Preface Get access Franklin Allen, Franklin Allen Special Issue Editor Search for other works by this author on: Oxford Academic Google Scholar Marco Pagano Marco Pagano Special Issue Editor Search for other works by this author on: Oxford Academic Google Scholar Review of Finance, Volume 10, Issue 1, 2006, Page 1, https://doi.org/10.1007/s10679-006-6983-5 Published: 01 March 2006

We analyze the strengths and weaknesses of stakeholder and shareholder firms in a model of imperfect competition. Stakeholder firms are more concerned with avoiding bankruptcy to protect their employees and suppliers. In equilibrium, they are more valuable than shareholder firms when marginal cost uncertainty exceeds demand uncertainty. With globalization shareholder firms and stakeholder firms often compete. We identify the circumstances where stakeholder firms are more valuable than shareholder firms and compare these mixed equilibria with the pure equilibria with stakeholder and shareholder firms only. Finally, we analyze firm financial constraints and derive implications for the capital structure of stakeholder firms.

In June 2014, the International Risk Management Conference (IRMC) held its 7th edition in the Warsaw School of Economics (Warsaw, Poland). The theme of the conference was “The Safety of the Financial System: From Idiosyncratic to Systemic Risk.” Thirty-three papers were submitted for review for publication in this special issue of the Review of Finance. The papers have been subjected to the same rigorous referring process as other papers submitted to the Journal. Three papers were accepted. One (Fiordilisi and Ricci, 2016) was published in the last issue (Review of Finance 20(6), 2321–2347) and the other two are published here. The first two papers deal with systemic and policy aspects of the financial system while the third deals with an important segment of the financial markets, defaulted bonds. The paper by Oet, Ong and Lyytinen “aims to determine whether policymakers’ discussions of financial stability and other factors systematically explain deviations of observed policy rates from the Taylor-rule-implied rates.” They have two main findings: first, they find that discussion themes obtained from Federal Open Market Committee meeting minutes provide explanatory power beyond standard Taylor rule variables. Second, the tri-mandate policy rule provides additional explanatory power that accounts for changes in the economic and financial system. They conclude that the tri-mandate policy model with financial stability dominates Taylor-type rules in zero lower bound conditions.

Corners were prevalent in the nineteenth and early twentieth century. We first develop a rational expectations model of corners and show that they can arise as the result of rational behavior. Then, using a novel hand-collected data set, we investigate price and trading behavior around several well-known stock market and commodity corners which occurred between 1863 and 1980. We find strong evidence that large investors and corporate insiders possess market power that allows them to manipulate prices. Manipulation leading to a market corner tends to increase market volatility and has an adverse price impact on other assets. We also find that the presence of large investors makes it risky for would-be short sellers to trade against the mispricing. Therefore, regulators and exchanges need to be concerned about ensuring that corners do not take place since they are accompanied by severe price distortions.

Franklin Allen, Hans Gersbach, Jan-Pieter Krahnen, Anthony M. Santomero; Competition Among Banks: Introduction and Conference Overview, European Finance Re

We explore the relationship between bank branch expansion, financial inclusion, and profitability for Equity Bank. Unlike traditional banks, including foreign and government owned banks in Kenya, Equity Bank targets less developed territories and less privileged households. Its presence increased financial inclusion by 31% of the adult population between 2006 and 2015, especially for Kenyans who were less educated, did not own their own home, and lived in less-developed areas. The bank’s business model proves to be highly effective, with branch-level profits rising in areas with a smaller number of operating banks. Overall, the growth of Equity Bank demonstrates that financial inclusion can be achieved and sustained through profitable branching and service strategies that also serve the needs of underserved regions and populations. Thus, financial inclusion need not come at the sacrifice of bank profitability.