Corporate Debt Structure and the Financial Crisis

We present a DSGE model where firms optimally choose among alternative instruments of external finance. The model is used to explain the evolving composition of corporate debt during the financial crisis of 2008–09, namely, the observed shift from bank finance to bond finance, at a time when the cost of market debt rose above the cost of bank loans. We show that the flexibility offered by banks on the terms of their loans and firms' ability to substitute among alternative instruments of debt finance are important to shield the economy from adverse real effects of a financial crisis.     

Bank systemic risk and corporate investment: Evidence from the US

In this paper, we develop a simple two-period model in which a bank’s investment (e.g., loans) is influenced by short-term financing and a probability of a financial crisis. When banks ex ante expect to be bailed out during financial crises, they do not necessarily internalize the cost of financial crises and invest more. We argue that the level of systemic risk in the banking sector is largely driven by (1) the way in which banks finance their investment (e.g., loans) using more short-term debt and/or (2) the increase in asset commonality amongst banks. We use three measures that arguably capture two dimensions of “bank systemic risk”, namely, (1) bank funding maturity and (2) bank asset commonality, to empirically test whether bank systemic risk has a positive effect on corporate investment. We document that in a sample of publicly listed firms in the United States over the period 1991–2013, bank systemic risk is positively associated with the firm-level investment ratio after controlling for a large set of country- and firm-level variables. In addition, we show that a firm's leverage strengthens the positive effect of bank systemic risk on corporate investment, suggesting that more financially constrained firms experience a larger effect of bank systemic risk on corporate investment than less financially constrained firms.     

Bank deregulation and corporate risk

Although research shows that competitive banks spur corporate growth, less is known about the impact of bank competition on corporate risk. Using a sample of more than 70,000 firm-year observations covering the period from 1975 through 1994, we find that deregulation that intensified competition among banks materially reduced corporate risk, especially among firms that rely heavily on bank finance. We find that competition-enhancing bank deregulation reduced corporate volatility by easing credit constraints when firms experience adverse shocks and reducing the procyclicality of borrowing.     

The Effects of Monetary Policy on Unemployment Dynamics under Model Uncertainty: Evidence from the United States and the Euro Area

This paper explores the role that the imperfect knowledge of the structure of the economy plays in the uncertainty surrounding the effects of rule-based monetary policy on unemployment dynamics in the euro area and the United States. We employ a Bayesian model averaging procedure on a wide range of models which differ in several dimensions to account for the uncertainty that the policymaker faces when setting the monetary policy and evaluating its effect on real economy. We find evidence of a high degree of dispersion across models in both policy rule parameters and impulse response functions. Moreover, monetary policy shocks have very similar recessionary effects on the two economies with a different role played by the participation rate in the transmission mechanism. Finally, we show that a policymaker who does not take model uncertainty into account and selects the results on the basis of a single model may come to misleading conclusions not only about the transmission mechanism, but also about the differences between the euro area and the United States, which are on average essentially small.     

Equity market response to natural disasters: Does firm's corporate social responsibility make difference?

This study investigates the role of corporate social responsibility (CSR) in explaining firms' stock performance in the wake of natural disasters in the United States. Using event study and multivariate regression analyses, we find that market performance of CSR firms is better than that of non-CSR firms when such disasters occur. We also highlight the importance of environmentally friendly practices in driving the performance of CSR firms. Our results indicate that firms practicing environmental CSR are more resilient to such disasters than nonenvironmental CSR firms. Cross-sectional analyses show that such positive market reaction of CSR firms is more pronounced when firms have low financial constraints, low information asymmetry, and high social capital.     

Access to Institutional Finance and the Use of Trade Credit

I develop a conceptual framework for analyzing the effect of the availability of institutional loans on firms' demand for supplier (trade) finance. I test for the existence of credit constraints and their effect on corporate financing policies. My empirical results support the hypothesis that trade credit is taken up by firms as a substitute for institutional finance at the margin when they are credit constrained. Further, in line with studies on the credit channel of monetary policy transmission, I find an increased reliance on trade credit by financially constrained firms during periods of tight money.     

Liquidity crisis,relationship lending and corporate finance

This paper investigates the consequences of the liquidity shocks in wholesale funding markets during the 2007–2009 financial crisis on bank lending and corporate financing. We show that banks that relied more heavily on wholesale funding contracted lending more severely than banks that relied more on insured deposits. We then examine the effects of loan contraction on the financial positions of publicly traded firms. We find that both during and after the crisis, the change in leverage of bank-dependent firms is less than that of firms with access to public debt markets. In addition, bank-dependent firms rely more on cash than net equity issuance to finance operations. We also find that firms with established bank lending relationships weather the crisis better. Such firms are able to attain higher levels of leverage during the crisis, add to their cash holdings, secure new bank credit, and achieve higher profitability as a result.     

Post-restructuring performance in Japan

Peek and Rosengren (2005) showed that after the end of the bubble economy era in Japan, regulatory forbearance and perverse incentives allowed Japanese banks to engage extensively in “evergreening”. Inoue et al. (2008) also showed that, compared to out-of-court settlements in the United States, agreements on out-of-court restructuring are attained more easily in Japan. However, widespread forbearance by banks and affiliated companies in addressing the needs of distressed firms indicated a serious weakness of banks and affiliated companies in instituting discipline. This is the first empirical study to examine the performance of Japanese firms that experienced out-of-court restructuring in Japan from January 1990, when the bubble economy burst, to March 2005, when the Koizumi Cabinet declared the bad debt problems of major firms to be resolved. Our results show that important biases permitted deeply unprofitable firms to survive in Japan. This finding is similar to research by Hotchkiss (1995), who analyzed post-restructuring performance in the United States. We also find that out-of-court restructurings of troubled firms in Japan were less effective in improving profitability than restructurings under Chapter 11 in the United States. However, we find that restructurings associated with new capital injections and new outside management are more likely to lead to genuine improvement in financial performance.     

The puzzling peso

In the past decade, some observers have noted an unusual aspect of the Mexican peso’s behavior: During periods when the U.S. dollar has risen (fallen) against other major currencies such as the euro, the peso has risen (fallen) against the dollar. Very few other currencies display this behavior. In this paper, we attempt to explain the unusual pattern of the peso’s correlation with the dollar by developing some general empirical models of exchange rate correlations. Based on a study of 29 currencies, we find that most of the cross-country variation in exchange rate correlations with the dollar and the euro can be explained by just a few variables. First, a country’s currency is more likely to rise against the dollar as the dollar rises against the euro, the closer it is to the United States and the farther it is from the euro area. In this result, distance likely proxies for the role of economic integration in affecting exchange rate correlations. Second, a country’s currency is more likely to exhibit this unusual pattern when its sovereign credit rating is more risky. This may reflect that currencies of riskier countries are less substitutable in investor portfolios than those of better-rated countries. All told, these factors well explain the peso’s unusual behavior, as Mexico both is very close to the United States and has a lower credit rating than most industrial economies.     

Measuring Inflation Anchoring and Uncertainty: A U.S. and Euro Area Comparison

We use several U.S. and euro‐area surveys of professional forecasters to estimate a dynamic factor model of inflation featuring time‐varying uncertainty. We obtain survey‐consistent distributions of future inflation at any horizon, both in the U.S. and the euro area. Equipped with this model, we propose a novel measure of the anchoring of inflation expectations that accounts for inflation uncertainty. Our results suggest that following the Great Recession, inflation anchoring improved in the United States, while mild de‐anchoring occurred in the euro area. As of our sample end, both areas appear to be almost equally anchored.     

银行数字普惠金融、银行竞争与企业融资约束

基于中国31个省份的相关数据,使用变异系数法构建银行数字普惠金融指数,以中小企业板上市公司为研究样本,讨论竞争程度变化时银行数字普惠金融对中小企业融资约束的影响及变化.研究发现:银行数字普惠金融发展有利于缓解中小企业融资约束,当银行竞争程度较高时,缓解作用更加明显.同时,相对于民营中小企业,银行数字普惠金融发展对国有中小企业融资约束的缓解作用更加明显,反映了当前银行在发展数字普惠金融时存在选择偏向问题.但随着银行竞争的提高,这种问题有所缓解.     

Emergence of Captive Finance Companies and Risk Segmentation in Loan Markets: Theory and Evidence

A seller with some degree of market power in its product market can earn rents. In this context, there is a gain to granting credit to purchase of the product and thus to the establishment of a captive finance company. This paper examines the optimal behavior of such a durable good seller and its captive finance company. The model predicts a critical difference between the captive finance company's credit standard and that of independent lenders ("banks"), namely, that the captive finance company will adopt a more lenient credit standard. Thus, we should expect the likelihood of repayment of a captive loan to be lower than that of a bank loan, other things equal. This prediction is tested using a unique data set drawn from a major credit bureau in the United States, and the evidence supports the theoretical prediction.     

The impact of monetary policy on the financing behaviour of firms in the Euro area and the UK

Abstract

According to the ‘broad credit view’ bank-dependent firms are more strongly affected by monetary contractions than firms with access to non-bank forms of external finance. Within the credit view the bank lending channel focuses on the special role of bank loans, and predicts that monetary contractions reduce loan supply to firms facing information problems. However, the ‘relationship lending channel’ argues that, especially in bank-based economies, bank-dependent firms have close ties with banks, which may reduce the sensitivity of their use of bank debt to monetary shocks. The sensitivity of corporate debt structures to changes in the monetary policy stance is analysed using a sample of 22,000 firms in the Euro area and the UK. Evidence is found for the credit view, the relationship lending channel, but not for the bank lending channel.     

Bank Power and Cash Holdings: Evidence from Japan

Using industrial firms from the United States, German, and Japan,we examine the effect of bank power on cash holdings. We showthat Japanese firms hold more cash than U.S. or German firms.We also document that Japanese cash balances are affected bythe monopoly power of banks. During periods with powerful banks,firms' high cash holdings are consistent with banks extractingrents. When banks weakened, Japanese cash levels became morelike U.S. firms. We conclude that strong Japanese banks persuadefirms to hold large cash balances. This is contrary to widelyheld beliefs about the Japanese governance system.     

Differences in Interest Rate Policy at the ECB and the Fed: An Investigation with a Medium-Scale DSGE Model

Using two estimated models for the euro area and the United States, this paper investigates whether the observed difference in the amplitude of the interest rate cycle since 1999 in both areas is due to differences in the estimated monetary policy reaction function, differences in the structure of the economy or differences in the size and nature of the shocks hitting both economies. The paper concludes that differences in the type, size and persistence of shocks in both areas can largely explain the different interest rate setting.     

Corporate leverage and the collateral channel

We investigate whether and how corporate leverage depends on the structure of corporate assets. Based on a large panel dataset of US firms from 1990 to 2010, we show that property, plant and equipment are important drivers of the collateral channel, while inventories and receivables are less important. The collateral channel is more pronounced for firms that have to rely on banks and trade creditors to raise debt finance, but it has become weaker for these firms after the start of the financial crisis. Our study provides new evidence on the cross-sectional and time-varying importance of the collateral channel for corporate leverage.     

Do banks fuel climate change?

Do climate-oriented regulatory policies affect the flow of credit towards polluting firms? We match loan-level data to firm-level greenhouse gas emissions to assess the impact of the Paris Agreement. We find that, following this agreement, European banks reallocated credit away from polluting firms in relative terms. Specifically, euro area banks’ loan share to more polluting firms decreased by about 3percentage points compared to less polluting (or “green”) firms after the 2015 Paris Agreement (COP21). This result is stronger for banks that are well capitalized, have lower credit quality, and are less profitable.     

Does Money Matter in Shaping Domestic Business Cycles? An International Investigation

We study the contribution of money to business‐cycle fluctuations in the United States, the United Kingdom, Japan, and the euro area using a small‐scale structural monetary business cycle model. Constrained likelihood‐based estimates of the parameters are provided and time instabilities analyzed. Real balances are statistically important for output and inflation fluctuations. Their contribution changes over time. Models giving money no role provide a distorted representation of the sources of cyclical fluctuations, of the transmission of shocks, and of the events of the last 40 years.     

The deregulation of capital markets in France

This paper investigates how the deregulation of French capital markets affected corporate investment in the 1980s. Access to public financial markets may be less important in countries that have traditionally relied on institutional investors to finance their corporate investment projects. This should be true for France where, contrary to the US, banks and government agencies have always been involved in firms’ long term activities. In this study, French firms are categorized based on their ownership structure and trading characteristics. Two investment models are augmented with measures of corporate liquidity in order to test the role of internal funds on investment. Empirical results show that only small French firms trading on the secondary stock market have to rely on liquid assets to finance their capital expenditures. French firms with strong bank ties avoid this constraint since they are allowed to maintain higher debt levels.     

Financial Structure,Acquisition Opportunities,and Firm Locations

This paper investigates the relation between firms' locations and their corporate finance decisions. We develop a model where being located within an industry cluster increases opportunities to make acquisitions, and to facilitate those acquisitions, firms within clusters maintain more financial slack. Consistent with our model we find that firms located within industry clusters make more acquisitions, and have lower debt ratios and larger cash balances than their industry peers located outside clusters. We also document that firms in high‐tech cities and growing cities maintain more financial slack. Overall, the evidence suggests that growth opportunities influence firms' financial decisions.