Pub Date : 2025-07-10DOI: 10.1016/j.jbankfin.2025.107517
Dien Giau Bui , Iftekhar Hasan , Chih-Yung Lin , Ngoc Thuy Mai , Chris Vaike
This paper introduces a novel measure to quantify firms’ sensitivity to shifts in bilateral trade flows between the United States and its trading partners. We exploit the 2016 U.S. presidential election as an exogenous shock to trade policy expectations and assess the stock market reactions of firms across 52 countries. Our findings indicate that firms with higher trade policy sensitivity experienced significantly more negative stock returns surrounding the election. These results are robust to variations in event windows, return model specifications, and alternative estimations of trade policy sensitivity.
{"title":"Trade policy sensitivity and global stock returns: Evidence from the 2016 U.S. Presidential election","authors":"Dien Giau Bui , Iftekhar Hasan , Chih-Yung Lin , Ngoc Thuy Mai , Chris Vaike","doi":"10.1016/j.jbankfin.2025.107517","DOIUrl":"10.1016/j.jbankfin.2025.107517","url":null,"abstract":"<div><div>This paper introduces a novel measure to quantify firms’ sensitivity to shifts in bilateral trade flows between the United States and its trading partners. We exploit the 2016 U.S. presidential election as an exogenous shock to trade policy expectations and assess the stock market reactions of firms across 52 countries. Our findings indicate that firms with higher trade policy sensitivity experienced significantly more negative stock returns surrounding the election. These results are robust to variations in event windows, return model specifications, and alternative estimations of trade policy sensitivity.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107517"},"PeriodicalIF":3.6,"publicationDate":"2025-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144661981","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-07-10DOI: 10.1016/j.jbankfin.2025.107503
Angelo Baglioni , Luca Colombo , Paola Rossi
When the debt of firms in distress is dispersed, a restructuring agreement may be difficult to reach because of free riding. We develop a repeated game in which banks come across each other frequently, and can threaten a punishment in case of free riding. As the number of lending banks grows, the chance of meeting again a bank and of being punished for free riding increases, improving the likelihood of cooperation. Looking at Italian firms in distress, we find that the estimated restructuring probability, as well as the probability of a positive outcome of financial distress, increases with the number of banks up to a threshold beyond which coordination problems prevail.
{"title":"Debt restructuring with multiple bank relationships","authors":"Angelo Baglioni , Luca Colombo , Paola Rossi","doi":"10.1016/j.jbankfin.2025.107503","DOIUrl":"10.1016/j.jbankfin.2025.107503","url":null,"abstract":"<div><div>When the debt of firms in distress is dispersed, a restructuring agreement may be difficult to reach because of free riding. We develop a repeated game in which banks come across each other frequently, and can threaten a punishment in case of free riding. As the number of lending banks grows, the chance of meeting again a bank and of being punished for free riding increases, improving the likelihood of cooperation. Looking at Italian firms in distress, we find that the estimated restructuring probability, as well as the probability of a positive outcome of financial distress, increases with the number of banks up to a threshold beyond which coordination problems prevail.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107503"},"PeriodicalIF":3.6,"publicationDate":"2025-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144686409","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-07-04DOI: 10.1016/j.jbankfin.2025.107508
Takao Asano , Xiaojing Cai , Ryuta Sakemoto
This study investigates the relationships between currency portfolios and market conditions. We incorporate information on cross-sectional foreign exchange (FX) volatility and ambiguity to determine FX market regimes. Unlike previous studies, we find that high FX volatility leads to higher currency carry returns only when FX ambiguity is high, suggesting that investors avoid making trading decisions during these periods. As a result, the unwinding of currency carry trades, which is usually associated with high FX volatility and declining in carry trade returns, does not occur. We also observe that this pattern does not emerge in other currency portfolios.
{"title":"Global foreign exchange volatility, ambiguity, and currency carry trades","authors":"Takao Asano , Xiaojing Cai , Ryuta Sakemoto","doi":"10.1016/j.jbankfin.2025.107508","DOIUrl":"10.1016/j.jbankfin.2025.107508","url":null,"abstract":"<div><div>This study investigates the relationships between currency portfolios and market conditions. We incorporate information on cross-sectional foreign exchange (FX) volatility and ambiguity to determine FX market regimes. Unlike previous studies, we find that high FX volatility leads to higher currency carry returns only when FX ambiguity is high, suggesting that investors avoid making trading decisions during these periods. As a result, the unwinding of currency carry trades, which is usually associated with high FX volatility and declining in carry trade returns, does not occur. We also observe that this pattern does not emerge in other currency portfolios.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107508"},"PeriodicalIF":3.6,"publicationDate":"2025-07-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144580589","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Prior research on the impact of market power on firms’ willingness to extend trade credit has produced inconsistent results, highlighting a critical gap in understanding firm behavior. This study addresses this issue by analyzing a comprehensive dataset of industrial firms across 26 countries, focusing on how the relationship between market power and trade credit depends on a country’s financial development level. Firms with monopolistic power often restrict credit provision to improve cash flow. However, our findings reveal a U-shaped relationship, where monopolistic firms in countries with either underdeveloped or highly developed financial sectors are more likely to extend trade credit than those in mid-level financial systems. This highlights the moderating role of financial development in shaping the interaction between market power and trade credit behavior.
{"title":"Country financial development and the extension of trade credit by firms with market power","authors":"Koresh Galil , Offer Moshe Shapir , Rodrigo Zeidan","doi":"10.1016/j.jbankfin.2025.107516","DOIUrl":"10.1016/j.jbankfin.2025.107516","url":null,"abstract":"<div><div>Prior research on the impact of market power on firms’ willingness to extend trade credit has produced inconsistent results, highlighting a critical gap in understanding firm behavior. This study addresses this issue by analyzing a comprehensive dataset of industrial firms across 26 countries, focusing on how the relationship between market power and trade credit depends on a country’s financial development level. Firms with monopolistic power often restrict credit provision to improve cash flow. However, our findings reveal a U-shaped relationship, where monopolistic firms in countries with either underdeveloped or highly developed financial sectors are more likely to extend trade credit than those in mid-level financial systems. This highlights the moderating role of financial development in shaping the interaction between market power and trade credit behavior.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107516"},"PeriodicalIF":3.6,"publicationDate":"2025-07-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144661982","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-07-02DOI: 10.1016/j.jbankfin.2025.107512
Jongrim Ha , M. Ayhan Kose , Christopher Otrok , Eswar S. Prasad
We develop a new dynamic factor model to jointly characterize global macroeconomic and financial cycles and the spillovers between them. The model decomposes macroeconomic cycles into the part driven by global and country-specific macro factors and the part driven by spillovers from financial variables. We consider cycles in macroeconomic aggregates (output, consumption, and investment) and financial variables (equity and house prices, and interest rates). The global macro factor plays a major role in explaining G-7 business cycles, but there are also discernible spillovers from equity and house price shocks onto macroeconomic aggregates, at least over the past two decades, accounting for up to 17 % of the variation in global business cycle fluctuations. These spillovers operate mainly through the global macro factor rather than the country-specific macro factors (i.e., these spillovers affect business cycles in all G-7 economies), and are stronger for output and investment fluctuations and more prominent in the period leading up to and following the global financial crisis. We find weaker evidence of spillovers from macroeconomic cycles to financial variables, perhaps reflecting the predictive power of global financial markets.
{"title":"Global macro-financial cycles and spillovers","authors":"Jongrim Ha , M. Ayhan Kose , Christopher Otrok , Eswar S. Prasad","doi":"10.1016/j.jbankfin.2025.107512","DOIUrl":"10.1016/j.jbankfin.2025.107512","url":null,"abstract":"<div><div>We develop a new dynamic factor model to jointly characterize global macroeconomic and financial cycles and the spillovers between them. The model decomposes macroeconomic cycles into the part driven by global and country-specific macro factors and the part driven by spillovers from financial variables. We consider cycles in macroeconomic aggregates (output, consumption, and investment) and financial variables (equity and house prices, and interest rates). The global macro factor plays a major role in explaining G-7 business cycles, but there are also discernible spillovers from equity and house price shocks onto macroeconomic aggregates, at least over the past two decades, accounting for up to 17 % of the variation in global business cycle fluctuations. These spillovers operate mainly through the global macro factor rather than the country-specific macro factors (i.e., these spillovers affect business cycles in all G-7 economies), and are stronger for output and investment fluctuations and more prominent in the period leading up to and following the global financial crisis. We find weaker evidence of spillovers from macroeconomic cycles to financial variables, perhaps reflecting the predictive power of global financial markets.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107512"},"PeriodicalIF":3.6,"publicationDate":"2025-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144614604","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-07-02DOI: 10.1016/j.jbankfin.2025.107505
Igor Honig, Felix Kircher
We propose a novel framework for modeling large dynamic covariance matrices via heterogeneous autoregressive volatility and correlation components. Our model provides direct forecasts of monthly covariance matrices and is flexible, parsimonious and simple to estimate using standard least squares methods. We address the problem of parameter estimation risks by employing nonlinear shrinkage methods, making our framework applicable in high dimensions. We perform a comprehensive empirical out-of-sample analysis and find significant statistical and economic improvements over common benchmark models. For minimum variance portfolios with over a thousand stocks, the annualized portfolio standard deviation improves to 8.92% compared to 9.75–10.43% for DCC-type models.
{"title":"Large dynamic covariance matrices and portfolio selection with a heterogeneous autoregressive model","authors":"Igor Honig, Felix Kircher","doi":"10.1016/j.jbankfin.2025.107505","DOIUrl":"10.1016/j.jbankfin.2025.107505","url":null,"abstract":"<div><div>We propose a novel framework for modeling large dynamic covariance matrices via heterogeneous autoregressive volatility and correlation components. Our model provides direct forecasts of monthly covariance matrices and is flexible, parsimonious and simple to estimate using standard least squares methods. We address the problem of parameter estimation risks by employing nonlinear shrinkage methods, making our framework applicable in high dimensions. We perform a comprehensive empirical out-of-sample analysis and find significant statistical and economic improvements over common benchmark models. For minimum variance portfolios with over a thousand stocks, the annualized portfolio standard deviation improves to 8.92% compared to 9.75–10.43% for DCC-type models.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107505"},"PeriodicalIF":3.6,"publicationDate":"2025-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144597025","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-07-01DOI: 10.1016/j.jbankfin.2025.107513
Peter Schäfer
I present evidence from CEO turnover decisions suggesting that boards update their beliefs about CEO ability more in industry crises than in booms. Consistent with predictions from an extended learning model that allows for increased productivity of CEO ability in crises, I find that the turnover-performance relation is weaker the more often the board has observed the CEO in past crises, and crisis performance reduces future dismissal risks more than boom performance. These effects persist after controlling for CEO entrenchment and firm effects, and they are stronger for more severe and recent crises. Employing a proxy of CEO ability, I also find that the dismissal risk of weak-ability CEOs is highest in crises. The results help refine our models of how boards learn about CEO ability and, in particular, help explain the turnover puzzle, i.e., why boards are more likely to dismiss CEOs in industry downturns: rather than misattributing poor industry conditions to CEOs, boards view performance in crises as a more informative signal of CEO ability than performance in booms.
{"title":"How much do boards learn about CEO ability in crises? Evidence from CEO turnover","authors":"Peter Schäfer","doi":"10.1016/j.jbankfin.2025.107513","DOIUrl":"10.1016/j.jbankfin.2025.107513","url":null,"abstract":"<div><div>I present evidence from CEO turnover decisions suggesting that boards update their beliefs about CEO ability more in industry crises than in booms. Consistent with predictions from an extended learning model that allows for increased productivity of CEO ability in crises, I find that the turnover-performance relation is weaker the more often the board has observed the CEO in past crises, and crisis performance reduces future dismissal risks more than boom performance. These effects persist after controlling for CEO entrenchment and firm effects, and they are stronger for more severe and recent crises. Employing a proxy of CEO ability, I also find that the dismissal risk of weak-ability CEOs is highest in crises. The results help refine our models of how boards learn about CEO ability and, in particular, help explain the turnover puzzle, i.e., why boards are more likely to dismiss CEOs in industry downturns: rather than misattributing poor industry conditions to CEOs, boards view performance in crises as a more informative signal of CEO ability than performance in booms.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107513"},"PeriodicalIF":3.6,"publicationDate":"2025-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144703899","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-07-01DOI: 10.1016/j.jbankfin.2025.107515
Huasheng Gao , Yuxi Wang
We examine the causal effect of tariff uncertainty on firms’ cost of debt. Our tests exploit a unique trade policy that reduces tariff uncertainty on Chinese imports without affecting the actual tariff rate, United States (U.S.)–China permanent normal trade relations (PNTR). We reveal a significant drop in the loan spreads for firms affected by PNTR relative to other firms. We further demonstrate that such effects occur through the channel of increasing firms’ performance predictability. Overall, by examining a clean measure of uncertainty from the tariff source, we provide evidence that reducing uncertainty has a causal effect on reducing the cost of debt.
{"title":"Tariff uncertainty and the cost of debt: Evidence from United States–China permanent normal trade relations","authors":"Huasheng Gao , Yuxi Wang","doi":"10.1016/j.jbankfin.2025.107515","DOIUrl":"10.1016/j.jbankfin.2025.107515","url":null,"abstract":"<div><div>We examine the causal effect of tariff uncertainty on firms’ cost of debt. Our tests exploit a unique trade policy that reduces tariff uncertainty on Chinese imports without affecting the actual tariff rate, United States (U.S.)–China permanent normal trade relations (PNTR). We reveal a significant drop in the loan spreads for firms affected by PNTR relative to other firms. We further demonstrate that such effects occur through the channel of increasing firms’ performance predictability. Overall, by examining a clean measure of uncertainty from the tariff source, we provide evidence that reducing uncertainty has a causal effect on reducing the cost of debt.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107515"},"PeriodicalIF":3.6,"publicationDate":"2025-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144572579","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-06-28DOI: 10.1016/j.jbankfin.2025.107509
Paul J. Irvine , Egle Karmaziene
We use recent European restrictions to evaluate how traders substitute across available dark pools. Our findings suggest that restricting dark trading at the most prominent platform has a detrimental effect on dark trading activity. Annual dark trading in a restricted stock decreases by more than 50 % over the six-month restriction period. Consistent with investors’ sticky relationships with specific dark pools, our results suggest that substitution across dark pools is remarkably low. Despite the availability of alternative dark pools, traders are unwilling to trade elsewhere. Our study provides evidence that dark trading is not a market of exchanges, but rather a collection of independent silos. This fact has implications for the vulnerability of dark trading to the introduction of an HFT into the pool, and sharpens our understanding of how the pecking order theory of trading actually functions.
{"title":"Competing for dark trades","authors":"Paul J. Irvine , Egle Karmaziene","doi":"10.1016/j.jbankfin.2025.107509","DOIUrl":"10.1016/j.jbankfin.2025.107509","url":null,"abstract":"<div><div>We use recent European restrictions to evaluate how traders substitute across available dark pools. Our findings suggest that restricting dark trading at the most prominent platform has a detrimental effect on dark trading activity. Annual dark trading in a restricted stock decreases by more than 50 % over the six-month restriction period. Consistent with investors’ sticky relationships with specific dark pools, our results suggest that substitution across dark pools is remarkably low. Despite the availability of alternative dark pools, traders are unwilling to trade elsewhere. Our study provides evidence that dark trading is not a market of exchanges, but rather a collection of independent silos. This fact has implications for the vulnerability of dark trading to the introduction of an HFT into the pool, and sharpens our understanding of how the pecking order theory of trading actually functions.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107509"},"PeriodicalIF":3.6,"publicationDate":"2025-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144569830","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-06-27DOI: 10.1016/j.jbankfin.2025.107504
Yusuf Soner Başkaya , Ilhyock Shim , Philip Turner
Using quarterly data on macroprudential policy (MaPP) measures and capital flow management measures (CFMs) in 39 economies over 2000–2020, we analyse how domestic credit and cross-border capital flows respond to such measures. We distinguish price- and quantity-based MaPP measures and CFMs, and examine if the level of financial development matters in explaining policy effectiveness. Tightening MaPP measures significantly reduce household credit when the level of financial development is relatively low, and this is driven more by price-based MaPP measures. Also, price- and quantity-based CFMs slow down bank inflows with the former effective at relatively low levels of financial development and the latter at relatively high levels. Finally, we present evidence on leakages associated with quantity-based measures. Tightening quantity-based CFMs increases offshore bond issuance when the level of financial development is relatively low, while tightening quantity-based MaPP measures increase bank and bond inflows when financial development is relatively high.
{"title":"Financial development and the effectiveness of macroprudential and capital flow management measures","authors":"Yusuf Soner Başkaya , Ilhyock Shim , Philip Turner","doi":"10.1016/j.jbankfin.2025.107504","DOIUrl":"10.1016/j.jbankfin.2025.107504","url":null,"abstract":"<div><div>Using quarterly data on macroprudential policy (MaPP) measures and capital flow management measures (CFMs) in 39 economies over 2000–2020, we analyse how domestic credit and cross-border capital flows respond to such measures. We distinguish price- and quantity-based MaPP measures and CFMs, and examine if the level of financial development matters in explaining policy effectiveness. Tightening MaPP measures significantly reduce household credit when the level of financial development is relatively low, and this is driven more by price-based MaPP measures. Also, price- and quantity-based CFMs slow down bank inflows with the former effective at relatively low levels of financial development and the latter at relatively high levels. Finally, we present evidence on leakages associated with quantity-based measures. Tightening quantity-based CFMs increases offshore bond issuance when the level of financial development is relatively low, while tightening quantity-based MaPP measures increase bank and bond inflows when financial development is relatively high.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"178 ","pages":"Article 107504"},"PeriodicalIF":3.6,"publicationDate":"2025-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144634327","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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