Economic Consequences of Transparency Regulation: Evidence from Bank Mortgage Lending

We examine the economic consequences of a rule designed to improve consumers' understanding of mortgage information. The 2015 TILA-RESPA Integrated Disclosures rule (TRID) simplifies the mortgage disclosures provided to consumers. As a consequence, TRID-affected mortgages become a less attractive investment opportunity to banks. Our main results document that mortgage applications affected by TRID are less likely to be approved following the rule's effective date. We find evidence consistent with both a decrease in consumers' information processing costs and an increase in banks' secondary market frictions, providing insight into the potential channels through which this reduction in mortgage credit operates. We also find that banks partially compensate for reduced mortgage lending by increasing small business lending, and that fintechs absorb mortgage demand in areas with reduced mortgage lending by banks. Our study documents real actions that firms take in response to disclosure transparency regulation and contributes to the literature on the economic consequences of such regulation.     

Bank Funding,Securitization, and Loan Terms: Evidence from Foreign Currency Lending

We examine how bank funding structure and securitization activities affect the currency denomination of business loans. We analyze a unique data set that includes information on the requested and granted loan currency for 99,490 loans granted to 57,464 firms by a Bulgarian bank. Our findings document that foreign currency lending is at least partially driven by bank eagerness to match the currency structure of assets with that of liabilities. Our results also show that loan currency, as well as loan amount and maturity, are adjusted to make loans eligible for securitization.     

货币政策信贷渠道的经济区域效应研究——基于我国31个省际面板数据的经验证据

本文以2005年1月—2010年12月我国31个省份的月度数据为研究样本,运用面板向量自回归模型(Panel-VAR)对我国货币政策信贷渠道的传导效果进行了实证检验,研究结果表明:我国货币政策信贷渠道的传导效果存在明显的区域差异,对于经济发达地区来说,信贷投放在促进经济高速增长的同时,并不会带来显著的通货膨胀压力;而对于经济较发达地区和落后地区而言,信贷的投放并未有力推动经济的增长,反而会带来较为明显的通货膨胀压力。     

What Makes Firms Dissatisfied with Their Bank Loans: New Evidence from Survey Data

Journal of Financial Services Research - We use loan-by-loan association between non-financial firms and their banks to disentangle the effects of financial weakness of borrowers and lenders on the...     

银行业竞争、融资约束与企业创新——中国工业企业的经验证据

本文将1998-2007年中国工业企业数据、专利申请数据与银监会公布的金融许可证数据相匹配,考察银行业竞争影响企业创新的内在机制。结果发现,竞争的加剧通过缓解企业面临的融资约束,从而提升其创新能力。在弱化内生性问题和一系列稳健性检验后,上述结果仍然稳健。进一步研究发现,外部融资依赖度较高的企业,中小、民营企业,以及位于市场化水平高和法治环境好的地区的企业,银行业竞争通过缓解融资约束促进其创新的效应更加明显。此外,本文还发现股份制银行和城商行的竞争能更好地推动企业创新。因此,建立健全多层次、多元化的金融体系,能有效缓解企业创新的融资困境,激发创新活力。     

Internal Capital Markets, Bank Borrowing, and Financing Constraints: Evidence from Belgian Firms

In Belgium, financial and industrial groupings play a crucial role in the accumulation and allocation of capital in the economy. In this paper, it is hypothesized that Belgian firms for which investment is partly financed on an internal capital market, will not be subject to financing constraints to the same extent as firms which have to borrow from banks. Moreover, it is hypothesized that firms belonging to a group, transfer internal surpluses of funds to other group members by investing in financial assets. An empirical analysis confirms the first hypothesis, but rejects the second hypothesis.     

The Impact of Incentives and Communication Costs on Information Production and Use: Evidence from Bank Lending

In 2002 and 2003, many Chinese banks implemented reforms that delegated authority to individual loan officers. The change followed China's entrance into the WTO and offers a plausibly exogenous shock to loan officer incentives to produce information. We find that the bank's internal risk rating becomes a stronger predictor of loan interest rates and ex post outcomes after reform. When the loan officer and the branch president who approves the loan work together longer, the rating also becomes more strongly related to loan prices and outcomes. Our results highlight how incentives and communication costs affect information production and use.     

Information from Relationship Lending: Evidence from Loan Defaults in China

Using a proprietary database from a large Chinese state‐owned bank, we examine whether information evolved from banking relationships predicts commercial loan default by industrial firms. We find that the bank's relationship information is significantly linked to the incidence of default, and that its contribution to prediction accuracy is larger than any hard information. Furthermore, the effect of relationship information is stronger among firms that have a more sustained banking relationship. Our findings indicate that, at least in the emerging markets, a bank's relationship information still matters for large firms, despite the fact that hard information for such firms is abundant.     

Capital Requirements,Monetary Policy,and Aggregate Bank Lending: Theory and Empirical Evidence

Capital requirements linked solely to credit risk are shown to increase equilibrium credit rationing and lower aggregate lending. The model predicts that the bank's decision to lend will cause an abnormal runup in the borrower's stock price and that this reaction will be greater the more capital-constrained the bank. I provide empirical support for this prediction. The model explains the recent inability of the Federal Reserve to stimulate bank lending by increasing the money supply. I show that increasing the money supply can either raise or lower lending when capital requirements are linked only to credit risk.     

Disclosure Practices by Family Firms: Evidence from Swedish Publicly Listed Firms

Abstract

I investigate the effect of family ownership on firms’ disclosure practices in their annual reports. In specific, I study Swedish publicly listed firms, which are typically characterized by controlling owners that have a strong influence in the corporate governance decisions of the firm, including corporate disclosures. To measure disclosure, I construct a comprehensive disclosure index covering information on (1) corporate governance, (2) strategic and financial targets and (3) notes to the financial statements. The results reveal that overall, family firms provide less disclosure in annual reports than non-family firms do. The finding is consistent with the premise that through their management positions, family owners can directly monitor managers and avoid costly public disclosures. Overall, the results suggest that ownership structure of firms is important to consider in understanding firms’ disclosure incentives, particularly in settings where controlling owners play a significant role in the governance of the firm.     

Bank Capital and Lending Relationships

This paper investigates the mechanisms behind the matching of banks and firms in the loan market and the implications of this matching for lending relationships, bank capital, and credit provision. I find that bank‐dependent firms borrow from well‐capitalized banks, while firms with access to the bond market borrow from banks with less capital. This matching of bank‐dependent firms with stable banks smooths cyclicality in aggregate credit provision and mitigates the effects of bank shocks on the real economy.     

Unshrouding: Evidence from Bank Overdrafts in Turkey

Lower prices produce higher demand… or do they? A bank's direct marketing to holders of “free” checking accounts shows that a large discount on 60% APR overdrafts reduces overdraft usage, especially when bundled with a discount on debit card or autodebit transactions. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after the messages stop. These results do not square easily with classical models of consumer choice and firm competition. Instead, they support behavioral models where consumers underestimate and are inattentive to overdraft costs, and firms respond by shrouding overdraft prices in equilibrium.     

Discrimination in Lending: Theory and Evidence

Using a general equilibrium model of credit market discrimination, I find that both taste-based discrimination and statistical discrimination have similar predictions for the intergroup differences in loan terms. The commonly held view has been that if taste-based discrimination exists, loans approved to minority borrowers will have higher expected profitability than those to majorities with comparable credit background. I show that the validity of this profitability view depends crucially on how expected loan profitability is measured. I also show that taste-based discrimination must exist if loans to minority borrowers have higher expected rates of return or lower expected rates of default loss than those to majorities with the same exogenous characteristics observed by lender at the time of loan originations. My analysis suggests that the valid method to test for taste-based discrimination should be reduced-form regressions. Empirically, I fail to find supporting evidence for the existence of taste-based discrimination.     

The Bank Lending Channel: A FAVAR Analysis

We examine the bank lending channel (BLC) of monetary transmission in a factor‐augmented vector autoregression (FAVAR). A FAVAR exploits large numbers of macro‐economic indicators and allows us to consider an alternative identification of monetary shocks and analyze the lending response of banks at the aggregate and individual levels. We find that the existence of the BLC is more prevalent than previously thought using aggregated lending data, while the lending response of individual banks are driven more by specific innovations than monetary shocks. Nonetheless, the average individual bank response to a monetary shock is consistent with the existence of a BLC.     

The Bank Lending Channel Revisited

A central proposition in research on the role of banks in the transmission mechanism is that monetary policy imparts a direct impact on deposits and that deposits act as the driving force of bank lending. This paper argues that the emphasis on policy‐induced changes in deposits is misplaced. A reformulation of the bank lending channel is proposed that works primarily through the impact of monetary policy on banks’ balance sheet strength and risk perception. Such a recasting implies, contrary to conventional wisdom, that greater reliance on market‐based funding enhances the importance of the channel.     

Switching from Single to Multiple Bank Lending Relationships: Determinants and Implications

Our data show that nearly all firms borrow for the first time in their life from a single bank, but soon afterward some of them start borrowing from additional banks. Duration analysis shows that the likelihood of a firm substituting a single relationship with multiple relationships increases with the duration of that relationship. It also shows that this substitution is more likely to occur for firms with more growth opportunities and for firms with poor performance. The analysis of the ex post effects of the initiation of multiple relationships, in turn, shows that firms with higher levels of investment prior to the initiation of multiple relationships increase their investment even further when they start to borrow from multiple banks and that firms with poor prior performance continue to perform poorly afterward. These results suggest that concerns with hold-up costs, together with an unwillingness by the incumbent bank to increase its exposure to a firm because of its past poor performance, are the key reasons for these firms to initiate an additional relationship this early in their life. Journal of Economic Literature Classification Numbers: G21, G32.     

Dual-Class Firms: Evidence from IPOs of Chinese Firms Cross-Listed on US Exchanges

We compare Chinese single with dual-class firms cross-listed on US exchanges. We find that dual-class firms are larger in terms of assets and sales, possess ownership concentration, and have higher institutional ownership. Chinese firms in IT industry are especially likely to use dual-class structure. We find that, contrary to the literature, dual-class firms underprice 30.42% more and firm underprices less when governance practices are adequate. Insiders need to bear underpricing cost for retaining control. Interestingly, we find that dual-class firms hire more independent directors to show commitment toward shareholder’s rights but control them through CEO Chairman Duality and superior voting rights.