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  • FT50 UTD24 A*

    ABSTRACT Unexpectedly severe winter weather, which is arguably exogenous to firm and bank fundamentals, represents a significant cash flow shock for bank-borrowing firms. Firms respond to these shocks by drawing on and increasing the size of their credit lines. Banks charge borrowers for this liquidity via increased interest rates and less borrower-friendly loan provisions. Credit line adjustments occur within one calendar quarter of the shock and persist for at least nine months. Overall, we provide evidence that bank credit lines are an important tool for managing the nonfundamental component of cash flow volatility, especially for solvent, small bank borrowers.

  • FT50 UTD24 A*

    We directly measure banks’ monitoring of syndicated loans. Banks typically demand borrower information on at least a monthly basis. About 20% of loans involve active monitoring (i.e., site visits or third-party appraisals). Monitoring increases with the lead bank’s incentives and the value of information and is negatively associated with loan spreads and maturity. The monitoring captured by our measures can either complement or substitute for covenant-based monitoring, depending on whether the monitoring informs covenant compliance. Banks increase monitoring following deteriorations in borrower financial condition and credit line drawdowns. Finally, monitoring is positively related to future covenant violations and loan renegotiations.

  • FT50 UTD24 A*

    We estimate the effect of carbon pricing policy on bank credit to greenhouse-gas-emitting firms. Our analyses exploit the geographic restrictions inherent in California’s cap-and-trade bill and a discontinuity in the embedded free permit threshold of the federal Waxman-Markey cap-and-trade bill. Affected high emission firms face shorter loan maturities, lower access to permanent forms of bank financing, higher interest rates, and higher participation of shadow banks in their lending syndicates. These effects are concentrated among private firms, while credit terms of public firms are largely unaffected. Overall, we show that banks respond quickly to realizations of transition risk.

Last update from database: 9/16/24, 10:02 PM (AEST)