We find that IPOs in countries with better investor protections remain listed for longer. This suggests that better legal systems increase the net benefits companies derive from staying listed. We also provide evidence that better legal systems increase the effectiveness of IPO certification by venture capitalists, underwriters and auditors.

In this paper, we use the DCC MIDAS approach to assess the validity of the wake-up call hypothesis for developed and emerging markets during the global financial crisis (GFC). We use this approach to decompose the total correlations into short- (daily) and long-run (quarterly) correlations for the period from 1999 to 2011. We then examine the transmission mechanisms by regressing the quarterly economic, financial, and behavioral variables on the quarterly DCC–MIDAS correlations. We find that country specific factors are crisis contingent transmission mechanisms for the co-movements of emerging country pairs and mixed pairs of advanced and emerging countries during the global financial crisis. However, we do not observe wake-up calls in the transmission of the crisis among advanced country pairs. The classification of the transmission mechanisms for crisis and non-crisis periods with the different country pairs has important implications for crisis management as well as for portfolio investment strategies. Thus, our findings contribute to the discussion on the role and effectiveness of the international financial architecture.

This paper examines whether the 2011 European short sale ban on financial stocks proved to be successful or had a negative impact on financial markets. We explicitly take an options market perspective and focus on market participants’ changes in beliefs and expectations. During the ban, short positions in banned stocks decreased, whereas they increased for non-banned stocks. Our results indicate that the ban increased implied jump risk levels, thereby negatively impacting the banned financial stocks. However, we also observe that after the announcement of the ban, financial contagion risk actually dropped for banned stocks. Instead of a substitution effect between regular short selling and synthetic shorting through single stock puts, we observe a migration out of single stock puts into the EuroStoxx 50 index options market. We conclude that this type of migration diversified selling pressure initially concentrated in financial stocks across a larger share of the stock market, thereby reducing systemic risks and enhancing overall financial stability.

This paper studies the differences in the announcement effects of seasoned equity offerings (SEOs) of commercial banks and non-banks, and explores the influence of bank regulation and the financial crisis on such differences. We find that abnormal stock returns on SEO announcements for US commercial banks are significantly higher than those of non-banks, consistent with the hypothesis that bank regulations reduce the likelihood that bank SEOs signal overpriced equity. The propensity score matching-based difference-in-difference analysis indicates that the differences in stock returns between banks and non-banks decreased during the 2007–2009 financial crisis period and increased after the passage of the Dodd-Frank Act in 2010.

The aim of this paper is to study the interaction between Basel I, II and III regulations with monetary policy. In order to do that, we use a dynamic stochastic general equilibrium (DSGE) model with a housing market, banks, borrowers, and savers. Results show that monetary policy needs to be more aggressive when the capital requirement ratio (CRR) increases because it is less effective in this case. However, this policy combination brings a more stable economic and financial system. We also analyze the optimal way to implement the countercyclical capital buffer stated by Basel III. We propose that the CRR follows a rule that responds to deviations of credit from its steady state. We find that the optimal implementation of this macroprudential rule together with monetary policy brings extra financial stability with respect to Basel I and II.

The global financial crisis underscored the importance of regulation and supervision to a well-functioning banking system that efficiently channels financial resources into investment. In this paper, we contribute to the ongoing policy debate by assessing whether compliance with international regulatory standards and protocols enhances bank operating efficiency. We focus specifically on the adoption of international capital standards and the Basel Core Principles for Effective Bank Supervision (BCP). The relationship between bank efficiency and regulatory compliance is investigated using the Simar and Wilson (2007. J. Econ. 136 (1), 31) double bootstrapping approach on an international sample of publicly listed banks. Our results indicate that overall BCP compliance, or indeed compliance with any of its individual chapters, has no association with bank efficiency.