M. Feldman, Frederick Guy, S. Iammarino, Carolin Ioramashvili
Are the agglomeration economies of technology hubs augmented by a localized market for start-ups – acquisitions, and IPOs? How does this affect the ability of places outside of those hubs to foster digital startups as a tool of local economic development? We study this with a particular focus on acquisitions by the seven largest American digital platforms – Amazon, Alphabet [Google], Apple, Microsoft, Facebook, Oracle and Adobe, which we call, collectively, Big Tech. We cover the years 2001-2020. We show that firms acquired by Big Tech are, disproportionately to the sectors in which they operate, concentrated in major tech clusters, and particularly in the Silicon Valley (San Francisco/San Jose). Foreign acquisitions by Big Tech also show a marked concentration in a few countries, and particular places in those countries. NASDAQ IPOs of firms in relevant sectors are similarly concentrated. Acquisition, or the less common alternative, IPO, is the second major phase of financing for a digital start up. The first phase is commonly associated with venture capital (VC), and location proximate to venture capital companies has often been seen as a motivation for locating in a tech cluster. We find, however, that neither VC funding, nor funding an investor located in the Silicon Valley, predicts either acquisition by Big Tech, or IPO. Funding by any of the VCs that helped launch the Big Tech firms, however, is strongly associated with Big Tech acquisition. This suggests an important role for social networks in both the first and second phases of financing, but not necessarily a geographical role in the first phase.We argue that the acquisition market – and its effects on both the major tech hubs and the left behind rest – depends crucially on the proprietary control of access to various digital network products. Regulation of these markets, particularly in the form of common carrier status and open standards, could achieve a considerable re-balancing.
{"title":"Gathering round Big Tech: How the Market for Acquisitions Reinforces Regional Inequalities in the US","authors":"M. Feldman, Frederick Guy, S. Iammarino, Carolin Ioramashvili","doi":"10.2139/ssrn.3845674","DOIUrl":"https://doi.org/10.2139/ssrn.3845674","url":null,"abstract":"Are the agglomeration economies of technology hubs augmented by a localized market for start-ups – acquisitions, and IPOs? How does this affect the ability of places outside of those hubs to foster digital startups as a tool of local economic development? We study this with a particular focus on acquisitions by the seven largest American digital platforms – Amazon, Alphabet [Google], Apple, Microsoft, Facebook, Oracle and Adobe, which we call, collectively, Big Tech. We cover the years 2001-2020. We show that firms acquired by Big Tech are, disproportionately to the sectors in which they operate, concentrated in major tech clusters, and particularly in the Silicon Valley (San Francisco/San Jose). Foreign acquisitions by Big Tech also show a marked concentration in a few countries, and particular places in those countries. NASDAQ IPOs of firms in relevant sectors are similarly concentrated. Acquisition, or the less common alternative, IPO, is the second major phase of financing for a digital start up. The first phase is commonly associated with venture capital (VC), and location proximate to venture capital companies has often been seen as a motivation for locating in a tech cluster. We find, however, that neither VC funding, nor funding an investor located in the Silicon Valley, predicts either acquisition by Big Tech, or IPO. Funding by any of the VCs that helped launch the Big Tech firms, however, is strongly associated with Big Tech acquisition. This suggests an important role for social networks in both the first and second phases of financing, but not necessarily a geographical role in the first phase.We argue that the acquisition market – and its effects on both the major tech hubs and the left behind rest – depends crucially on the proprietary control of access to various digital network products. Regulation of these markets, particularly in the form of common carrier status and open standards, could achieve a considerable re-balancing.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"190 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134354370","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}
When deciding whether to introduce market-based prices into a regulated market, a regulator faces the following tradeoff: profit incentives may reduce costs through the more efficient allocation of resources, but the presence of market power may lead to increased markups. We use a detailed dataset on electricity transactions to investigate the impact of market-based deregulation in the context of the U.S. electricity sector. We find that the increase in markups dominates despite modest efficiency gains, leading to higher prices to consumers. Deregulation does not necessarily lead to lower prices to consumers. A consumer-oriented regulator may prefer to regulate rates to be consumer friendly, rather than let prices be subject to market power.
{"title":"Deregulation, Market Power, and Prices: Evidence from the Electricity Sector","authors":"Alexander Mackay, Ignacia Mercadal","doi":"10.2139/ssrn.3793305","DOIUrl":"https://doi.org/10.2139/ssrn.3793305","url":null,"abstract":"When deciding whether to introduce market-based prices into a regulated market, a regulator faces the following tradeoff: profit incentives may reduce costs through the more efficient allocation of resources, but the presence of market power may lead to increased markups. We use a detailed dataset on electricity transactions to investigate the impact of market-based deregulation in the context of the U.S. electricity sector. We find that the increase in markups dominates despite modest efficiency gains, leading to higher prices to consumers. Deregulation does not necessarily lead to lower prices to consumers. A consumer-oriented regulator may prefer to regulate rates to be consumer friendly, rather than let prices be subject to market power.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129588677","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}
Using career information collected from professional networking sites, I identify sell-side analysts who transition to buy-side institutions, and examine whether these transitioning analysts cater to their future buy-side employers before the transition. I find that, prior to the transition, transitioning analysts produce more favorable research toward stocks that are significant in the portfolios of their future employers. Importantly, I find the favoritism effects are stronger for stocks for which a single analyst's impact is likely to be large, namely, small-cap stocks and stocks with low analyst coverage. I also find such favoritism is present only during the year immediately prior to the transition. Moreover, the favoritism is present only among analysts who immediately transition to the buy-side, and not among those who move to the buy-side after a prolonged transition gap (i.e., where strategic behavior is less likely). These findings are consistent with the career concern hypothesis that sell-side analysts cater to their future buy-side employers to advance their careers.
{"title":"Analyst Optimism and Buy-Side Institutions: Evidence from Analyst Transition from Sell-Side to Buy-Side","authors":"Biwen Zhang","doi":"10.2139/ssrn.3801213","DOIUrl":"https://doi.org/10.2139/ssrn.3801213","url":null,"abstract":"Using career information collected from professional networking sites, I identify sell-side analysts who transition to buy-side institutions, and examine whether these transitioning analysts cater to their future buy-side employers before the transition. I find that, prior to the transition, transitioning analysts produce more favorable research toward stocks that are significant in the portfolios of their future employers. Importantly, I find the favoritism effects are stronger for stocks for which a single analyst's impact is likely to be large, namely, small-cap stocks and stocks with low analyst coverage. I also find such favoritism is present only during the year immediately prior to the transition. Moreover, the favoritism is present only among analysts who immediately transition to the buy-side, and not among those who move to the buy-side after a prolonged transition gap (i.e., where strategic behavior is less likely). These findings are consistent with the career concern hypothesis that sell-side analysts cater to their future buy-side employers to advance their careers.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115817713","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 insurance industry has been and is very dynamic, directly related to the degree of penetration of insurance in a country's GDP and proportional to the level of evolution of states. It is recognized that in the past insurance was only an instrument for the protection of personal and even governmental assets, now we can say that the main purpose is to support the economy and the main tool for managing social risks, and even financing instrument, more chosen for small entrepreneurs. However, due to the lack of financial education most of the time, this financial instrument is used sparingly. These are an important pillar for emerging countries, as demonstrated since 1990 in several studies indicating a growth rate proportional to the development of the insurance market. In this paper we aim to reflect the current situation of the insurance market in the context of the pandemic, but especially to present the role and importance of financial instruments such as InsurTech to support and develop economies at national, European and global levels.
{"title":"Financial instruments InsurTech on the financial market in the current global context","authors":"Otilia Manta","doi":"10.2139/ssrn.3801096","DOIUrl":"https://doi.org/10.2139/ssrn.3801096","url":null,"abstract":"The insurance industry has been and is very dynamic, directly related to the degree of penetration of insurance in a country's GDP and proportional to the level of evolution of states. It is recognized that in the past insurance was only an instrument for the protection of personal and even governmental assets, now we can say that the main purpose is to support the economy and the main tool for managing social risks, and even financing instrument, more chosen for small entrepreneurs. However, due to the lack of financial education most of the time, this financial instrument is used sparingly. \u0000These are an important pillar for emerging countries, as demonstrated since 1990 in several studies indicating a growth rate proportional to the development of the insurance market. In this paper we aim to reflect the current situation of the insurance market in the context of the pandemic, but especially to present the role and importance of financial instruments such as InsurTech to support and develop economies at national, European and global levels.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126757214","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 establish a mapping between the Chinese domestic agency ratings and S&P global ratings by matching firms' expected default probabilities (PDs) estimated using a dynamic logit model with the actual default rates of S&P ratings. The Chinese agency ratings are inflated by ten notches in light of the S&P rating standard. For example, the domestic AAA, AA, and A correspond to S&P BB+, BB, and BB- by median default probability. The PD-implied S&P ratings outperform the domestic agency ratings in predicting default and complement the latter explaining credit spread. Their superior default predictive power originates from using dynamic operating efficiency-related information. In contrast, the agency ratings give more weight to scale-based firm characteristics.
{"title":"Comprehending China's Domestic Ratings: A Perspective from Default Probability-Implied S&P Ratings","authors":"Shida Liu, Hao Wang","doi":"10.2139/ssrn.3792687","DOIUrl":"https://doi.org/10.2139/ssrn.3792687","url":null,"abstract":"We establish a mapping between the Chinese domestic agency ratings and S&P global ratings by matching firms' expected default probabilities (PDs) estimated using a dynamic logit model with the actual default rates of S&P ratings. The Chinese agency ratings are inflated by ten notches in light of the S&P rating standard. For example, the domestic AAA, AA, and A correspond to S&P BB+, BB, and BB- by median default probability. The PD-implied S&P ratings outperform the domestic agency ratings in predicting default and complement the latter explaining credit spread. Their superior default predictive power originates from using dynamic operating efficiency-related information. In contrast, the agency ratings give more weight to scale-based firm characteristics.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-02-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129416216","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}
Recent empirical studies find that increased informational efficiency associated with options trading activity enhances firm value by allowing for a more efficient allocation of firm resources. In this paper, we develop and test the hypothesis that, in addition to a more efficient allocation of firm resources, options trading also enhances firm value through a financing channel, by promoting a lower cost debt structure that relies more on public debt and less on more costly bank financing. Consistent with both an information channel (where increased informational efficiency facilitates public debt issuance and reduces demand for the superior ability of banks to access and process private information) and a governance channel (where enhanced informational efficiency improves the effectiveness of alternative governance thereby reducing demand for bank lender governance), we find that options trading leads firms to shift from bank loans to public bonds. Consistent with an information channel effect, we show that the reduced reliance on bank borrowing is concentrated in high information asymmetry firms that are expected to benefit more from the enhanced information environment associated with options trading activity. Consistent with a governance channel effect, we find a more negative relation between options trading activity and bank borrowing in competitive industries where external governance pressure is high. In addition, we find that loan covenant strictness decreases with increases in options trading volume. Overall, our findings suggest that enhanced information efficiency associated with options trading lowers financing costs by reducing firm demand for the unique informational and governance qualities associated with bank borrowing.
{"title":"Options Trading and Corporate Debt Structure","authors":"Jie Cao, M. Hertzel, Jie Xu, Xintong Zhan","doi":"10.2139/ssrn.3520403","DOIUrl":"https://doi.org/10.2139/ssrn.3520403","url":null,"abstract":"Recent empirical studies find that increased informational efficiency associated with options trading activity enhances firm value by allowing for a more efficient allocation of firm resources. In this paper, we develop and test the hypothesis that, in addition to a more efficient allocation of firm resources, options trading also enhances firm value through a financing channel, by promoting a lower cost debt structure that relies more on public debt and less on more costly bank financing. Consistent with both an information channel (where increased informational efficiency facilitates public debt issuance and reduces demand for the superior ability of banks to access and process private information) and a governance channel (where enhanced informational efficiency improves the effectiveness of alternative governance thereby reducing demand for bank lender governance), we find that options trading leads firms to shift from bank loans to public bonds. Consistent with an information channel effect, we show that the reduced reliance on bank borrowing is concentrated in high information asymmetry firms that are expected to benefit more from the enhanced information environment associated with options trading activity. Consistent with a governance channel effect, we find a more negative relation between options trading activity and bank borrowing in competitive industries where external governance pressure is high. In addition, we find that loan covenant strictness decreases with increases in options trading volume. Overall, our findings suggest that enhanced information efficiency associated with options trading lowers financing costs by reducing firm demand for the unique informational and governance qualities associated with bank borrowing.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116896142","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 aim to answer if superior performance by short sellers’ is generated by processing public information rather than by exploiting private information. To achieve this, we analyze if short sellers with healthcare expertise outperform in short selling of non-healthcare stocks compared to those with no healthcare expertise. Since we expect that any short sellers’ private information about healthcare stocks is unlikely to be material for non-healthcare stocks, we conclude that any observed outperformance in non-healthcare stocks is more likely caused by processing public information. As an identification strategy, we interpret the outbreak of the COVID-19 pandemic as a treatment to short sellers with healthcare expertise. Our measures of healthcare expertise are based on pre-COVID-19 performance related to either holding or covering a short position in healthcare stocks. Using a unique German sample of daily short selling data, we find that treated short positions identified by general shorting (covering) outperformance are associated with lower 10-day CARs for non-healthcare stocks by an economically significant magnitude of 4.3 percent (7.2 percent). Robustness test rule out that our results are also driven by the use of private information or non information-based trading advantages such as better funding or borrowing ability of observed short sellers.
{"title":"Information Processing Skills of Short Sellers: Empirical Evidence from the COVID-19 Pandemic","authors":"Levy Schattmann, Jan-Oliver Strych, P. Westerholm","doi":"10.2139/ssrn.3763198","DOIUrl":"https://doi.org/10.2139/ssrn.3763198","url":null,"abstract":"We aim to answer if superior performance by short sellers’ is generated by processing public information rather than by exploiting private information. To achieve this, we analyze if short sellers with healthcare expertise outperform in short selling of non-healthcare stocks compared to those with no healthcare expertise. Since we expect that any short sellers’ private information about healthcare stocks is unlikely to be material for non-healthcare stocks, we conclude that any observed outperformance in non-healthcare stocks is more likely caused by processing public information. As an identification strategy, we interpret the outbreak of the COVID-19 pandemic as a treatment to short sellers with healthcare expertise. Our measures of healthcare expertise are based on pre-COVID-19 performance related to either holding or covering a short position in healthcare stocks. Using a unique German sample of daily short selling data, we find that treated short positions identified by general shorting (covering) outperformance are associated with lower 10-day CARs for non-healthcare stocks by an economically significant magnitude of 4.3 percent (7.2 percent). Robustness test rule out that our results are also driven by the use of private information or non information-based trading advantages such as better funding or borrowing ability of observed short sellers.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"6 4","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121001536","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}
Pub Date : 2021-01-01DOI: 10.5089/9781513568096.001.A001
A. Bauer, R. Craig, José Garrido, K. Kang, K. Kashiwase, S. Kim, Yan Liu, S. Rafiq
The Coronavirus disease (COVID-19) triggered a sharp contraction of economic activity across Asia and the Pacific. Policymakers adopted a “whatever it takes” approach in their initial response, relying mainly on liquidity support to help firms survive the shock. This paper discusses how the initial policy response should evolve as the region’s economies stabilize and enter the recovery phase. Many firms will need to repair their balance sheets and adjust their business models to the post-pandemic realities. The priority will be to support this process by facilitating the efficient restructuring of viable firms while allowing nonviable firms to exit. This requires action on three complementary fronts: reinforcing private debt resolution frameworks to flatten the insolvency curve, ensuring that adequate financing is available to support corporate restructuring, and facilitating access to equity to speed up the reallocation of jobs and capital into growth sectors.
{"title":"Flattening the Insolvency Curve: Promoting Corporate Restructuring in Asia and the Pacific in the Post-C19 Recovery","authors":"A. Bauer, R. Craig, José Garrido, K. Kang, K. Kashiwase, S. Kim, Yan Liu, S. Rafiq","doi":"10.5089/9781513568096.001.A001","DOIUrl":"https://doi.org/10.5089/9781513568096.001.A001","url":null,"abstract":"The Coronavirus disease (COVID-19) triggered a sharp contraction of economic activity across Asia and the Pacific. Policymakers adopted a “whatever it takes” approach in their initial response, relying mainly on liquidity support to help firms survive the shock. This paper discusses how the initial policy response should evolve as the region’s economies stabilize and enter the recovery phase. Many firms will need to repair their balance sheets and adjust their business models to the post-pandemic realities. The priority will be to support this process by facilitating the efficient restructuring of viable firms while allowing nonviable firms to exit. This requires action on three complementary fronts: reinforcing private debt resolution frameworks to flatten the insolvency curve, ensuring that adequate financing is available to support corporate restructuring, and facilitating access to equity to speed up the reallocation of jobs and capital into growth sectors.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130831764","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 nexus between corporate social responsibility (CSR) and firms’ stock market liquidity. Using actual firm-level CSR expenditure data and a quasi-natural experiment setup of a mandated CSR regulation in India, we find that firms complying with the mandate and expending on CSR activities experience significantly higher stock market liquidity, relative to non-CSR firms in the post-CSR reform period. Further, we find that firms spending more on education and healthcare projects as part of their mandatory CSR engagement seem to have higher stock market liquidity. Finally, we show that mandated CSR firms, having superior stock market liquidity, obtain higher long-term market valuations.
{"title":"CSR Expenditure and Stock Liquidity","authors":"P. P. Roy, Sandeep Rao, Min Zhu","doi":"10.2139/ssrn.3747784","DOIUrl":"https://doi.org/10.2139/ssrn.3747784","url":null,"abstract":"We investigate the nexus between corporate social responsibility (CSR) and firms’ stock market liquidity. Using actual firm-level CSR expenditure data and a quasi-natural experiment setup of a mandated CSR regulation in India, we find that firms complying with the mandate and expending on CSR activities experience significantly higher stock market liquidity, relative to non-CSR firms in the post-CSR reform period. Further, we find that firms spending more on education and healthcare projects as part of their mandatory CSR engagement seem to have higher stock market liquidity. Finally, we show that mandated CSR firms, having superior stock market liquidity, obtain higher long-term market valuations.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"90 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129541702","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}
Banks with a low price-to-book ratio have a greater propensity to pay out dividends. This propensity is especially marked for banks with a price-to-book ratio below a threshold of 0.7. As a sector, banks also tend to have higher dividend payout ratios than non-financial firms. We demonstrate these features using data for 271 advanced economy banks in 30 jurisdictions. Dividend payouts as a proportion of profits rise in a non-linear way as the price-to-book ratio falls below 0.7. In a hypothetical exercise with fixed balance sheet ratios, we find that a complete suspension of bank dividends in 2020 during the Covid-19 pandemic would have added, under different stress scenario, an additional US$ 0.8–1.1 trillion of bank lending capacity in our sample, equivalent to 1.1–1.6% of total GDP.
{"title":"Low Price-To-Book Ratios and Bank Dividend Payout Policies","authors":"L. Gambacorta, Tommaso Oliviero, H. Shin","doi":"10.2139/ssrn.3761864","DOIUrl":"https://doi.org/10.2139/ssrn.3761864","url":null,"abstract":"Banks with a low price-to-book ratio have a greater propensity to pay out dividends. This propensity is especially marked for banks with a price-to-book ratio below a threshold of 0.7. As a sector, banks also tend to have higher dividend payout ratios than non-financial firms. We demonstrate these features using data for 271 advanced economy banks in 30 jurisdictions. Dividend payouts as a proportion of profits rise in a non-linear way as the price-to-book ratio falls below 0.7. In a hypothetical exercise with fixed balance sheet ratios, we find that a complete suspension of bank dividends in 2020 during the Covid-19 pandemic would have added, under different stress scenario, an additional US$ 0.8–1.1 trillion of bank lending capacity in our sample, equivalent to 1.1–1.6% of total GDP.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125761425","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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