Profit Sharing,Credit Market Imperfections and Equilibrium Unemployment*

We investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing. In a partial equilibrium with exogenous outside options, increased bargaining power of banks has adverse employment effects. In a general equilibrium with endogenous outside options, this relationship is frequently reversed; reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections—measured by the bargaining power of trade unions—are sufficiently strong and the benefit–replacement ratio is sufficiently high. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.     

Is the use of bank debt as a governance mechanism conditioned by the financial system? The cases of Chile and Spain

We test whether the use of bank debt as a governance mechanism is conditioned by the financial system in which firms operate. Our results indicate that the legal and institutional environment determines the use of bank debt to finance growth opportunities. Firms use bank debt to finance their growth opportunities when the country's banking system contributes to solving agency and asymmetric information problems and avoiding information monopoly costs. The evolutionary process of the financial systems in each country means that market imperfections such as information asymmetry or agency costs can have a diverse influence on firms’ bank debt decisions.     

Debt Concentration and Bargaining Power: Large Banks,Small Banks,and Secondary Market Prices

Commerical bank debts of developing countries are held by large international banks and smaller domestic banks. This paper investigates how debt concentration—the proportion of a country's debt held by large banks relative to small banks—affects the secondary market price for these loans. We find that countries with higher concentrations have higher secondary-market prices. We explain this empirical finding in a bargaining model that endogenizes the maximum penalty that banks can credibly impose on a recalcitrant debtor. We show that the banks' bargaining power increases with the degree of debt concentration, thus increasing repayment and secondary-market prices.     

Trade credit use and competition in the value chain

Trade credit is a major source of finance in value chains in developed and emerging economies. Despite its ubiquitous use, this is one of the first empirical studies that analyzes why the use of trade credit varies along the value chain. We argue that competition faced by firms at different stages in the value chain and enforcement mechanisms that stimulate repayment jointly determine the use of trade credit. We distinguish two dimensions of competition, that is, rivalry and customer bargaining power. Competition may stimulate firms to provide trade credit to keep customers from switching to other suppliers. Yet, high contract enforcement costs relative to the value of the transactions, reduce the willingness to offer trade credit. We find empirical evidence showing that competition does not (strongly) influence the use of trade credit in the retail market, whereas it does in the markets for wholesalers and millers. We interpret these results as suggestive evidence that the retail, wholesale and milling market segments differ in terms of the enforcement costs involved in the provision of trade credit. Rivalry at the retail market segment makes switching easy for customers, even in case of default. As enforcement of repayment in this market segment is difficult and costly, trade credit appears to be a risky and less attractive marketing instrument for retailers. In contrast, in the wholesale and milling market segment, trade credit is widespread as stakeholders know each other, making informal mechanisms effective in supporting the enforcement of trade credit repayment.     

Incomplete interest rate pass-through under credit and labor market frictions

By introducing search and matching frictions in both the labor and the credit markets into a cash in advance New Keynesian DSGE model, we provide a novel explanation of the incomplete pass-through from policy rates to loan rates. We show that this phenomenon is ineradicable if banks possess some power in the bargaining over the loan rate of interest, if the cost of posting job vacancies is positive and if firms and banks sustain costs when searching for lines of credit and when posting credit vacancies, respectively. We also show that the presence of credit market frictions moderates the reactions of employment and wages to a monetary shock. Finally, we confirm the finding that pass-through incompleteness has limited short-term impacts on the transmission of monetary policy shocks to output and inflation.     

An endogenous structural credit risk model incorporating with moral hazard and rollover risk

In this paper, we embed optimal contracting between the manager and equity holders into Leland-Toft endogenous structural credit risk model to study the impact of moral hazard on the firm's credit risk with rollover debts. Our model quantitatively shows that the agency costs induced by the moral hazard can endogenously have significant impacts on credit spreads, besides the costs of rolling over the maturing debts of the firm. It originates from the conflicts that these two costs should be covered by equity holders while both the manager and maturing debt holders are still paid in full. The numerical results show that the credit spread with the agency costs of moral hazard is larger than the one without the agency costs. Thus, the moral hazard could be used to explain “credit spread puzzle” as an endogenous factor. The explicit formulae of the equity value, the debt value, and the endogenous default boundary are also given.     

Bad loans,soft budget constraints and the political economy of financial market reform in transition economies

Financial market imperfections and especially the bad debt problem are among the most important factors impeding economic restructuring in transition economies. This paper analyses the implications of non-performing loans for the lending policy of banks and for the ensuing allocation of credit. It is shown that a lending bias exists in favour of old debtors, which not only impedes structural change but may also counteract policies intended to harden budget constraints and to promote restructuring. The paper also discusses from a political economy perspective, why despite these negative implications financial market reforms were not pursued more forcefully in most countries.     

A Theory of Credit Ceilings in a Model of Debt and Renegotiation

A model is considered in which an entrepreneur uses debt to finance a risky investment project. He may in certain circumstances credibly threaten default on the loan, which is then renegotiated. However, lenders will never lend so much that default is credibly threatened in all states. There exists a 'credit ceiling' which, if binding, implies underinvestment. The paper discusses the determinants of the credit ceiling and derives some comparative statics results. For example, it is shown that the credit ceiling is raised by a mean-preserving spread of the firm's revenues. Also, a borrower may benefit from a reduction in his bargaining power.     

KEIRETSU SHAREHOLDING TIES: ANTITRUST ISSUES

Antitrust concern about keiretsu shareholding ties is misplaced and at odds with economic reasoning and with empirical investigation. Holding stock in a trading partner slants the bargaining over product market variables in favor of the trading partner. Divesting such a stock interest accomplishes the reverse. The firm holding shares in a trading partner can credibly threaten to divest should the trading partner behave opportunistically. Divesting withdraws the bargaining advantage that the equity position had conferred. Therefore, a firm may establish a partial equity position in a trading partner to deter opportunism. Additionally, Japanese banks' shareholding in the companies to which they lend resolves agency problems and lowers borrowing costs. Organizing firms into cross-shareholding groups magnifies these favorable effects by assuring that direct shareholding by banks gives rise to indirect shareholding as well. Keiretsu shareholding ties impede U.S. exports to Japan because they lower the keiretsu members' costs of transacting with one another and not because they raise rivals' costs .     

Deregulation, market power and risk behaviour in Spanish banks

This paper provides empirical evidence on the effects of regulatory changes in the market power of Spanish banks. It also analyses the response of banks, in terms of risk-taking behaviour, as a result of a reduction in economic profits. We find that liberalisation measures have increased competition and eroded banks’ market power. We observe that banks with lower charter values tend to have lower equity-assets ratios (lower solvency) and to experience higher credit risk. The last evidence is new in the literature and calls for strengthening regulatory concerns about credit risk management by banks in situations of increased competition.     

The effect of lender and loan type on a borrowing firm’s equity return

Past empirical studies appear to support the idea that banks and finance companies do not differ in their ability to resolve adverse selection problems associated with issuing new debt. In this article, we find there is a difference. More specifically, using an event study we find larger abnormal returns for secured loan disclosures to lower quality borrowers when the lender is a finance company versus a bank. This suggests the market views finance companies as more effective than banks in evaluating/monitoring lower quality borrowers obtaining secured loans. We posit this is due to finance companies’ greater expertise in this type of lending, resulting from specialization. Our findings extend the literature on how lender identity can influence signals about firm value from loan disclosures. Our results also support recent findings that positive abnormal returns to borrowing firms may not be a general feature across the loan population, but may be restricted to smaller, lower quality borrowers. Finally, we are the first to provide evidence that the market takes loan type into account, not just lender and borrower type, when considering the information embedded in loan disclosures.     

中国银行体系关系型信贷的有效性——基于宣告效应的研究

在不对称信息下,关系型银行可以利用信息优势参与借款企业治理,降低代理成本.文章实证分析了1996-2008年中国上市公司发布获得银行信贷公告后的市场反应,发现上市公司发布获得银行授信和债务重组公告引起股价显著上涨,表明中国银行体系自1996年以来有意识地建立长期稳定的银企合作关系的政策具有治理效应.文章还发现,信息不对称程度越高、公司治理越差的公司,治理效应越显著.这种效应主要体现在贷前甄别企业质量和贷后救助方面,而在贷中监督企业机会主义行为,降低代理成本方面则没有体现.     

Financial Liberalization,Multinational Banks and Credit Supply: The case of Poland

Part of the Polish transformation process has been an opening of the domestic financial market to foreign entrants. While the number of multinational banks (MNBs) has risen from zero to 15 within six years, the ratio of bank credit to private and public enterprises relative to GDP decreased continuously after 1991. In this paper, I develop an argument as to why these two trends may be connected. Further, using monthly data provided by the weekly Polish publication Gazeta Bankowa, the National Bank of Poland, the Central Statistical Office, the BIS and the IMF, I test the hypothesis that more MNB entry may lead to a declining credit supply during the early stages of the transition process. Multivariate regression results indicate that more MNB entry results in a lower credit supply by Polish banks during the early transition phase. This result holds regardless of the measurement of international financial competition, and regardless of a bank's history, and it is only partially affected by a bank's location. More importantly, the overall impact of increased international financial competition on the credit supply of Polish banks is strong enough to lower the total credit supply in the Polish economy. Since an earlier study has found that Polish industries operate under hard budget constraints and are finance constrained during the early stages of the transition process, a reduction in the credit supply has adverse effects on business investments (Cornelli et al., 1996;Weller, 1999).     

Credit market imperfections and persistent unemployment

This paper develops the thesis that credit market frictions may be an important contributor to high unemployment in Europe. When a change in the technological regime necessitates the creation of new firms, this can happen relatively rapidly in the U.S. where credit markets function efficiently. In contrast, in Europe, job creation is constrained by credit market imperfections, so unemployment rises and remains high for an extended period. The data show that there has not been slower growth in the most credit dependent industries in Europe relative to the U.S., but the share of employment in these industries is lower than in the U.S. This suggests that although credit market imperfections are unlikely to have been the major cause of the increase in European unemployment, they may have played some role in limiting European employment growth.     

Investment and financial constraints in Hungarian agriculture

We investigate credit market imperfections in Hungarian agriculture. Farmers with low debts and using mainly rented land are liquidity constrained. We find also evidence for the presence of soft budget constraint for high debt and corporate farms.     

R&D investment and internal finance: the cash flow effect

This paper investigates the cash flow effect on R&D investments for firms in Denmark. Evidence is found that internal funds are important in explaining R&D investments, indicating that R&D investment decisions are affected by credit market imperfections. Cash flow sensitivities are larger both for smaller firms and for firms with low debt relative to assets. Furthermore, this effect is also present after controlling for cash flow’s potential role as a predictor of future profitability.     

Wage bargaining and turnover costs with heterogenous labor and perfect history screening

We study effects of mobility costs in a model of (Nash) wage bargaining between workers and firms, with instantaneous matching, heterogeneous workers, identical firms and free firm entry, and where firms can screen workers perfectly according to their previous work history but not their actual productivity. We derive the employment level and the minimum worker quality standard, in the market solution, and in the efficient solution established by a social planner. When workers have positive bargaining power, there is always some inefficient unemployment among desired workers in the market solution. The lowest hiring standard chosen by firms is higher than the planner's standard when firing costs are high relative to hiring costs, but may be lower in the opposite case. We show that any higher established hiring standard corresponds to a market equilibrium. The model explains a tendency for a high initial unemployment rate to remain high, particularly for low-skilled workers.     

数字金融发展能否在农村金融市场发挥“鲶鱼效应”*——来自中国农信机构的证据

本文从农信机构贷款支农的角度出发，探究数字金融能够在多大程度上促进市场竞争，进而在农村金融市场发挥“鲶鱼效应”。理论部分基于市场势力假说，分析了数字金融发展对农信机构放贷行为的影响；实证部分将北京大学数字普惠金融的县级指数与县域农村信用社、农村商业银行的贷款数据相结合，对理论假说进行了检验。结论如下：第一，数字金融发展能够激励当地农信机构提升涉农贷款和农户贷款的投放规模和增长速度，表明数字金融在农村金融市场上发挥了“鲶鱼效应”。第二，数字金融发展对农信机构支农力度的正向影响主要来源于竞争激励机制，而现阶段数字金融难以在技术上对农信机构起到示范作用。第三，进一步讨论发现，数字金融发展还有助于降低农信机构的贷款利率，让更多的涉农主体享受到利率更低的信贷服务，真正推动农村正规金融服务的“普”和“惠”共同实现。     

A post‐Keynesian model of output,employment and monetary demand

This paper presents a simple model based on three broad Post‐Keynesian hypotheses: (1) the economic process develops over time; (2) money is endogenous; and (3) producers are price setters. To make the analysis easier we also assume (4) that firms are vertically integrated. Producers assess the expected demand and ask banks for credit in order to start production; banks create credit at the request of producers to finance the wage bill; workers buy goods sold by firms; firms must repay banks the amount borrowed plus interest and earn a target rate of profit. Since firms have created only as much purchasing power as they have advanced to workers in the form of the wage fund, equilibrium requires that there is an amount of autonomous monetary demand equal to profits and interest. Furthermore, in order to make the value of supply equal to the value of effective demand, firms will employ the number of workers necessary to create the purchasing power which, when added to the anticipated autonomous demand, enables all costs to be covered and the planned rate of profits to be attained.     

市场规模结构、竞争程度与小微 企业关系型贷款*

本文研究了银行业竞争度与小微企业关系型贷款之间的关系，以及市场规模结构对该关系的影响。信息假说认为，由于信息不对称和代理问题，垄断增加了银行内部化关系型贷款的收益，关系型贷款与竞争度之间呈负相关。然而，越来越多的研究对信息假说提出了质疑。本文在数理推导的基础上，采用江苏省县域地区352家小微企业2011-2015年非平衡面板数据，运用Fractional Logit模型进行实证分析。研究结果表明：市场规模结构是决定竞争度与关系型贷款之间关系的重要因素，当信贷市场中大银行的市场份额占比较大时，银行竞争的加剧对关系型贷款是不利的；当市场中小银行的市场份额占比较大时，竞争的加剧有利于关系型贷款的发放。以往研究对于市场规模结构的忽视可能是导致不同研究结论存在巨大差异的重要原因。本文在此基础上，提出了完善金融基础设施等相关政策建议。