Financial Markets, Institutions and Instruments最新文献

We investigate how small and large banks behave when they face liquidity shortages. Our findings reveal that only small banks increase their capital ratios during episodes of liquidity shortages. They do so by downsizing but also by holding less risky assets and by reducing their lending. Furthermore, the increase in capital ratios is higher for small banks which are more reliant on market liquidity and small banks operating below their target capital ratio. On the whole, our findings show that small banks operate prudently whereas large banks are less concerned. Our work has strong implications for bank regulation and supervision.

We study profit and cost efficiency effects of the Paycheck Protection Program (PPP) for US banks that disbursed the funds. Using bank-level data combined with PPP bailout data and instrumental variables and other techniques for identification, our findings suggest that more intense PPP lending boosted bank profit efficiency but decreased cost efficiency. We uncover channels for profit efficiency improvements through higher revenues from core deposits and lending, and a labour-related channel for the decline in bank cost efficiency from hiring more employees and significantly increasing compensation expenses. Findings are robust to many checks and may have important implications for bank management and future government bailout policy design.

This paper examines empirically cross-fertilization in the productivity growth of banks between a state and its neighbouring and non-neighbouring states (i) before (i.e. 1971–1977) the interstate multibank holding company (IMBHC) deregulations and (ii) during (i.e. 1982–1995) the IMBHC deregulations, which, through cross-border bank M&As mainly among neighbouring states, could inject new blood, awaken the market for corporate control and enhance cross-fertilization in bank performance among neighbouring states. Further, the 1978–1981 period offers a natural experiment to examine Baumol's Contestable Markets Hypothesis (CMH). The legislature of Maine made the first IMBHC deregulatory move in 1978. There was no reciprocity until New York and Alaska made their moves in 1982. Under CMH, Maine's move should inject a competitive spirit and alter bank performance for better across all—neighbouring or non-neighbouring – banking markets during this period. Theoretically, Kane's regulatory equilibrium framework provides guidance to address these matters and Tiebout's people vote with their feet framework extends and supplements this guidance. Empirically, FDIC's annual banking data, aggregated at the state level, constitute the main input in computing the productivity growth indices for each of the 48 contiguous sample states between 1971 and 1995. Estimations of a novel spatially driven fixed effects model that uses these indices produce empirical results. The empirical model exploits the proximity of one sample state to its neighbouring states while also embracing a set of randomly chosen non-neighbouring states as a control sample. Results show that cross-fertilization in bank performance, observed among neighbouring states before the introduction of the IMBHC deregulations during 1971–1977, gets stronger in response to the dynamically evolving IMBHC deregulations during 1982–1995 and that improvements in banks' productivity growth during 1978–1981 support Baumol's CMH. Overall, our results demonstrate the importance and influence of cross-fertilization, as a matter of proximity of subjects, on banks' performance and suggest promise for future research that embraces the spatial dimension of banking markets and data.

Most studies have found that the Covid-19 pandemic did not negatively impact the euro area banking industry's performance at an aggregate level. This study explores whether this finding still holds using the return on assets of 16 banking groups operating in the euro area and considering bank-specific factors, idiosyncrasies related to different exposures of their portfolios to the business cycle and weaknesses stemming from underlying structural vulnerabilities. The banking groups are classified into clusters using unsupervised learning techniques. This research contributes to the empirical literature on the determinants of banks’ performance by highlighting the importance of banks’ heterogeneity, notably controlling for differential performance due to asset quality, solvency and business model. In addition, this paper shows that the magnitude of return on assets’ exposure to the business cycle varies across banks and that inflation in the euro area matters only for a subset of them. Importantly, the study sheds some light on the possible reasons for the mixed results in the literature regarding the role of non-interest income, the T1 capital ratio and inflation. Finally, no significant effects of the Covid-19 variables on banks’ return on assets are found during the first seven quarters of the pandemic.

This paper investigates the accounting for defined benefit pension plans in U.S. family firms. Relying on agency theory and the literature on defined benefit pension plans, we test whether the allocation of pension plan assets, the expected rate of return on pension plan assets and the contributions to defined benefit pension plans in family firms are significantly different from those in non-family firms. Relying on a sample of U.S. firms over the period 2004–2018, we first document that family firms take more risk when allocating their pension plan assets relative to non-family firms where they allocate a larger (smaller) percentage of pension plan assets in equity (debt) securities. We also show that family firms are more aggressive in setting the expected rate of return on pension plan assets than non-family firms. However, family firms’ contributions to defined benefit pension plans are comparable to those of non-family firms. Our findings hold after controlling for the endogeneity in family firms. These findings are important since they provide first hand empirical evidence on the accounting for defined benefit pension plans in family firms. They further shed light over pension plans that serve as a key tool to attract and retain executive talents and make up a significant portion of firms balance’ sheets.

This paper investigates the effects of the new post-financial crisis regulatory regime – risk-based capital ratios (RBC) and stress tests – on banks' off-balance sheet activities (OBS). We use a panel of US bank holding companies over the period 2001–2018 to examine the relationship between banks' capital levels and OBS activities. Our major finding is that banks significantly reduced their OBS exposure following the introduction of the new capital regulatory framework requirements. In particular, we show that tighter regulatory RBC resulted in a reduction of OBS activities in well-capitalised banks. Conversely, we find that under-capitalised banks increased their OBS activities, which suggests the possibility of regulatory arbitrage.

This paper examines the effect of executive board gender diversity on the relationship between economic policy uncertainty (EPU) and bank liquidity hoarding (LH). We focus on the Russian banking sector, which, relative to most of the world, has a high share of women on bank executive boards. Using the news-based EPU index developed by Baker, Bloom, and Davis (2016) and LH measures proposed by Berger, Guedhami, Kim, and Li (2022), we exploit a unique dataset from the Russian banking sector. While higher economic policy uncertainty tends to increase liquidity hoarding, we find that this effect diminishes as the gender diversity of the board increases. We attribute this finding to the moderating influence of gender diversity on stability and overreaction in decision-making. Additionally, we find that the channel through which board gender diversity affects the impact of economic policy uncertainty on liquidity hoarding takes place via the hoarding of liquid assets. Our findings are robust to the use of alternative measures for economic policy uncertainty and gender diversity and hold after addressing endogeneity concerns. As women are still significantly under-represented on bank boards in most countries, these results argue for policies to promote gender diversity on bank boards as a means of limiting the detrimental effects of economic policy uncertainty.

We investigate the impact of sovereign wealth funds (SWFs) equity ownership on bonds’ credit ratings of their target firms. Using a sample of 2045 bonds issued by 324 SWF target firms from 16 countries over the period 1996–2020, we find evidence linking SWF investments to lower likelihood of bond rating upgrades. Consistent with value-reducing political agenda hypothesis, our results suggest that credit rating agencies perceive SWFs as a structure that could affect the quality of corporate governance and harm bondholder interests by leaving them vulnerable to losses. Our results also show that credit rating could be improved: (i) with SWF transparency and experience; (ii) when SWFs take a more passive investment stance; and (iii) within the financial crisis period. Finally, and interestingly, using generalized structural equation modelling, we provide evidence supporting the mediating role of target firm's corporate governance quality in the relationship between SWF investments and bond ratings. Our findings are robust to controls for the endogeneity and heteroscedasticity issues and to alternative sample compositions and regression frameworks.

More than a dozen years after the Dodd-Frank Act was introduced, we investigate whether credit ratings for the US residential mortgage-backed securities (RMBS) market differ given the different levels of creditor protection across the US states. Our paper provides three results. First, for the period 2017–2020, we provide evidence that there is inconsistency between credit rating agencies (CRAs): only for Dominion Bond Rating Service Morningstar (DBRS) and Moody's, we observe that the credit ratings for securitization tranches differ given different creditor protection levels across states. Second, in states with higher creditor protection, the relatively new CRAs, DBRS and Kroll Bond Rating Agency (KBRA), are more likely to provide more optimistic ratings than CRAs historically present in the rating market (Moody's, S&P, and Fitch). Third, issuers appear to issue larger deals in US states that are more creditor friendly.

Do banks price the risk of stranded fossil fuel reserves? To address this question, we hand collect global data on corporate fossil fuel reserves from 2002 to 2016, match it with syndicated loans, and subsequently compare the loan rate charged to fossil fuel firms — along their climate policy exposure — to other firms. We find that banks price climate policy exposure, especially after 2015. We also uncover that our main effect further increases for loans with longer maturity, that loan size to fossil fuel firms increases, and that ‛Green’ banks also charge higher loan rates to fossil fuel firms.