Pub Date : 2025-01-01DOI: 10.1016/j.jfi.2024.101121
Gur Huberman , Rafael Repullo
We present a model of the maturity of a bank’s uninsured debt. The bank borrows to invest in a long-term asset with endogenous and nonverifiable risk. This moral hazard problem leads to excessive risk-taking. Short-term debt may have a disciplining effect on risk-taking, but it may lead to overborrowing and/or inefficient liquidation. We characterize the conditions under which short- and long-term debt are feasible, and show circumstances where only short-term debt is feasible and where short-term debt dominates long-term debt when both are feasible. The results are consistent with some features of the period preceding the 2007-2009 global financial crisis.
{"title":"Moral hazard and debt maturity","authors":"Gur Huberman , Rafael Repullo","doi":"10.1016/j.jfi.2024.101121","DOIUrl":"10.1016/j.jfi.2024.101121","url":null,"abstract":"<div><div>We present a model of the maturity of a bank’s uninsured debt. The bank borrows to invest in a long-term asset with endogenous and nonverifiable risk. This moral hazard problem leads to excessive risk-taking. Short-term debt may have a disciplining effect on risk-taking, but it may lead to overborrowing and/or inefficient liquidation. We characterize the conditions under which short- and long-term debt are feasible, and show circumstances where only short-term debt is feasible and where short-term debt dominates long-term debt when both are feasible. The results are consistent with some features of the period preceding the 2007-2009 global financial crisis.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"61 ","pages":"Article 101121"},"PeriodicalIF":3.1,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143141067","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-01DOI: 10.1016/j.jfi.2024.101119
Jianan Lu , Wenxuan Hou , Brian G.M. Main
Using the case of the pogroms that took place in the historical region of the 'Pale of Settlement' in Eastern Europe, this paper analyzes the cultural legacy of ethnic violence and its long-term economic impact on access to finance and on corporate innovation. We find that firms in regions with a higher historical intensity of ethnic persecution face greater financial constraints, relying more on internal finance and experiencing reduced access to external finance. These financial limitations are linked to sluggish innovation activities among present-day firms. We propose that a mechanism of financial antipathy, rooted in a persistent anti-market culture fostered by historical ethnic animosity, explains these effects and reflects a long-term degradation of local social capital. Our results are supported by causal evidence using instrumental variables based on the precursors of historical inter-ethnic violence. The animosity and discrimination against the minority group appear to transfer to the broader economic activities in which that group was involved, creating lasting economic consequences for the majority population – consequences that continue to affect financial development and innovation to the present day.
{"title":"The cultural legacy of historical ethnic violence: The impact on access to finance and innovation","authors":"Jianan Lu , Wenxuan Hou , Brian G.M. Main","doi":"10.1016/j.jfi.2024.101119","DOIUrl":"10.1016/j.jfi.2024.101119","url":null,"abstract":"<div><div>Using the case of the pogroms that took place in the historical region of the 'Pale of Settlement' in Eastern Europe, this paper analyzes the cultural legacy of ethnic violence and its long-term economic impact on access to finance and on corporate innovation. We find that firms in regions with a higher historical intensity of ethnic persecution face greater financial constraints, relying more on internal finance and experiencing reduced access to external finance. These financial limitations are linked to sluggish innovation activities among present-day firms. We propose that a mechanism of financial antipathy, rooted in a persistent anti-market culture fostered by historical ethnic animosity, explains these effects and reflects a long-term degradation of local social capital. Our results are supported by causal evidence using instrumental variables based on the precursors of historical inter-ethnic violence. The animosity and discrimination against the minority group appear to transfer to the broader economic activities in which that group was involved, creating lasting economic consequences for the majority population – consequences that continue to affect financial development and innovation to the present day.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"61 ","pages":"Article 101119"},"PeriodicalIF":3.1,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143141068","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-01DOI: 10.1016/j.jfi.2024.101132
Xunhua Su , Donghang Zhang , Xiaoyu Zhang
We provide novel evidence on the loan market benefits of high IPO underpricing. We show that greater underpricing is associated with a significantly larger within-firm reduction of post-IPO borrowing costs. This benefit of underpricing is less pronounced for firms with high ex-ante information asymmetry and is concentrated in firms with a high demand for advertisements. In addition, neither price revision before the IPO nor the short-term or long-term stock return after the IPO has a similar effect. Our results suggest that underpricing affects borrowing costs through an attention channel and highlight a real economic effect of underpricing from the loan market.
{"title":"Loan market benefits of (High) IPO underpricing","authors":"Xunhua Su , Donghang Zhang , Xiaoyu Zhang","doi":"10.1016/j.jfi.2024.101132","DOIUrl":"10.1016/j.jfi.2024.101132","url":null,"abstract":"<div><div>We provide novel evidence on the loan market benefits of high IPO underpricing. We show that greater underpricing is associated with a significantly larger within-firm reduction of post-IPO borrowing costs. This benefit of underpricing is less pronounced for firms with high ex-ante information asymmetry and is concentrated in firms with a high demand for advertisements. In addition, neither price revision before the IPO nor the short-term or long-term stock return after the IPO has a similar effect. Our results suggest that underpricing affects borrowing costs through an attention channel and highlight a real economic effect of underpricing from the loan market.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"61 ","pages":"Article 101132"},"PeriodicalIF":3.1,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143141069","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-01-01DOI: 10.1016/j.jfi.2024.101123
Diemo Dietrich , Thomas Gehrig
In standard banking models a demand for liquidity arises because investors want to take precautions against sudden consumption needs. It has long been taken for granted that banks’ maturity transformation is because they insure against such risk, exposing them to crises and justifying bank regulation. We show that if a demand for liquidity arises additionally for another important reason, their co-existence substantially alters equilibrium outcomes. Specifically, we introduce investors who want to preserve flexibility in case better investment opportunities arrive later. We show that (1) there is no maturity transformation if the funding liquidity of new investment opportunities is not sufficiently limited, (2) equilibria in models that consider only a single reason for liquidity demand are not necessarily robust, (3) an equilibrium in pure strategies in the depositing game may not exist at all.
{"title":"Scope and limits of bank liquidity creation","authors":"Diemo Dietrich , Thomas Gehrig","doi":"10.1016/j.jfi.2024.101123","DOIUrl":"10.1016/j.jfi.2024.101123","url":null,"abstract":"<div><div>In standard banking models a demand for liquidity arises because investors want to take precautions against sudden consumption needs. It has long been taken for granted that banks’ maturity transformation is because they insure against such risk, exposing them to crises and justifying bank regulation. We show that if a demand for liquidity arises additionally for another important reason, their co-existence substantially alters equilibrium outcomes. Specifically, we introduce investors who want to preserve flexibility in case better investment opportunities arrive later. We show that (1) there is no maturity transformation if the funding liquidity of new investment opportunities is not sufficiently limited, (2) equilibria in models that consider only a single reason for liquidity demand are not necessarily robust, (3) an equilibrium in pure strategies in the depositing game may not exist at all.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"61 ","pages":"Article 101123"},"PeriodicalIF":3.1,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143097463","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101122
Linquan Chen , Yao Chen , Alok Kumar , Woon Sau Leung
Using a novel dataset with daily firm-level ESG information, we examine whether and how active mutual fund managers integrate ESG information into their portfolio decisions. Our results show that managers actively trade on ESG information, leading to improved portfolio performance. This enhanced risk-adjusted return is attributed to the incorporation of ESG information into asset prices rather than to price pressure on green assets. Additionally, fund managers adjust their portfolios to cater to investor demand, especially during periods of heightened ESG awareness. Further, funds located in Democratic states and those with higher ESG ratings exhibit a stronger inclination towards ESG integration.
{"title":"Firm-level ESG information and active fund management","authors":"Linquan Chen , Yao Chen , Alok Kumar , Woon Sau Leung","doi":"10.1016/j.jfi.2024.101122","DOIUrl":"10.1016/j.jfi.2024.101122","url":null,"abstract":"<div><div>Using a novel dataset with daily firm-level ESG information, we examine whether and how active mutual fund managers integrate ESG information into their portfolio decisions. Our results show that managers actively trade on ESG information, leading to improved portfolio performance. This enhanced risk-adjusted return is attributed to the incorporation of ESG information into asset prices rather than to price pressure on green assets. Additionally, fund managers adjust their portfolios to cater to investor demand, especially during periods of heightened ESG awareness. Further, funds located in Democratic states and those with higher ESG ratings exhibit a stronger inclination towards ESG integration.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101122"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142699483","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101116
Philipp J. König , Paul Mayer , David Pothier
When will a policy authority (PA) resolve a bank whose solvency is uncertain? Delaying resolution gives the PA time to obtain information about the bank’s solvency. Delaying resolution also gives creditors time to withdraw funds, raising the cost of bailing out depositors. The optimal resolution date trades off these costs with the option value of making a more efficient resolution decision given new information. Providing liquidity support buys the PA time to wait for information, but increases its losses if the bank turns out to be insolvent. The PA may therefore optimally delay the provision of liquidity support.
政策制定机构 (PA) 何时解决偿付能力不确定的银行？推迟决议可使政策当局有时间获取有关银行偿付能力的信息。延迟破产也会给债权人提取资金的时间，从而增加救助储户的成本。最佳的破产清算日期是将这些成本与在获得新信息的情况下做出更有效的破产清算决策的期权价值进行权衡。提供流动性支持可以为 PA 赢得等待信息的时间，但如果银行最终资不抵债，则会增加 PA 的损失。因此，公共权力机构可以推迟提供流动性支持。
{"title":"Optimal timing of policy interventions in troubled banks","authors":"Philipp J. König , Paul Mayer , David Pothier","doi":"10.1016/j.jfi.2024.101116","DOIUrl":"10.1016/j.jfi.2024.101116","url":null,"abstract":"<div><div>When will a policy authority (PA) resolve a bank whose solvency is uncertain? Delaying resolution gives the PA time to obtain information about the bank’s solvency. Delaying resolution also gives creditors time to withdraw funds, raising the cost of bailing out depositors. The optimal resolution date trades off these costs with the option value of making a more efficient resolution decision given new information. Providing liquidity support buys the PA time to wait for information, but increases its losses if the bank turns out to be insolvent. The PA may therefore optimally delay the provision of liquidity support.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101116"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142441354","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101117
Dong Beom Choi , Tanju Yorulmazer
We provide a theoretical framework to analyze the market maker of last resort (MMLR) role of central banks. Central bank announcement to purchase assets in case of distress promotes private agents’ willingness to make markets, which immediately restores liquidity decreasing the need for future intervention. That is, the central bank can reduce the usage of the facility ex post by announcing a large capacity ex ante. This comes with potential fragility due to the possibility of multiple equilibria. Central bank can eliminate the bad equilibrium by announcing a large enough facility. However, fragility resurfaces if market participants doubt central bank’s commitment. Furthermore, permanent access to MMLR may crowd out private liquidity making the intervention ineffective.
{"title":"Whatever it takes? Market maker of last resort and its fragility","authors":"Dong Beom Choi , Tanju Yorulmazer","doi":"10.1016/j.jfi.2024.101117","DOIUrl":"10.1016/j.jfi.2024.101117","url":null,"abstract":"<div><div>We provide a theoretical framework to analyze the market maker of last resort (MMLR) role of central banks. Central bank announcement to purchase assets in case of distress promotes private agents’ willingness to make markets, which immediately restores liquidity decreasing the need for future intervention. That is, the central bank can reduce the usage of the facility ex post by announcing a large capacity ex ante. This comes with potential fragility due to the possibility of multiple equilibria. Central bank can eliminate the bad equilibrium by announcing a large enough facility. However, fragility resurfaces if market participants doubt central bank’s commitment. Furthermore, permanent access to MMLR may crowd out private liquidity making the intervention ineffective.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101117"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142652193","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101115
Junyong Lee , Kyounghun Lee , Frederick Dongchuhl Oh
This study aims to examine whether religion influences branch banking. Using a large sample of U.S. county-level branch banking and religious characteristics data between 1994 and 2018, we find that the local religiosity of the bank headquarters’ region is positively related to the presence of bank branches. By contrast, banks in regions with more Catholics than Protestants are less likely to have branches. Moreover, religious diversity negatively affects branch banking. Overall, our study highlights the significant role of local religions in branch-banking decisions.
{"title":"Religion and branch banking","authors":"Junyong Lee , Kyounghun Lee , Frederick Dongchuhl Oh","doi":"10.1016/j.jfi.2024.101115","DOIUrl":"10.1016/j.jfi.2024.101115","url":null,"abstract":"<div><div>This study aims to examine whether religion influences branch banking. Using a large sample of U.S. county-level branch banking and religious characteristics data between 1994 and 2018, we find that the local religiosity of the bank headquarters’ region is positively related to the presence of bank branches. By contrast, banks in regions with more Catholics than Protestants are less likely to have branches. Moreover, religious diversity negatively affects branch banking. Overall, our study highlights the significant role of local religions in branch-banking decisions.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101115"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142426095","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101118
Kristian Blickle , João A.C. Santos
We make use of rich U.S. data to show that debt overhang significantly reduces firm asset-, capex-, and employee-growth. We show these contractions are likely driven by firm decisions as opposed to the result of credit constraints or changes in investment opportunities. Our measure of overhang – liabilities to cash flow — aligns with traditional theory and focuses on the importance of a firm’s debt servicing capacity. It further allows us to capitalize on the COVID-19 shock as a quasi-natural experiment to confirm the impact of overhang on firm investment and growth.
{"title":"The costs of corporate debt overhang","authors":"Kristian Blickle , João A.C. Santos","doi":"10.1016/j.jfi.2024.101118","DOIUrl":"10.1016/j.jfi.2024.101118","url":null,"abstract":"<div><div>We make use of rich U.S. data to show that debt overhang significantly reduces firm asset-, capex-, and employee-growth. We show these contractions are likely driven by firm decisions as opposed to the result of credit constraints or changes in investment opportunities. Our measure of overhang – liabilities to cash flow — aligns with traditional theory and focuses on the importance of a firm’s debt servicing capacity. It further allows us to capitalize on the COVID-19 shock as a quasi-natural experiment to confirm the impact of overhang on firm investment and growth.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101118"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142572183","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101114
Sonny Biswas , Kostas Koufopoulos , Anjan V. Thakor
We develop a model in which credit ratings are endogenously coarse relative to the underlying default probabilities, and ratings precision is countercyclical. Ratings coarseness arises from the profit-maximizing behavior of rating agencies, and coarseness may maximize welfare even when greater ratings precision is costlessly available. Because the private outcome may differ from the socially desirable outcome, a social planner can improve welfare by putting a ceiling (floor) on the rating agency’s fee if the desired outcome is coarseness (precision). Strikingly, when information production is costless, ratings coarseness is socially optimal, but it does not arise in the laissez-faire equilibrium, thus inviting regulatory intervention.
{"title":"Can information imprecision be valuable? The case of credit ratings","authors":"Sonny Biswas , Kostas Koufopoulos , Anjan V. Thakor","doi":"10.1016/j.jfi.2024.101114","DOIUrl":"10.1016/j.jfi.2024.101114","url":null,"abstract":"<div><div>We develop a model in which credit ratings are endogenously coarse relative to the underlying default probabilities, and ratings precision is countercyclical. Ratings coarseness arises from the profit-maximizing behavior of rating agencies, and coarseness may maximize welfare even when greater ratings precision is costlessly available. Because the private outcome may differ from the socially desirable outcome, a social planner can improve welfare by putting a ceiling (floor) on the rating agency’s fee if the desired outcome is coarseness (precision). Strikingly, when information production is costless, ratings coarseness is socially optimal, but it does not arise in the laissez-faire equilibrium, thus inviting regulatory intervention.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101114"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142426094","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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