The 2008 Global financial crisis and the subsequent European sovereign debt crisis deteriorated banks funding conditions and lead to a substitution effect among bond instruments. We examine the pricing of straight, covered and securitization bonds issued by European banks in the 2000-2016 period, with a particular focus on the effect of sovereign credit risk and ECB's asset purchase programmes on spreads. We nd that (i) straight, covered and securitization bonds are priced in segmented markets, (ii) the impact of common pricing determinants on spreads differ significantly between non-crisis and crisis periods, (iii) sovereign credit risk is an important determinant of banks' cost of funding, especially in crisis periods, (iv) ECB's asset purchase programmes exhibited mixed effectiveness in improving banks funding conditions, (v) contractual bond characteristics other than credit ratings, macroeconomic factors and bank characteristics are important determinants of spreads, and (vi) there is evidence of heterogeneity across countries.
{"title":"The Pricing of Bank Bonds, Sovereign Credit Risk and ECB’s Asset Purchase Programmes","authors":"Ricardo Branco, João M. Pinto, Ricardo Ribeiro","doi":"10.2139/ssrn.3691310","DOIUrl":"https://doi.org/10.2139/ssrn.3691310","url":null,"abstract":"The 2008 Global financial crisis and the subsequent European sovereign debt crisis deteriorated banks funding conditions and lead to a substitution effect among bond instruments. We examine the pricing of straight, covered and securitization bonds issued by European banks in the 2000-2016 period, with a particular focus on the effect of sovereign credit risk and ECB's asset purchase programmes on spreads. We nd that (i) straight, covered and securitization bonds are priced in segmented markets, (ii) the impact of common pricing determinants on spreads differ significantly between non-crisis and crisis periods, (iii) sovereign credit risk is an important determinant of banks' cost of funding, especially in crisis periods, (iv) ECB's asset purchase programmes exhibited mixed effectiveness in improving banks funding conditions, (v) contractual bond characteristics other than credit ratings, macroeconomic factors and bank characteristics are important determinants of spreads, and (vi) there is evidence of heterogeneity across countries.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"5 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84074301","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
MAE clauses in business combination agreements almost never define the phrase “material adverse effect,” and so the meaning of that key expression derives primarily from a line of Delaware cases starting with In re IBP Shareholders Litigation. In that case, the court said that a material adverse effect requires an event that substantially threatens the overall earnings potential of the target in a durationally-significant manner. In implementing this standard in IBP and subsequent cases, the courts have had to determine how the target’s earnings should be measured (e.g., by EBITDA or by some other measure of cashflow), how changes in earnings should be determined (e.g., which fiscal periods should be compared with which), and how large a diminution in earnings is material. Neither IBP nor subsequent cases have provided clear and convincing resolutions of these issues. On the contrary, later cases have introduced yet new problems, such as whether it matters that the risk that has materialized and adversely affected the target’s business was known to the acquirer at signing, whether material adverse effects should be measured in quantitative ways, qualitative ways, or both, and whether a material adverse effect must be felt by the company within a certain period of time after the occurrence of the event causing the effect. This article proposes a new understanding of material adverse effects that solves all of these problems. Beginning from the foundational premise that a material adverse effect should be understood from the perspective of a reasonable acquirer, this article argues that such an effect is a material reduction in the value of the company as reasonably understood in accordance with accepted principles of corporate finance—that is, as a material reduction in the present value of all the company’s future cashflows. Hence, to determine if there has been a material adverse effect, the court has to value the company twice, once as of the date of signing and again as of the date of the alleged material adverse effect, in each case much as it would in an appraisal action. Valuing the company is easier and more reliable in the MAE context than in the appraisal context, however, not only because the court need obtain only a range of values for the company at the two relevant times (and not pinpoint valuations as in appraisal proceedings) but also because it turns out that there is a canonical way to determine if a reduction in the value of the company would be material to a reasonable acquirer. The new theory of MAEs presented here solves all of the problems in the caselaw noted above and explains why those problems could not be solved with the conceptual resources available in the existing caselaw.
企业合并协议中的MAE条款几乎从不定义“重大不利影响”这一短语，因此，这一关键表达的含义主要来自特拉华州的一系列案件，始于in re IBP股东诉讼。在该案中，法院表示，重大不利影响需要发生以持续重大方式对目标公司的整体盈利潜力构成实质性威胁的事件。在IBP和随后的案件中实施这一标准时，法院必须确定目标公司的收益应该如何衡量(例如，通过EBITDA或其他现金流衡量标准)，收益的变化应该如何确定(例如，哪个财政期间应该与哪个财政期间进行比较)，以及收益的减少有多大是实质性的。IBP和随后的案例都没有对这些问题提供明确和令人信服的解决方案。相反，后来的案例又引入了新的问题，如收购方在签约时是否知道已经发生并对被收购方的业务产生不利影响的风险，重大不利影响的衡量方法是定量的，还是定性的，还是两者兼有，重大不利影响是否必须在造成影响的事件发生后一定时间内被收购方感受到。本文提出了对物质不良反应的新认识，解决了所有这些问题。从一个合理的收购者的角度来理解重大不利影响这一基本前提出发，本文认为，这种影响是根据公认的公司融资原则合理理解的公司价值的重大减少，也就是说，公司所有未来现金流的现值的重大减少。因此，为了确定是否存在重大不利影响，法院必须对公司进行两次估值，一次是在签署之日，另一次是在所谓的重大不利影响之日，在每种情况下都与评估行动中的情况大致相同。然而，在MAE背景下对公司进行估值比在评估背景下更容易、更可靠，不仅因为法院只需要在两个相关时间内获得公司的一系列价值(而不是像评估程序中那样精确估值)，还因为事实证明，有一种规范的方法可以确定公司价值的降低对合理的收购者是否重要。本文提出的MAEs新理论解决了上述判例法中的所有问题，并解释了为什么现有判例法中的概念资源无法解决这些问题。
{"title":"A New Theory of Material Adverse Effects","authors":"Robert T. Miller","doi":"10.2139/ssrn.3706580","DOIUrl":"https://doi.org/10.2139/ssrn.3706580","url":null,"abstract":"MAE clauses in business combination agreements almost never define the phrase “material adverse effect,” and so the meaning of that key expression derives primarily from a line of Delaware cases starting with In re IBP Shareholders Litigation. In that case, the court said that a material adverse effect requires an event that substantially threatens the overall earnings potential of the target in a durationally-significant manner. In implementing this standard in IBP and subsequent cases, the courts have had to determine how the target’s earnings should be measured (e.g., by EBITDA or by some other measure of cashflow), how changes in earnings should be determined (e.g., which fiscal periods should be compared with which), and how large a diminution in earnings is material. Neither IBP nor subsequent cases have provided clear and convincing resolutions of these issues. On the contrary, later cases have introduced yet new problems, such as whether it matters that the risk that has materialized and adversely affected the target’s business was known to the acquirer at signing, whether material adverse effects should be measured in quantitative ways, qualitative ways, or both, and whether a material adverse effect must be felt by the company within a certain period of time after the occurrence of the event causing the effect. This article proposes a new understanding of material adverse effects that solves all of these problems. Beginning from the foundational premise that a material adverse effect should be understood from the perspective of a reasonable acquirer, this article argues that such an effect is a material reduction in the value of the company as reasonably understood in accordance with accepted principles of corporate finance—that is, as a material reduction in the present value of all the company’s future cashflows. Hence, to determine if there has been a material adverse effect, the court has to value the company twice, once as of the date of signing and again as of the date of the alleged material adverse effect, in each case much as it would in an appraisal action. Valuing the company is easier and more reliable in the MAE context than in the appraisal context, however, not only because the court need obtain only a range of values for the company at the two relevant times (and not pinpoint valuations as in appraisal proceedings) but also because it turns out that there is a canonical way to determine if a reduction in the value of the company would be material to a reasonable acquirer. The new theory of MAEs presented here solves all of the problems in the caselaw noted above and explains why those problems could not be solved with the conceptual resources available in the existing caselaw.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"126 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74852292","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The increasing pace of FinTech development has triggered a worldwide race among policy makers to overhaul their own regulatory landscape in order to be as innovation-friendly as possible. Consequently, a vast array of new tools and regulatory practices have emerged over the last years. The paper provides a critical systematisation of regulatory strategies and toolkits that have emerged so far (such as regulatory sandboxes and innovation hubs), stressing the increasing role played by legal marketing as a by-product of regulatory competition. Furthermore, the article describes and supports the paradigm of pro-competitive regulation underlying Open Banking projects in the EU, UK, Australia and other jurisdictions as the true game-changer approach that can unlock the potential of FinTech innovation.
{"title":"Regulating FinTech: From Legal Marketing to the Pro-Competitive Paradigm","authors":"G. Colangelo, O. Borgogno","doi":"10.2139/ssrn.3563447","DOIUrl":"https://doi.org/10.2139/ssrn.3563447","url":null,"abstract":"The increasing pace of FinTech development has triggered a worldwide race among policy makers to overhaul their own regulatory landscape in order to be as innovation-friendly as possible. Consequently, a vast array of new tools and regulatory practices have emerged over the last years. The paper provides a critical systematisation of regulatory strategies and toolkits that have emerged so far (such as regulatory sandboxes and innovation hubs), stressing the increasing role played by legal marketing as a by-product of regulatory competition. Furthermore, the article describes and supports the paradigm of pro-competitive regulation underlying Open Banking projects in the EU, UK, Australia and other jurisdictions as the true game-changer approach that can unlock the potential of FinTech innovation.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"26 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-08-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81297054","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper uses granular data on syndicated loans to analyse the impact of international reforms for Global Systemically Important Banks (G-SIBs) on bank lending behaviour. Using a difference-in-differences estimation strategy, we find no effect of the reforms on overall credit supply, while at the same time documenting a substantial decline in borrower- and loan-specific risk factors for the affected banks. Moreover, we detect a significant decline in the pricing gap between interest rates charged by G-SIBs and other banks, which we interpret as indirect evidence for a reduction in funding cost subsidies. Overall, our results suggest that the G-SIB reforms have helped to mitigate moral hazard problems associated with systemically important banks, while the consequences for the real economy have been limited. JEL Classification: G20, G21, G28
{"title":"The Impact of G-Sib Identification on Bank Lending: Evidence from Syndicated Loans","authors":"M. Behn, Alexander Schramm","doi":"10.2139/ssrn.3667089","DOIUrl":"https://doi.org/10.2139/ssrn.3667089","url":null,"abstract":"This paper uses granular data on syndicated loans to analyse the impact of international reforms for Global Systemically Important Banks (G-SIBs) on bank lending behaviour. Using a difference-in-differences estimation strategy, we find no effect of the reforms on overall credit supply, while at the same time documenting a substantial decline in borrower- and loan-specific risk factors for the affected banks. Moreover, we detect a significant decline in the pricing gap between interest rates charged by G-SIBs and other banks, which we interpret as indirect evidence for a reduction in funding cost subsidies. Overall, our results suggest that the G-SIB reforms have helped to mitigate moral hazard problems associated with systemically important banks, while the consequences for the real economy have been limited. JEL Classification: G20, G21, G28","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"22 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-08-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90928319","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In 1973, experts Homer Kripke and John Slain published a seminal study titled “The Interface Between Securities Regulation and Bankruptcy.” That lengthy analysis, contributed by, respectively, a former Securities and Exchange Commission official and a professor of law, examined the status quo and concluded that investors were receiving unfair priority vis-a-vis creditors in bankruptcy proceedings administered under the federal Bankruptcy Code. Focusing on the traditional “absolute priority rule,” the study pointed out that the Securities and Exchange Commission (SEC) support for the investor priority was unfounded and urged deference to the notion of general creditors coming first. Since then, a host of developments has complicated both the analysis and the traditional view of Kripke and Slain. First, the pivotal determination of “rescinding shareholder” has been made complex by, inter alia, an expanded notion of “sophisticated investor” occasioned by phenomena such as “crowdfunding.” Second, stock swaps, hedges, repurchase agreements and other hybrid responses to financier discomfort have clouded the definition of “investor.” Finally, the explosive growth of cryptocurrencies (and the ventures that would sell, distribute, trade or package them) has highlighted the need for a new, softer line between creditor and investor. Accordingly, the present authors re-visit the “absolute priority rule” with a view towards historic SEC involvement with Bankruptcy law and contemporary classification of some cryptocurrency-related entities as securities issuers. The article concludes that in light of the existing provisions and interpretations, the “absolute priority rule” examined through the lens of today’s innovative securities should be rethought to give investors in initial coin offerings creditor status. Whether the reader agrees or not is likely subordinated to the need for a conversation on the most egalitarian response – under both the securities laws and the Bankruptcy Code – to the investor’s claim for in pari passu treatment normally reserved for creditors, and likewise the general creditors’ opposition to sharing a legally enforceable priority.
1973年，专家荷马·克里普克和约翰·斯莱恩发表了一项开创性的研究，题为“证券监管与破产之间的界面”。这份冗长的分析报告分别由美国证券交易委员会(Securities and Exchange Commission)的一名前官员和一名法学教授撰写，分析了现状，得出的结论是，在联邦破产法管理的破产程序中，投资者获得了相对于债权人的不公平优先权。该研究着眼于传统的“绝对优先权规则”，指出美国证券交易委员会(SEC)对投资者优先权的支持是没有根据的，并敦促尊重一般债权人优先的概念。从那以后，一系列的发展使克里普克和斯莱恩的分析和传统观点都变得复杂起来。首先，由于“众筹”等现象引发的“成熟投资者”概念的扩大，“退出股东”的关键判定变得复杂。其次，股票掉期、对冲、回购协议以及其他应对金融家不安的混合措施，给“投资者”的定义蒙上了阴影。最后，加密货币(以及出售、分销、交易或打包加密货币的企业)的爆炸式增长，突显出债权人和投资者之间需要一条新的、更柔和的界限。因此，本文作者重新审视了“绝对优先规则”，着眼于美国证券交易委员会历史上参与破产法和当代将一些与加密货币相关的实体分类为证券发行人。文章的结论是，根据现有的规定和解释，应该重新考虑通过当今创新证券审视的“绝对优先规则”，赋予首次代币发行的投资者债权人地位。无论读者是否同意，很可能都要服从于一场对话的需要，即在证券法和破产法下，对于投资者要求通常为债权人保留的同等权益待遇，以及一般债权人反对分享法律上可执行的优先权，最平等的回应是什么。
{"title":"Cryptocurrency Meets Bankruptcy Law: A Call for Creditor Status for Investors in Initial Coin Offerings","authors":"M. Albert, J. S. Colesanti","doi":"10.2139/ssrn.3646237","DOIUrl":"https://doi.org/10.2139/ssrn.3646237","url":null,"abstract":"In 1973, experts Homer Kripke and John Slain published a seminal study titled “The Interface Between Securities Regulation and Bankruptcy.” That lengthy analysis, contributed by, respectively, a former Securities and Exchange Commission official and a professor of law, examined the status quo and concluded that investors were receiving unfair priority vis-a-vis creditors in bankruptcy proceedings administered under the federal Bankruptcy Code. Focusing on the traditional “absolute priority rule,” the study pointed out that the Securities and Exchange Commission (SEC) support for the investor priority was unfounded and urged deference to the notion of general creditors coming first. \u0000 \u0000Since then, a host of developments has complicated both the analysis and the traditional view of Kripke and Slain. First, the pivotal determination of “rescinding shareholder” has been made complex by, inter alia, an expanded notion of “sophisticated investor” occasioned by phenomena such as “crowdfunding.” Second, stock swaps, hedges, repurchase agreements and other hybrid responses to financier discomfort have clouded the definition of “investor.” Finally, the explosive growth of cryptocurrencies (and the ventures that would sell, distribute, trade or package them) has highlighted the need for a new, softer line between creditor and investor. \u0000 \u0000Accordingly, the present authors re-visit the “absolute priority rule” with a view towards historic SEC involvement with Bankruptcy law and contemporary classification of some cryptocurrency-related entities as securities issuers. The article concludes that in light of the existing provisions and interpretations, the “absolute priority rule” examined through the lens of today’s innovative securities should be rethought to give investors in initial coin offerings creditor status. Whether the reader agrees or not is likely subordinated to the need for a conversation on the most egalitarian response – under both the securities laws and the Bankruptcy Code – to the investor’s claim for in pari passu treatment normally reserved for creditors, and likewise the general creditors’ opposition to sharing a legally enforceable priority.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"23 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91243407","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The quintessential derivative suit is a suit by a shareholder to force the corporation to sue a manager for fraud, which is admittedly an awkward and likely unpleasant endeavor and, according to the Supreme Court, a “remedy born of stockholder helplessness. Stockholders who hold no concurrent management role are indeed limited in their arsenal to combat perceived managerial neglect or malfeasance. Other than exercising their voting rights to bring about a change in management, these shareholders are at the whim of their elected and appointment champions, subject of course to the not insignificant fiduciary duties imposed on these managers.
Where ownership and control of an enterprise are vested in the same population, the need for a corrective mechanism like a derivative suit is greatly lessened because the owner/managers self-interest will arguably guide managerial conduct. But where ownership and control are in separate hands, the incentives change and managerial conduct may not conform to the owners’ view of the best course of action. This may lead to what the owners consider to be director misconduct. The existing corporate laws have not been effective in stopping this kind of director misconduct, so “stockholders, in face of gravest abuses, were singularly impotent in obtaining redress of abuses of trust.” In these situations, shareholders are arguably in need of legal strategies to protect them from abuses by management.
Presumably in an effort to limit the abuse of strike suits that would take up both managerial time and resources and corporate dollars, several significant procedural hurdles for derivative plaintiffs have arisen including the requirement of contemporaneous share ownership, a requirement that derivative plaintiffs make a “demand” on the corporation, with particularity, to take requested action, the lack of access to the discovery process, and compliance with any relevant security for expense statutes. Balancing the right of shareholders to hold their directors accountable against the need for directors to have the freedom and autonomy to discharge their statutory and fiduciary duties is no easy feat. That said, these hurdles, when combined, may erode or even undermine the ultimate utility of the derivative litigation process.
This Article provides an evaluation and analysis of one of the primary procedural roadblocks facing derivative plaintiffs as they seek to hold their corporation accountable: the security for expense statute. The theory behind these security for expense statutes is that they will act as a sieve and somehow weed out strike suits that have no merit. A major problem is these suits have no true metric to determine which suits are in fact meritorious. They all use percentage of stock or market value of stock owned as some sort of proxy for thoughtful and meritorious litigation. The theory implicitly assumes that stockholder with less than the required threshold will not bring meritorio
{"title":"Securities for Expense Statutes: Easing Shareholder Hopelessness?","authors":"M. Albert","doi":"10.2139/ssrn.3644675","DOIUrl":"https://doi.org/10.2139/ssrn.3644675","url":null,"abstract":"The quintessential derivative suit is a suit by a shareholder to force the corporation to sue a manager for fraud, which is admittedly an awkward and likely unpleasant endeavor and, according to the Supreme Court, a “remedy born of stockholder helplessness. Stockholders who hold no concurrent management role are indeed limited in their arsenal to combat perceived managerial neglect or malfeasance. Other than exercising their voting rights to bring about a change in management, these shareholders are at the whim of their elected and appointment champions, subject of course to the not insignificant fiduciary duties imposed on these managers. <br><br>Where ownership and control of an enterprise are vested in the same population, the need for a corrective mechanism like a derivative suit is greatly lessened because the owner/managers self-interest will arguably guide managerial conduct. But where ownership and control are in separate hands, the incentives change and managerial conduct may not conform to the owners’ view of the best course of action. This may lead to what the owners consider to be director misconduct. The existing corporate laws have not been effective in stopping this kind of director misconduct, so “stockholders, in face of gravest abuses, were singularly impotent in obtaining redress of abuses of trust.” In these situations, shareholders are arguably in need of legal strategies to protect them from abuses by management.<br><br>Presumably in an effort to limit the abuse of strike suits that would take up both managerial time and resources and corporate dollars, several significant procedural hurdles for derivative plaintiffs have arisen including the requirement of contemporaneous share ownership, a requirement that derivative plaintiffs make a “demand” on the corporation, with particularity, to take requested action, the lack of access to the discovery process, and compliance with any relevant security for expense statutes. Balancing the right of shareholders to hold their directors accountable against the need for directors to have the freedom and autonomy to discharge their statutory and fiduciary duties is no easy feat. That said, these hurdles, when combined, may erode or even undermine the ultimate utility of the derivative litigation process. <br><br>This Article provides an evaluation and analysis of one of the primary procedural roadblocks facing derivative plaintiffs as they seek to hold their corporation accountable: the security for expense statute. The theory behind these security for expense statutes is that they will act as a sieve and somehow weed out strike suits that have no merit. A major problem is these suits have no true metric to determine which suits are in fact meritorious. They all use percentage of stock or market value of stock owned as some sort of proxy for thoughtful and meritorious litigation. The theory implicitly assumes that stockholder with less than the required threshold will not bring meritorio","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"37 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79273705","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sumit Agarwal, Xudong An, Larry Cordell, Raluca A. Roman
Using Federal Reserve (Fed) confidential stress test data, we exploit the gap between the Fed and bank capital projections as an exogenous shock to banks and analyze how this shock is transmitted to consumer credit markets. First, we document that banks in the 90th percentile of the capital gap reduce their new supply of risky credit by 13 percent compared with those in the 10th percentile and cut their overall credit card risk exposure on an annual basis. Next, we show that these banks find alternative ways to remain competitive and attract customers by lowering interest rates and offering more rewards and promotions to select groups of borrowers. Finally, we show that consumers at banks with a gap increase their credit card spending and debt payoff and at the same time experience fewer delinquencies. We also show that our results are generalizable to other lending products such as mortgages and home equity. Overall, our results demonstrate a positive feedback loop among credit supply, credit usage, and credit performance due to the stress tests.
{"title":"Bank Stress Test Results and Their Impact on Consumer Credit Markets","authors":"Sumit Agarwal, Xudong An, Larry Cordell, Raluca A. Roman","doi":"10.2139/ssrn.3657340","DOIUrl":"https://doi.org/10.2139/ssrn.3657340","url":null,"abstract":"Using Federal Reserve (Fed) confidential stress test data, we exploit the gap between the Fed and bank capital projections as an exogenous shock to banks and analyze how this shock is transmitted to consumer credit markets. First, we document that banks in the 90th percentile of the capital gap reduce their new supply of risky credit by 13 percent compared with those in the 10th percentile and cut their overall credit card risk exposure on an annual basis. Next, we show that these banks find alternative ways to remain competitive and attract customers by lowering interest rates and offering more rewards and promotions to select groups of borrowers. Finally, we show that consumers at banks with a gap increase their credit card spending and debt payoff and at the same time experience fewer delinquencies. We also show that our results are generalizable to other lending products such as mortgages and home equity. Overall, our results demonstrate a positive feedback loop among credit supply, credit usage, and credit performance due to the stress tests.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"32 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81331140","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the contribution of directors to firm resilience by assessing the relative importance of their advisory and monitoring roles at times of crisis. Based on manually collected US data, we document that four bord-related variables affect market reactions around disruptive events. Board independence and the presence of directors with industry expertise exacerbate the negative share price effect, whereas the converse is true for director busyness and board size. These reactions imply that, in times of crisis, advice-oriented boards fare better than monitoring-oriented boards.
{"title":"The Advisory and Monitoring Roles of the Board - Evidence from Disruptive Events","authors":"E. Croci, G. Hertig, Layla Khoja, Luh Luh Lan","doi":"10.2139/ssrn.3581712","DOIUrl":"https://doi.org/10.2139/ssrn.3581712","url":null,"abstract":"We study the contribution of directors to firm resilience by assessing the relative importance of their advisory and monitoring roles at times of crisis. Based on manually collected US data, we document that four bord-related variables affect market reactions around disruptive events. Board independence and the presence of directors with industry expertise exacerbate the negative share price effect, whereas the converse is true for director busyness and board size. These reactions imply that, in times of crisis, advice-oriented boards fare better than monitoring-oriented boards.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"82 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-04-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75309787","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper is aimed at examining the appropriateness of pecking order theory in the US financial market. One of the most popular models of firm’s capital structure driven by asymmetric information is the pecking order theory (POT) of Myers (1984). It is based on the argument that firms have preference ranking over sources of funds for financing based on the corresponding information asymmetry costs (Myers et al. 1984, p.15). In recent studies, many interesting discussions have been generated about the POT. These studies attempt to detect the extent to which POT describes the financing choices of firms. The results of relevant studies as well as recent evidence in the context of the US economy are presented in this research paper. Aggregated, disaggregated and controlled variable methods are employed for testing relevance of POT by using the sample of firms over three-year period. Results of the current research can help to understand how the US listed firms determine their optimal debt levels.
本文旨在检验优序理论在美国金融市场中的适用性。关于信息不对称驱动下的企业资本结构，最流行的模型之一是Myers(1984)的啄序理论(POT)。它基于这样一种观点，即企业根据相应的信息不对称成本对融资资金来源进行偏好排序(Myers et al. 1984，第15页)。在最近的研究中，关于POT产生了许多有趣的讨论。这些研究试图检测POT在多大程度上描述了公司的融资选择。本文介绍了相关研究的结果以及美国经济背景下的最新证据。聚合，分解和控制变量的方法是采用的测试相关性的企业样本超过三年的时间。本文的研究结果有助于理解美国上市公司如何确定其最优债务水平。
{"title":"Empirical Test of Pecking Order Theory for the US Listed Firms","authors":"Zaur Abdullazade","doi":"10.2139/ssrn.3583126","DOIUrl":"https://doi.org/10.2139/ssrn.3583126","url":null,"abstract":"This paper is aimed at examining the appropriateness of pecking order theory in the US financial market. One of the most popular models of firm’s capital structure driven by asymmetric information is the pecking order theory (POT) of Myers (1984). It is based on the argument that firms have preference ranking over sources of funds for financing based on the corresponding information asymmetry costs (Myers et al. 1984, p.15). In recent studies, many interesting discussions have been generated about the POT. These studies attempt to detect the extent to which POT describes the financing choices of firms. The results of relevant studies as well as recent evidence in the context of the US economy are presented in this research paper. Aggregated, disaggregated and controlled variable methods are employed for testing relevance of POT by using the sample of firms over three-year period. Results of the current research can help to understand how the US listed firms determine their optimal debt levels.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"57 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84468495","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper tests whether an increase or decrease of the capital surcharge for being a global systemically important bank (G-SIB) envisaged by regulators has an impact on the CDS prices of these banks. We find evidence that the CDS spreads of a G-SIB bank increase (decrease) after the announcement of a higher (lower) capital surcharge. However, this effect is temporary, as the mean CDS spreads revert to pre-announcement level, dropping sharply after the initial rise. Our analysis contributes to the debate on whether being designated as a G-SIB bank necessarily leads to implicit "too-big-to-fail" subsidies. The findings imply that the investors immediately update their beliefs on the systemic risk of the bank after the bucket reallocation announcement and temporarily demand more hedging against systemic risk.
{"title":"The Market Impact of Systemic Risk Capital Surcharges","authors":"Yalin Gündüz","doi":"10.2139/ssrn.3581059","DOIUrl":"https://doi.org/10.2139/ssrn.3581059","url":null,"abstract":"This paper tests whether an increase or decrease of the capital surcharge for being a global systemically important bank (G-SIB) envisaged by regulators has an impact on the CDS prices of these banks. We find evidence that the CDS spreads of a G-SIB bank increase (decrease) after the announcement of a higher (lower) capital surcharge. However, this effect is temporary, as the mean CDS spreads revert to pre-announcement level, dropping sharply after the initial rise. Our analysis contributes to the debate on whether being designated as a G-SIB bank necessarily leads to implicit \"too-big-to-fail\" subsidies. The findings imply that the investors immediately update their beliefs on the systemic risk of the bank after the bucket reallocation announcement and temporarily demand more hedging against systemic risk.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"110 3 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89752204","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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