scholarly journals Strategic Liquidity Mismatch and Financial Sector Stability

2019 ◽  
Vol 32 (12) ◽  
pp. 4696-4733 ◽  
Author(s):  
André F Silva
Keyword(s):  
Default Risk ◽  
Financial Stability ◽  
Strategic Behavior ◽  
Oxford University ◽  
Collective Decisions ◽  
Editorial Decision ◽  
Transformation Activity ◽  
The Impact ◽  
Published Paper ◽  
Identification Strategy

Abstract This paper examines whether banks strategically incorporate their competitors’ liquidity mismatch policies when determining their own and the impact of these collective decisions on financial stability. Using a novel identification strategy exploiting the presence of partially overlapping peer groups, I show that banks’ liquidity transformation activity is driven by that of their peers. These correlated decisions are concentrated on the asset side of riskier banks and are asymmetric, with mimicking occurring only when competitors take more risk. Accordingly, this strategic behavior increases banks’ default risk and overall systemic risk, highlighting the importance of regulating liquidity risk from a macroprudential perspective. ReceivedMay 4, 2016; editorial decision January 1, 2019 by Editor Philip Strahan. Author has furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals The Effects of Losing a Business Group Affiliation

2018 ◽  
Vol 32 (8) ◽  
pp. 3036-3074 ◽  
Author(s):  
Borja Larrain ◽  
Giorgo Sertsios ◽  
Francisco Urzúa I
Keyword(s):  
Business Group ◽  
The Other ◽  
Group Affiliation ◽  
Oxford University ◽  
Capital Misallocation ◽  
Editorial Decision ◽  
Business Group Affiliation ◽  
Industry Peers ◽  
Published Paper ◽  
Identification Strategy

Abstract We propose a novel identification strategy for estimating the effects of business group affiliation. We study two-firm business groups, some of which split up during the sample period, leaving some firms as stand-alone firms. We instrument for stand-alone status using shocks to the industry of the other group firm. We find that firms that become stand-alone reduce leverage and investment. Consistent with collateral cross-pledging, the effects are more pronounced when the other firm had high tangibility. Consistent with capital misallocation in groups, the reduction in leverage is stronger in firms that had low (high) profitability (leverage) relative to industry peers. Received July 3, 2017; editorial decision April 7, 2018 by Editor Wei Jiang. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Auto Credit and the 2005 Bankruptcy Reform: The Impact of Eliminating Cramdowns

2019 ◽  
Vol 32 (12) ◽  
pp. 4734-4766 ◽  
Author(s):  
Rajashri Chakrabarti ◽  
Nathaniel Pattison
Keyword(s):  
Interest Rates ◽  
Strong Evidence ◽  
Web Site ◽  
Causal Effect ◽  
Oxford University ◽  
Editorial Decision ◽  
Historical Variation ◽  
The Impact ◽  
Published Paper ◽  
Rule Out

Abstract Auto lenders were perhaps the biggest winners of the 2005 Bankruptcy Reform, as Chapter 13 bankruptcy filers can no longer “cramdown” the amount owed on recent auto loans. We estimate the causal effect of this anticramdown provision on the price and quantity of auto credit. Exploiting historical variation in states’ usage of Chapter 13 bankruptcy, we find strong evidence that eliminating cramdowns decreased interest rates and some evidence that loan sizes increased among subprime borrowers. The decline in interest rates is persistent and is robust to a battery of sensitivity checks. We rule out other reform changes as possible causes. Received September 29, 2016; editorial decision January 15, 2019 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Bank Capital, Borrower Power, and Loan Rates

2019 ◽  
Vol 32 (11) ◽  
pp. 4501-4541 ◽  
Author(s):  
João A C Santos ◽  
Andrew Winton
Keyword(s):  
Cash Flow ◽  
Default Risk ◽  
Bargaining Power ◽  
Negative Impact ◽  
Bank Capital ◽  
Oxford University ◽  
Equity Risk ◽  
Editorial Decision ◽  
Loan Spreads ◽  
Published Paper

Abstract We examine how bank capital and borrower bargaining power affect loan spreads. Consistent with previous studies, higher bank capital has a negative impact on loan rates, but borrower cash flow has a significant effect on this impact: compared with high-capital banks, low-capital banks charge more for borrowers with low cash flow, but offer greater marginal discounts as these borrowers’ cash flow rises. These effects are largely focused on more bank-dependent borrowers. We find some evidence that low-capital banks charge a higher premium for bank-dependent borrowers’ systematic risk, but not for their total equity risk or default risk. Received January 27, 2015; editorial decision July 7, 2018 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals First to “Read” the News: News Analytics and Algorithmic Trading

2019 ◽  
Vol 10 (1) ◽  
pp. 122-178 ◽  
Author(s):  
Bastian von Beschwitz ◽  
Donald B Keim ◽  
Massimo Massa
Keyword(s):  
Stock Price ◽  
Trading Volume ◽  
Press Releases ◽  
Oxford University ◽  
Volume Response ◽  
Speed Up ◽  
Editorial Decision ◽  
Price Distortions ◽  
Published Paper ◽  
Identification Strategy

Abstract Exploiting a unique identification strategy based on inaccurate news analytics, we document an effect of news analytics on the market independent of the informational content of the news. We show that news analytics speed up the stock price and trading volume response to articles, but reduce liquidity. Inaccurate news analytics lead to small price distortions that are corrected quickly. The market impact of news analytics is greatest for press releases, as news analytics exhibit a particular skill in “seeing through” the positive spin of press releases. Furthermore, we provide evidence that high-frequency traders rely on the information from news analytics for directional trading on company-specific news. Received: May 17, 2018; Editorial decision: June 14, 2019 by Editor: Thierry Foucault. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

The Economic Impact of Index Investing

2018 ◽  
Vol 32 (9) ◽  
pp. 3461-3499 ◽  
Author(s):  
Jonathan Brogaard ◽  
Matthew C Ringgenberg ◽  
David Sovich
Keyword(s):  
Commodity Markets ◽  
Negative Externality ◽  
Feedback Channel ◽  
Production Decisions ◽  
Market Participants ◽  
Oxford University ◽  
Editorial Decision ◽  
The Impact ◽  
Published Paper ◽  
Index Investing

Abstract We study the impact of index investing on firm performance by examining the link between commodity indices and firms that use index commodities. Around 2004, commodity index investing dramatically increased. This event is referred to as the financialization of commodity markets. Following financialization, firms that use index commodities make worse production decisions, earn 40% lower profits, and have 6% higher costs. Consistent with a feedback channel in which market participants learn from prices, our results suggest that index investing distorts the price signal, thereby generating a negative externality that impedes firms’ ability to make production decisions. Received March 31, 2017; editorial decision July 5, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

The Unexpected Activeness of Passive Investors: A Worldwide Analysis of ETFs

2018 ◽  
Vol 9 (2) ◽  
pp. 296-355 ◽  
Author(s):  
Si Cheng ◽  
Massimo Massa ◽  
Hong Zhang
Keyword(s):  
Consumer Protection ◽  
Financial Stability ◽  
Low Cost ◽  
Stock Selection ◽  
Cost Index ◽  
Additional Risk ◽  
Oxford University ◽  
Editorial Decision ◽  
Passive Investors ◽  
Published Paper

Abstract The global ETF industry provides more complicated investment vehicles than low-cost index trackers. Instead, we find that the real investments of ETFs may deviate from their benchmarks to leverage informational advantages (which leads to a surprising stock-selection ability) and to help affiliated OEFs through cross-trading. These effects are more prevalent in ETFs domiciled in Europe. Moreover, ETF flows seem to respond to additional risk. These results have important normative implications for consumer protection and financial stability. Received March 18, 2017; Editorial decision October 14, 2018 by Editor Raman Uppal. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Life below Zero: Bank Lending under Negative Policy Rates

2019 ◽  
Vol 32 (10) ◽  
pp. 3728-3761 ◽  
Author(s):  
Florian Heider ◽  
Farzad Saidi ◽  
Glenn Schepens
Keyword(s):  
Risk Taking ◽  
Financial Stability ◽  
Bank Lending ◽  
Bank Credit ◽  
Net Worth ◽  
Oxford University ◽  
European Central ◽  
Editorial Decision ◽  
Funding Cost ◽  
Published Paper

AbstractWe show that negative policy rates affect the supply of bank credit in a novel way. Banks are reluctant to pass on negative rates to depositors, which increases the funding cost of high-deposit banks, and reduces their net worth, relative to low-deposit banks. As a consequence, the introduction of negative policy rates by the European Central Bank in mid-2014 leads to more risk-taking and less lending by euro-area banks with a greater reliance on deposit funding. Our results suggest that negative rates are less accommodative and could pose a risk to financial stability, if lending is done by high-deposit banks.Received April 17, 2018; editorial decision September 18, 2018 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Multinational Banks and Supranational Supervision

2018 ◽  
Vol 32 (8) ◽  
pp. 2997-3035 ◽  
Author(s):  
Giacomo Calzolari ◽  
Jean-Edouard Colliard ◽  
Gyongyi Lóránth
Keyword(s):  
Organizational Structure ◽  
Organizational Structures ◽  
Unintended Consequences ◽  
Coordination Failures ◽  
The Public ◽  
Oxford University ◽  
Multinational Banks ◽  
Editorial Decision ◽  
Public Costs ◽  
Published Paper

Abstract Supervision of multinational banks (MNBs) by national supervisors suffers from coordination failures. We show that supranational supervision solves this problem and decreases the public costs of an MNB’s failure, taking its organizational structure as given. However, the MNB strategically adjusts its structure to supranational supervision. It converts its subsidiary into a branch (or vice versa) to reduce supervisory monitoring. We identify the cases in which this endogenous reaction leads to unintended consequences, such as higher public costs and lower welfare. Current reforms should consider that MNBs adapt their organizational structures to changes in supervision. Received January 9, 2017; editorial decision September 15, 2018 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Destructive Creation at Work: How Financial Distress Spurs Entrepreneurship

2019 ◽  
Vol 33 (9) ◽  
pp. 4061-4101 ◽  
Author(s):  
Tania Babina
Keyword(s):  
Economic Activity ◽  
Financial Distress ◽  
Web Site ◽  
High Tech ◽  
High Wage ◽  
New Firms ◽  
Oxford University ◽  
Service Sectors ◽  
The Impact ◽  
Published Paper

Abstract Using U.S. Census firm-worker data, I document that firms’ financial distress has an economically important effect on employee departures to entrepreneurship. The impact is amplified in the high-tech and service sectors, where employees are key assets. In states with enforceable noncompete contracts, the effect is mitigated. Compared to typical entrepreneurs, distress-driven entrepreneurs are high-wage workers who found better firms, as measured by jobs, pay, and survival. Startup jobs compensate for 33% of job losses at the constrained incumbents. Overall, the financial inability of incumbent firms to pursue productive opportunities increases the reallocation of economic activity into new firms. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Noncognitive Abilities and Financial Distress: Evidence from a Representative Household Panel

2019 ◽  
Vol 32 (10) ◽  
pp. 3884-3919 ◽  
Author(s):  
Gianpaolo Parise ◽  
Kim Peijnenburg
Keyword(s):  
Financial Distress ◽  
Web Site ◽  
Income Shocks ◽  
Oxford University ◽  
Editorial Decision ◽  
Differential Exposure ◽  
Published Paper ◽  
Oxford University Press ◽  
Low Ability

AbstractThis paper provides evidence of how noncognitive abilities affect financial distress. In a representative panel of households, we find that people in the bottom quintile of noncognitive abilities are 10 times more likely to experience financial distress than those in the top quintile. We provide evidence that this relation largely arises from worse financial choices and lack of financial insight by low-ability individuals and reflects differential exposure to income shocks only to a lesser degree. We mitigate endogeneity concerns using an IV approach and an extensive set of controls. Implications for policy and finance research are discussed.Received September 24, 2017; editorial decision September 26, 2018 by Editor Stijn Van Nieuwerburgh. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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