This paper investigates cross-border spillover effects from the Eurosystem’s Public Sector Purchase Programme (PSPP) on euro area government bond yields. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015 - December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for strong arbitrage within the euro area. These spillover effects are particularly large for long-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher yielding government bonds. In addition, purchases under PSPP had their largest impact on bond yields in 2015.
{"title":"Spillover Effects of Sovereign Bond Purchases in the Euro Area","authors":"Yvo D. Mudde, A. Samarina, R. Vermeulen","doi":"10.2139/ssrn.3769100","DOIUrl":"https://doi.org/10.2139/ssrn.3769100","url":null,"abstract":"This paper investigates cross-border spillover effects from the Eurosystem’s Public Sector Purchase Programme (PSPP) on euro area government bond yields. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015 - December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for strong arbitrage within the euro area. These spillover effects are particularly large for long-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher yielding government bonds. In addition, purchases under PSPP had their largest impact on bond yields in 2015.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"6 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87258606","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}
A. Bozhechkova, E. Ivanov, Mikhail Orekhov, Pavel Trunin, Maria Chembulatova, Anna P. Yakovleva
Russian Abstract:Исследование посвящено изучению механизмов и оценке степени влияния курсовой волатильности на ключевые показатели деятельности финансовых и нефинансовых компаний. Выявлено, что курсовая волатильность являясь, одновременно и следствием, и индикатором неопределенности, сопровождаемой рисками для макроэкономической стабильности и усилением волатильности других макроэкономических показателей, оказывает значимое воздействие на показатели функционирования российских банков и компаний. English Abstract:In this paper we study the mechanisms and estimate the influence of exchange rate volatility on key performance indicators of financial and non-financial companies. Exchange rate volatility, being both a consequence and an indicator of uncertainty, accompanied by risks to macroeconomic stability and increased volatility of other macroeconomic indicators, has a significant impact on the performance of Russian banks and companies.
{"title":"АНАЛИЗ ПОВЕДЕНИЯ БАНКОВ И КОМПАНИЙ В УСЛОВИЯХ КУРСОВОЙ ВОЛАТИЛЬНОСТИ В РОССИИ (Analysis of the Behavior of Banks and Companies in the Conditions of Exchange Volatility in Russia)","authors":"A. Bozhechkova, E. Ivanov, Mikhail Orekhov, Pavel Trunin, Maria Chembulatova, Anna P. Yakovleva","doi":"10.2139/ssrn.3888999","DOIUrl":"https://doi.org/10.2139/ssrn.3888999","url":null,"abstract":"Russian Abstract:Исследование посвящено изучению механизмов и оценке степени влияния курсовой волатильности на ключевые показатели деятельности финансовых и нефинансовых компаний. Выявлено, что курсовая волатильность являясь, одновременно и следствием, и индикатором неопределенности, сопровождаемой рисками для макроэкономической стабильности и усилением волатильности других макроэкономических показателей, оказывает значимое воздействие на показатели функционирования российских банков и компаний. English Abstract:In this paper we study the mechanisms and estimate the influence of exchange rate volatility on key performance indicators of financial and non-financial companies. Exchange rate volatility, being both a consequence and an indicator of uncertainty, accompanied by risks to macroeconomic stability and increased volatility of other macroeconomic indicators, has a significant impact on the performance of Russian banks and companies.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82473648","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 growth of the global population has brought forth greater demand for the goods and services, making the sustainability of a firm, the prediction of it, and whether environment plays a very important role in the sustainability of a firm are among the most important current issues that every business must face. This paper first constructs a new index, called the sustainability index, based on economic, environmental, and social criteria by employing a corporate credit risk index, an evaluation of a firm’s corporate governance, corporate financial performance, and firm age. We apply both Multiple Regression Analysis (MRA) and Fuzzy set Qualitative Comparative Analysis (FsQCA) to obtain the optimal models for predicting a firm’s sustainability. Our analysis shows that the variables including financial leverage, slack, innovation capability, manufacturing capability, and human capital have a significant influence on the sustainability of firms. Our fsQCA analysis obtains configurations of several factors for the sustainability index. The best solution shows that in order to obtain a firm’s high sustainability, three variables (innovation capability, marketing capability, and organizational slack) should be low. Overall, the results from all four variables in the sustainability index are important in the models and our proposed models fit the data very well. The results from our construction of the sustainability index and our analysis by using both multiple regression and fsQCA analyses concludes that environmental factors do play very important roles in the sustainability of a firm. Our findings are useful for academics, managers, and policy makers to predict and maintain a firm’s sustainability.
{"title":"Optimal Model to Predict the Sustainability of Taiwanese Firms","authors":"Fang‐Yi Lo, W. Wong, Jessica Geovani","doi":"10.2139/ssrn.3765495","DOIUrl":"https://doi.org/10.2139/ssrn.3765495","url":null,"abstract":"The increasing growth of the global population has brought forth greater demand for the goods and services, making the sustainability of a firm, the prediction of it, and whether environment plays a very important role in the sustainability of a firm are among the most important current issues that every business must face. This paper first constructs a new index, called the sustainability index, based on economic, environmental, and social criteria by employing a corporate credit risk index, an evaluation of a firm’s corporate governance, corporate financial performance, and firm age. We apply both Multiple Regression Analysis (MRA) and Fuzzy set Qualitative Comparative Analysis (FsQCA) to obtain the optimal models for predicting a firm’s sustainability. Our analysis shows that the variables including financial leverage, slack, innovation capability, manufacturing capability, and human capital have a significant influence on the sustainability of firms. Our fsQCA analysis obtains configurations of several factors for the sustainability index. The best solution shows that in order to obtain a firm’s high sustainability, three variables (innovation capability, marketing capability, and organizational slack) should be low. Overall, the results from all four variables in the sustainability index are important in the models and our proposed models fit the data very well. The results from our construction of the sustainability index and our analysis by using both multiple regression and fsQCA analyses concludes that environmental factors do play very important roles in the sustainability of a firm. Our findings are useful for academics, managers, and policy makers to predict and maintain a firm’s sustainability.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"85 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83897613","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 traditional innovation-growth view posits that financial innovations help facilitate risk sharing, complete the market, and ultimately improve allocative efficiency. However, financial innovations are often attributed as the root cause of the Global Financial Crisis, by engineering securities perceived to be safe but exposed to neglected risks. Financial engineering often is done by banks and investment houses led to the creation of structured products that often compete with conventional lending in the placement of the depositors’ money. Moreover, as there seems to have a lower risk (on paper) due to the use of innovative derivatives, they are often preferred over risky consumer and corporate financing. In this study, we tend to test this hypothesis and explore whether financial innovation crowd out consumer and corporate credit creation and would this affect the long-term returns and growth of banks in Pakistan. For this, we presented a model showing financial innovation (measured by off-balance sheet items as a percentage of total assets), affect bank growth (increase in deposits & net income) as well as profitability (ROE & ROA) indirectly through the mediation of investment, lending, and advance ratio to deposit (ADR). For this purpose, data of 25 banks operating in Pakistan were taken from the year 2010 to 2019, collected from annual reports. Data were analyzed using Structured Equation modeling. The results showed that financial innovation seems to have a negative and significant impact on ADR, however a positive impact on lending. This suggested that consumer and corporate finances might increase with financial innovations but compared to deposits, they are decreasing. This clearly showed that financial innovation crowds out credit creation. At the same time, its effect on investment seems to be significant. Moreover, among the three mediators, the only investment seems to have a positive effect on profitability but a negative effect on growth. The effect of credit creation on growth does not seem to be substantiated. The study showed that financial innovation does not seem to affect either profitability or growth in the above-mentioned mediation framework. Hence, the findings suggested that there are some downsides of financial innovation as it crowds out the credit creation process that could be a crucial engine of economic growth.
{"title":"Finance Financing Finance: Does Financial Innovation Crowd out Credit Creation by Diverting Consumers and Business Loans Back to the Financial Sector, and How This Affects the Banks’ Performance through Investment, and Lending?","authors":"Shumaila Amin, D. Siddiqui","doi":"10.2139/ssrn.3757472","DOIUrl":"https://doi.org/10.2139/ssrn.3757472","url":null,"abstract":"The traditional innovation-growth view posits that financial innovations help facilitate risk sharing, complete the market, and ultimately improve allocative efficiency. However, financial innovations are often attributed as the root cause of the Global Financial Crisis, by engineering securities perceived to be safe but exposed to neglected risks. Financial engineering often is done by banks and investment houses led to the creation of structured products that often compete with conventional lending in the placement of the depositors’ money. Moreover, as there seems to have a lower risk (on paper) due to the use of innovative derivatives, they are often preferred over risky consumer and corporate financing. In this study, we tend to test this hypothesis and explore whether financial innovation crowd out consumer and corporate credit creation and would this affect the long-term returns and growth of banks in Pakistan. For this, we presented a model showing financial innovation (measured by off-balance sheet items as a percentage of total assets), affect bank growth (increase in deposits & net income) as well as profitability (ROE & ROA) indirectly through the mediation of investment, lending, and advance ratio to deposit (ADR). For this purpose, data of 25 banks operating in Pakistan were taken from the year 2010 to 2019, collected from annual reports. Data were analyzed using Structured Equation modeling. The results showed that financial innovation seems to have a negative and significant impact on ADR, however a positive impact on lending. This suggested that consumer and corporate finances might increase with financial innovations but compared to deposits, they are decreasing. This clearly showed that financial innovation crowds out credit creation. At the same time, its effect on investment seems to be significant. Moreover, among the three mediators, the only investment seems to have a positive effect on profitability but a negative effect on growth. The effect of credit creation on growth does not seem to be substantiated. The study showed that financial innovation does not seem to affect either profitability or growth in the above-mentioned mediation framework. Hence, the findings suggested that there are some downsides of financial innovation as it crowds out the credit creation process that could be a crucial engine of economic growth.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"106 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89968191","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 study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three-times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigate the effects of commodity price volatility on external debt accumulation.
{"title":"Commodity Price Volatility, External Debt and Exchange Rate Regimes","authors":"M. K. Majumder, M. Raghavan, Joaquin Vespignani","doi":"10.2139/ssrn.3750525","DOIUrl":"https://doi.org/10.2139/ssrn.3750525","url":null,"abstract":"This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three-times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigate the effects of commodity price volatility on external debt accumulation.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"98 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78273909","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 assembles a comprehensive sectoral capital flows dataset for 64 advanced and emerging economies, from 2000-18, including direct, portfolio, and other investment to and from five sectors: namely, central banks (CB), general government (GG), banks (BKs), non-financial corporates (NFCs) and other financial corporates (OFCs). Using such data, this paper highlights the usefulness of a sectoral approach in assessing capital flow covariates, co-movements, and the effectiveness of capital controls. We show that 1) sectoral flows have varying sensitivities to measures of the global financial cycle and different cyclicality with respect to output growth; 2) co-movements in intra-sectoral resident and non-resident and co-movements with OFC sectoral flows explain a large part of the observed positive correlation between gross inflows and outflows; and, 3) sector-specific tightening capital control measures appear effective in reducing the volume of flows to NFCs and OFCs.
{"title":"Sectoral Capital Flows: Covariates, Co-movements, and Controls","authors":"Etienne Lepers, Rogelio V. Mercado","doi":"10.2139/ssrn.3617947","DOIUrl":"https://doi.org/10.2139/ssrn.3617947","url":null,"abstract":"This paper assembles a comprehensive sectoral capital flows dataset for 64 advanced and emerging economies, from 2000-18, including direct, portfolio, and other investment to and from five sectors: namely, central banks (CB), general government (GG), banks (BKs), non-financial corporates (NFCs) and other financial corporates (OFCs). Using such data, this paper highlights the usefulness of a sectoral approach in assessing capital flow covariates, co-movements, and the effectiveness of capital controls. We show that 1) sectoral flows have varying sensitivities to measures of the global financial cycle and different cyclicality with respect to output growth; 2) co-movements in intra-sectoral resident and non-resident and co-movements with OFC sectoral flows explain a large part of the observed positive correlation between gross inflows and outflows; and, 3) sector-specific tightening capital control measures appear effective in reducing the volume of flows to NFCs and OFCs.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"37 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79387960","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}
By halting the LIBOR's publication, large volumes of fixed income securities, from loans to derivatives, will fall back to an alternative fixing reference. The initial proposal of a SOFR fallback eliminated any degree of subjectivity but opened up funding risk. Overlaying a credit spread over SOFR is a remedy that goes in the right direction, but neither guarantees a robust hedge for funding risk nor prevents accidental wealth transfers.
To ensure robust funding risk hedges under all scenarios, we propose to complement the fallback rate by overlaying it with periodic exchanges of Funding Valuation Adjustment (FVA) reset amounts. Our proposal accomplishes the LIBOR indexing’s mandate of transferring banks’ funding risk to counterparties more accurately and robustly than the LIBOR itself while being objective and legally robust.
We conclude that the LIBOR transition is an excellent stimulus and opportunity to improve funding strategies and, if implemented with foresight, can make the financial system more resilient and efficient.
{"title":"Risk Managing the LIBOR Transition","authors":"C. Albanese, Stefano Iabichino","doi":"10.2139/ssrn.3746939","DOIUrl":"https://doi.org/10.2139/ssrn.3746939","url":null,"abstract":"By halting the LIBOR's publication, large volumes of fixed income securities, from loans to derivatives, will fall back to an alternative fixing reference. The initial proposal of a SOFR fallback eliminated any degree of subjectivity but opened up funding risk. Overlaying a credit spread over SOFR is a remedy that goes in the right direction, but neither guarantees a robust hedge for funding risk nor prevents accidental wealth transfers.<br><br>To ensure robust funding risk hedges under all scenarios, we propose to complement the fallback rate by overlaying it with periodic exchanges of Funding Valuation Adjustment (FVA) reset amounts. Our proposal accomplishes the LIBOR indexing’s mandate of transferring banks’ funding risk to counterparties more accurately and robustly than the LIBOR itself while being objective and legally robust. <br><br>We conclude that the LIBOR transition is an excellent stimulus and opportunity to improve funding strategies and, if implemented with foresight, can make the financial system more resilient and efficient.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"24 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86722417","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 investigate the association between fund exposure of economic policy uncertainty (EPU) and flows of exchange-traded funds (ETFs) using a unique sample of U.S. global ETFs from 2012 to 2017. We find that fund exposure of EPU is negatively associated with flows after controlling for returns, macroeconomic conditions, and other fund characteristics. Such a negative relationship is pronounced in funds with the high flow-performance sensitivity and economic relatedness. Investor sentiment is identified as the possible mechanisms through which fund exposure of EPU reduces ETF flows, as shown by the put-to-call option volume and short interest. Flow decomposition collaborates with the finding that only sentiment-driven flows respond to the EPU. Our study is the first to highlight the significant role of EPU in driving ETF flows in the global context.
{"title":"Economic Policy Uncertainty and Global ETF Flows","authors":"Kai Wu, Yuying Sun, Seiwai Lai, Yindi Shen","doi":"10.2139/ssrn.3542908","DOIUrl":"https://doi.org/10.2139/ssrn.3542908","url":null,"abstract":"We investigate the association between fund exposure of economic policy uncertainty (EPU) and flows of exchange-traded funds (ETFs) using a unique sample of U.S. global ETFs from 2012 to 2017. We find that fund exposure of EPU is negatively associated with flows after controlling for returns, macroeconomic conditions, and other fund characteristics. Such a negative relationship is pronounced in funds with the high flow-performance sensitivity and economic relatedness. Investor sentiment is identified as the possible mechanisms through which fund exposure of EPU reduces ETF flows, as shown by the put-to-call option volume and short interest. Flow decomposition collaborates with the finding that only sentiment-driven flows respond to the EPU. Our study is the first to highlight the significant role of EPU in driving ETF flows in the global context.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"35 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80323599","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}
I show that corporate debt accumulation during booms can explain increases in sovereign risk during stress periods. Using idiosyncratic shocks to large firms as instruments for aggregate corporate leverage, I show that rising corporate leverage during the period 2002-2007 causally increases sovereign spreads in six Eurozone countries during the debt crisis period of 2008-2012. To explain these findings, I build a dynamic quantitative model in which both firms and the government can default. Rising corporate debt increases sovereign default risk, as tax revenues are expected to decrease. Externalities arise because it can be privately optimal but socially suboptimal for firms to default given their limited liability. The fact that firms do not take into account the effect of their debt accumulation on aggregate sovereign spreads is an important externality, rationalizing macroprudential interventions in corporate debt markets. I propose a set of such optimal debt policies that reduce the number of defaulting firms, increase fiscal space, and boost household consumption during financial crises. Both constant and countercyclical debt tax schedules can correct overborrowing externalities. Contrary to conventional wisdom, countercyclical debt policy is less effective than constant debt policy, as the countercyclical policy induces more firm defaults.
{"title":"Corporate-Sovereign Debt Nexus and Externalities","authors":"Jun Hee Kwak","doi":"10.2139/ssrn.3741764","DOIUrl":"https://doi.org/10.2139/ssrn.3741764","url":null,"abstract":"I show that corporate debt accumulation during booms can explain increases in sovereign risk during stress periods. Using idiosyncratic shocks to large firms as instruments for aggregate corporate leverage, I show that rising corporate leverage during the period 2002-2007 causally increases sovereign spreads in six Eurozone countries during the debt crisis period of 2008-2012. To explain these findings, I build a dynamic quantitative model in which both firms and the government can default. Rising corporate debt increases sovereign default risk, as tax revenues are expected to decrease. Externalities arise because it can be privately optimal but socially suboptimal for firms to default given their limited liability. The fact that firms do not take into account the effect of their debt accumulation on aggregate sovereign spreads is an important externality, rationalizing macroprudential interventions in corporate debt markets. I propose a set of such optimal debt policies that reduce the number of defaulting firms, increase fiscal space, and boost household consumption during financial crises. Both constant and countercyclical debt tax schedules can correct overborrowing externalities. Contrary to conventional wisdom, countercyclical debt policy is less effective than constant debt policy, as the countercyclical policy induces more firm defaults.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"67 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86538700","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 characterizes the run behavior of sophisticated (institutional) and unsophisticated (retail) investors by studying the runs on prime money market funds (MMFs) of March 2020, at the beginning of the COVID-19 pandemic. For both U.S. and European institutional prime MMFs, the runs were more severe in funds for which the imposition of redemption gates and fees was a material possibility because of their lower liquidity positions. In contrast, although U.S. retail prime MMFs are also required to adopt the same system of gates and fees, their outflows did not depend on fund liquidity;unsophisticated (retail) investors ran more often if their funds belonged to a family offering institutional prime MMFs and suffering larger institutional redemptions. Finally, across investor types, MMFs belonging to families with a larger offering of government MMFs experienced larger outflows;this result is consistent with lower switching costs in fund families that are more specialized in government funds.
{"title":"Sophisticated and Unsophisticated Runs","authors":"M. Cipriani, Gabriele La Spada","doi":"10.2139/ssrn.3757602","DOIUrl":"https://doi.org/10.2139/ssrn.3757602","url":null,"abstract":"This paper characterizes the run behavior of sophisticated (institutional) and unsophisticated (retail) investors by studying the runs on prime money market funds (MMFs) of March 2020, at the beginning of the COVID-19 pandemic. For both U.S. and European institutional prime MMFs, the runs were more severe in funds for which the imposition of redemption gates and fees was a material possibility because of their lower liquidity positions. In contrast, although U.S. retail prime MMFs are also required to adopt the same system of gates and fees, their outflows did not depend on fund liquidity;unsophisticated (retail) investors ran more often if their funds belonged to a family offering institutional prime MMFs and suffering larger institutional redemptions. Finally, across investor types, MMFs belonging to families with a larger offering of government MMFs experienced larger outflows;this result is consistent with lower switching costs in fund families that are more specialized in government funds.","PeriodicalId":13701,"journal":{"name":"International Corporate Finance eJournal","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91301786","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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