Lock‐In Effects in Relationship Lending: Evidence from DIP Loans

Do prior lending relationships result in pass‐through savings (lower interest rates) for borrowers, or do they lock in higher costs for borrowers? Theoretical models suggest that when borrowers experience greater information asymmetry, higher switching costs, and limited access to capital markets, they become locked into higher costs from their existing lenders. Firms in Chapter 11 seeking debtor‐in‐possession (DIP) financing often fit this profile. We investigate the presence of lock‐in effects using a sample of 348 DIP loans. We account for endogeneity using the instrument variable (IV) approach and the Heckman selection model and find consistent evidence that prior lending relationship is associated with higher interest costs and the effect is more severe for stronger existing relationships. Our study provides direct evidence that prior lending relationships do create a lock‐in effect under certain circumstances, such as DIP financing.     

Switching costs and financial stability

We establish that the effect of intensified deposit market competition, measured by reduced switching costs, on the probability of bank failures depends critically on whether we focus on competition with established customer relationships or competition for the formation of such relationships. With inherited customer relationships, intensified competition due to lower switching costs destabilizes the banking market, whereas it stabilizes the market if we focus on competition for the formation of customer relationships. We characterize the factors important for evaluating the effects of intensified competition on stability in a market with unattached as well as locked-in depositors.     

Do foreign exchange forecasters apply asymmetric loss functions? Evidence from three major exchange rates

This article investigates which type of loss function is consistent with the hypothesis that major exchange rate forecasts, i.e. the euro, the British pound, and the Japanese yen vis-à-vis the US dollar, are rational. We apply a comprehensive data set, which also allows us to examine different forecast horizons and heterogeneity of forecasters.     

Commemorating the 50‐Year Anniversary of Ball and Brown (1968): The Evolution of Capital Market Research over the Past 50 Years

We commemorate the 50th anniversary of Ball and Brown [1968] by chronicling its impact on capital market research in accounting. We trace the evolution of various research paths that post–Ball and Brown [1968] researchers took as they sought to build on the foundation laid by Ball and Brown [1968] to create a body of research on the usefulness, timeliness, and other properties of accounting numbers. We discuss how those paths often link back to the groundwork laid and questions originally posed in Ball and Brown [1968].     

Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions

We study the welfare costs of business cycles in a search and matching model with financial frictions. The model replicates the volatility on labor and financial markets. Business cycle costs are sizable. Indeed, the interactions between labor market and financial frictions magnify the impact of shocks via (i) a credit multiplier effect and (ii) an endogenous wage rigidity inherent to financial frictions. In addition, in a nonlinear framework, large welfare costs of fluctuations are explained by the high average unemployment and the low job finding rates with respect to their deterministic steady‐state values.     

Rise of the gold market in China: liberalisation and market development

The Chinese gold market is rapidly rising to global prominence in the recent decades. The paper reviews the history of the gold market in China and its liberalisation process amid the country’s opening to the outside world. Details of the current market structure and its main business are presented. Global impacts of the rise of the Chinese gold market are discussed.     

Effect of personality traits on smallholders’ land renting behavior: Theory and evidence from the North China Plain

This study investigates the effect of smallholders’ personality traits on their land rental market decisions. We develop a conceptual framework and show that these internal factors could affect smallholders’ land rental market participation beyond institutional and socio-demographic factors. Our empirical analysis is based on a survey of 2119 rural households collected in the North China Plain. We find that smallholders with a higher level of openness are more active in participating in the farmland rental market. Moreover, internal locus of control plays a significant role in explaining smallholders’ land renting behavior. We further show that need for achievement mediates the link between internal locus of control and smallholder’s intention to rent land, indicating that fostering a higher level of internal locus of control—and subsequently achievement desire—could play an important role in promoting smallholders’ land-renting behavior. More generally, our results imply that taking rural smallholders’ personality traits into account in designing land rental policies may increase the effectiveness of policies aimed at promoting land rental market participation among smallholders and incubating crop farm scale enlargement in rural China.     

Understanding expert practices in order to control expert activities: The case of trading

Experts are important actors of organizational control. Nevertheless, experience suggests that they must be controlled as well. This is particularly the case for traders in financial institutions. We first identify the limits of traditional control patterns when the managing the activities of experts is at stake. Hyperspecialization, which is the ability to act within different logics and multiple time horizons, suggests that multidimensional representations of these activities be adopted and made explicit, which has the potential to prevent such activities from turning problematic. By examining bank risks and conducting additional interviews with actors from bank trading services, we recommend that multiple components of complexity be preserved when dealing with expert‐related operational risks, instead of reducing this complexity to a single concept. Such an approach implies to turn back expertise against itself. Copyright © 2017 ASAC. Published by John Wiley & Sons, Ltd.     

Capital market integration in ASEAN: A non-stationary panel data analysis

Motivated by the establishment of ASEAN Economic Community (AEC) at the end of 2015, we examine saving-investment relationship in various subgroups of ASEAN to assess their capital market integration. The results from second generation panel unit-root and cointegration tests that account for cross-sectional dependence as well as estimates of long-run saving-retention rate provide some evidence of market integration in ASEAN. The analysis of short-run dynamics suggests that capital mobility in ASEAN during 1980–2014 appears similar to that in OECD countries during 1970–1999. More importantly, across different panel estimators and subgroups of membership, there is considerable heterogeneity among the member countries. The saving-investment association is very weak, thereby implying very high capital mobility, in more developed members such as Singapore, Malaysia, and Brunei; the association is very strong, implying very low capital mobility, for much less developed members such as Laos, Myanmar, and Cambodia. The results call for renewed effort to develop capital markets in less developed nations and integrate them with the rest of the membership in ASEAN. In this paper, we also address several major shortcomings of the original Feldstein-Horioka framework.     

Stochastic Frontier Estimation of Market Power in the Food Industries

We use a modified version of the stochastic frontier model to estimate oligopoly markups above the perfectly competitive frontier, separating out deterministic markups from purely stochastic markups. Using data from 42 US food processing industries between 1990 and 2010, empirical results indicate a widespread incidence of oligopoly power, with Lerner indexes averaging approximately 21%. Further, the estimated markups increase with industrial concentration but decrease with price elasticities and imports. Finally, the estimated Lerner indexes are in the range of previous food industry estimates using New Empirical Industrial Organization (NEIO) models.