A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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- Please kindly let me know [mingze.gao@mq.edu.au] in case of any errors.
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Results 108 resources
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What is the effect of financial crises and their resolution on banks' choice of liquidity? When banks have relative expertise in employing risky assets, the market for these assets clears only at fire-sale prices following a large number of bank failures. The gains from acquiring assets at fire-sale prices make it attractive for banks to hold liquid assets. The resulting choice of bank liquidity is countercyclical, inefficiently low during economic booms but excessively high during crises. We present evidence consistent with these predictions. While interventions to resolve banking crises may be desirable ex post, they affect bank liquidity in subtle ways: Liquidity support to failed banks or unconditional support to surviving banks reduces incentives to hold liquidity, whereas support to surviving banks conditional on their liquid asset holdings has the opposite effect.
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For funds with high incentives and more opportunities to inflate returns, we find that (i) returns during December are significantly higher than returns during the rest of the year, even after controlling for risk in both the time series and the cross-section; and (ii) this December spike is greater than for funds with lower incentives and fewer opportunities to inflate returns. These results suggest that hedge funds manage their returns upward in an opportunistic fashion in order to earn higher fees. Finally, we find strong evidence that funds inflate December returns by underreporting returns earlier in the year but only weak evidence that funds borrow from January returns in the following year.
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Empirical evidence suggests that banks hold capital in excess of regulatory minimums. This did not prevent the financial crisis and underlines the importance of understanding bank capital determination. Market discipline is one of the forces that induces banks to hold positive capital. The literature has focused on the liability side. We develop a simple theory based on monitoring to show that discipline from the asset side can also be important. In perfectly competitive markets, banks can find it optimal to use costly capital rather than the interest rate on the loan to commit to monitoring because it allows higher borrower surplus.
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The critical role played by financial institutions in the recent financial crises has generated renewed interest on the corporate finance of the banking firm and the impact of the banking sector on the real economy. This paper introduces the special issue of the Review of Financial Studies dedicated to "The Value of Bank Capital and the Structure of the Banking Industry." The special issue combines papers presented at the conference on "Corporate Finance of Financial Intermediaries" in September 2006, which was jointly organized by the Federal Reserve Bank of New York, the Wharton Financial Institutions Center of the University of Pennsylvania, and the Review of Financial Studies, with other related papers.
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We use a natural experiment to investigate the impact of participation constraints on individuals' decisions to invest in the stock market. Unexpected inheritance due to sudden deaths results in exogenous variation in financial wealth, and allows us to examine whether fixed entry and ongoing participation costs cause non-participation. We have three key findings. First, windfall wealth has a positive effect on participation. Second, the majority of households do not react to sizeable windfalls by entering the stock market, but hold on to substantial safe assets–even over longer horizons. Third, the majority of households inheriting stock holdings actively sell the entire portfolio. Overall, these findings suggest that participation by many individuals is unlikely to be constrained by financial participation costs.
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This article adopts a definition of property rights from legal scholarship: A property right (in contrast to a contractual right) is enforceable, not only against the parties to a contract, but also against third parties outside the contract. In a financial contracting setting, we ask: When should the law enforce a lender's contractual protections as property rights, given that these rights may be hidden and costly for other lenders to discover? Our model explains why the law limits the creation and enforceability of property rights, and develops principles of optimal enforceability. These principles are often reflected in the law.
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This article focuses on a key property of asset-backed securities (ABS); namely, that ABS are designed to achieve "bankruptcy remoteness" of securitized assets from the borrowing firm. This provides lenders with protection from dilution that is not available with contracts such as secured debt. ABS allows firms to commit to more efficient investment decisions in bankruptcy. Securitization of replaceable assets (such as receivables) prevents inefficient continuation, but securitization of necessary assets can produce ex-post inefficiency, which favors secured debt. We test a prediction of our model using the LTV Steel bankruptcy, in which bankruptcy remoteness was successfully challenged. We find that ABS spreads for Chapter 11–eligible securitizers increased significantly more than spreads for Chapter 11–ineligible securitizers following LTV.
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We use a sample of 8,163 venture-backed companies over three decades to test the competing hypotheses that levels and relative shares of IPO (initial public offering) and M&A (mergers and acquisitions) exits are affected by market timing, versus pseudo-market timing that reflects market conditions. We find evidence of pseudo-market timing. Venture-backed issuers react to market or sector runups but do not predict downturns. We find no evidence that firm-specific market timing contributes to IPO or M&A waves. We also find that acquirers turn to acquisition when other opportunities are unattractive, and that the market may be slow to recognize that such opportunities are declining.
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The article develops a dynamic model that nests the rational expectations (RE) and differences of opinion (DO) approaches to study how investors use prices to update their valuations. When investors condition on prices (RE), investor disagreement is related positively to expected returns, return volatility, and market beta, but negatively to return autocorrelation. When investors do not use prices (DO), these relations are reversed. Tests of these predictions on the cross-section of stocks using analyst forecast dispersion and volume as proxies for disagreement provide empirical evidence that is consistent with investors using prices on average.
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We develop a general equilibrium model in which income and dividends are smooth but asset prices contain large moves (jumps). These large price jumps are triggered by optimal decisions of investors to learn the unobserved state. We show that learning choice is determined by preference parameters and the conditional volatility of income process. An important model prediction is that income volatility predicts future jump periods, while income growth does not. Consistent with the model, large moves in returns in the data are predicted by consumption volatility but not by consumption growth. The model quantitatively captures these novel features of the data.
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