We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced against the benefit of equity in attenuating risk shifting. However, faced with socially costly correlated bank failures, regulators bail out creditors. Anticipation of this generates multiple equilibria, including one with systemic risk in which banks use excessive leverage to fund correlated, inefficiently risky loans. Limiting leverage and resolving both moral hazards—insufficient loan monitoring and asset substitution—requires a novel two-tiered capital requirement, including a “special capital account” that is unavailable to creditors upon failure.

This review of the literature on the 2007-2009 crisis discusses the precrisis conditions, the crisis triggers, the crisis events, the real effects, and the policy responses to the crisis. The precrisis conditions contributed to the housing price bubble and the subsequent price decline that led to a counterparty-risk crisis in which liquidity shrank due to insolvency concerns. The policy responses were influenced both by the initial belief that it was a market-wide liquidity crunch and the subsequent learning that insolvency risk was a major driver. I suggest directions for future research and possible regulatory changes.

Liao ( ) argues that the monitoring by large outside shareholders (blockholders) exacerbates the conflict between debt and equity and in turn affects the choice and structure of debt financing. The study contends that private debt is more immune to the increase in debt‐equity conflict. Consistent with this argument, companies with outside blockholders are inclined to issue private debt over public debt. Further, private debt exhibits less price protection but relies on more protective covenants than does public debt. The findings are interesting and intuitive. I evaluate the economic arguments in the paper and discuss some of the challenges that the study faces. My conclusion is that the interpretation of the results is more complex than the one the study presents. I offer a broader framework that can be used to shed light on why the governance structure combines equity blockholders and private debt issuance. I also discuss several questions to be addressed by future research.

We show that macroeconomic growth at the end of the year (fourth quarter or December) strongly influences expected returns on risky financial assets, whereas economic growth during the rest of the year does not. We find this pattern for many different asset classes, across different time periods, and for US and international data. We also show that movements in the surplus consumption ratio of Campbell and Cochrane (1999), a theoretically well-founded measure of time-varying risk aversion linked to macroeconomic growth, influence expected returns stronger during the fourth quarter than the other quarters of the year. Our findings suggest that expected returns, risk aversion, and economic growth are particularly related at the end of the year, when we also expect consumers׳ portfolio adjustments to be concentrated.

We estimate the elasticity of exports to credit using matched customs and firm-level bank credit data from Peru. To account for non-credit determinants of exports, we compare changes in exports of the same product and to the same destination by firms borrowing from banks differentially affected by capital-flow reversals during the 2008 financial crisis. We find that credit shocks affect the intensive margin of exports, but have no significant impact on entry or exit of firms to new product and destination markets. Our results suggest that credit shortages reduce exports through raising the variable cost of production, rather than the cost of financing sunk entry investments.

We propose a new methodology for measuring intergenerational mobility in economic well-being. Our method is based on the joint distribution of surnames and economic outcomes. It circumvents the need for intergenerational panel data, a long-standing stumbling block for understanding mobility. It does so by using cross-sectional data alongside a calibrated structural model to recover the traditional intergenerational elasticity measures. Our main idea is simple. If “inheritance” is important for economic outcomes, then rare surnames should predict economic outcomes in the cross-section. This is because rare surnames are indicative of familial linkages. If the number of rare surnames is small this approach will not work. However, rare surnames are abundant in the highly skewed nature of surname distributions from most Western societies. We develop a model that articulates this idea and shows that the more important is inheritance, the more informative will be surnames. This result is robust to a variety of different assumptions about fertility and mating. We apply our method using the 2001 census from Catalonia, a large region of Spain. We use educational attainment as a proxy for overall economic well-being. A calibration exercise results in an estimate of the intergenerational correlation of educational attainment of 0.60. We also find evidence suggesting that mobility has decreased among the different generations of the 20th century. A complementary analysis based on sibling correlations confirms our results and provides a robustness check on our method. Our model and our data allow us to examine one possible explanation for the observed decrease in mobility. We find that the degree of assortative mating has increased over time. Overall, we argue that our method has promise because it can tap the vast mines of census data that are available in a heretofore unexploited manner.

We investigate global factors associated with bank capital flows. We formulate a model of the international banking system where global banks interact with local banks. The solution highlights the bank leverage cycle as the determinant of the transmission of financial conditions across borders through banking sector capital flows. A distinctive prediction of the model is that local currency appreciation is associated with higher leverage of the banking sector, thereby providing a conceptual bridge between exchange rates and financial stability. In a panel study of 46 countries, we find support for the key predictions of our model.

We provide a list of points to consider ( PTC s) to help researchers self‐assess whether they have addressed certain common issues that arise frequently in accounting research seminars and in reviewers’ and editors’ comments on papers submitted to journals. Anticipating and addressing such issues can help accounting researchers, especially doctoral students and junior faculty members, convert an initial empirical accounting research idea into a thoughtful and carefully designed study. Doing this also allows outside readers to provide more beneficial feedback rather than commenting on the common issues that could have been dealt with in advance. The list, provided in the appendix, consists of five sections: Research Question; Theory; Contribution; Research Design and Analysis; and Interpretation of Results and Conclusions. In each section, we include critical items that readers, journal referees, and seminar participants are likely to raise and offer suggestions for how to address them. The text elaborates on some of the more challenging items, such as how to increase a study's contribution, and provides examples of how such issues have been effectively addressed in previous accounting studies.

Multi-asset class, multimarket central counterparties (CCPs) are becoming less uncommon as a result of merges between specialized (single-asset class, single market) CCPs and market demands for greater capital efficiency. Yet, traditional CCP risk management models often lack the necessary sophistication to estimate potential losses relative to the closeout process of a defaulter’s portfolio in a multi-asset class, multimarket environment. As a result, multi-asset class, multimarket CCPs usually rely on a simplified silo approach for risk calculation which not only fails to deliver efficiency, but may also increase systemic risk. The CORE (Closeout Risk Evaluation) approach, on the other hand, provides conceptual and mathematical tools necessary for robust and efficient central counterparty risk evaluation in multi-asset class and multimarket environments, acknowledging the portfolio dynamics involved in the closeout process as well as important “real life” market frictions.

Using a sample of non-U.S. firms from 43 countries, we investigate whether laws and regulations as well as votes cast by U.S. institutional investors are consistent with an effective shareholder voting process. We find that laws and regulations allow for meaningful votes to be cast, as shareholder voting is both mandatory and binding for important elections. For votes cast, we find there is greater dissent voting when investors fear expropriation. Further, greater dissent voting is associated with higher director turnover and more M&A withdrawals. Our results suggest that shareholder voting is an effective mechanism for exercising governance around the world.