Bank Debt,Flexibility, and the Use of Proceeds from Asset Sales

In the theory of financial intermediation, bank debt is often characterized as being more readily renegotiable than public debt. Banks are also conjectured to gain valuable non-public information through closer monitoring. Given these features, bank debt can theoretically be more flexible than public debt and can lead to better investment/liquidation decisions. We investigate this possibility using a sample of firms facing the important decision of whether to reinvest the proceeds from asset sales or whether to distribute the proceeds to debtholders. While higher levels of leverage are associated with an increased probability of distributing proceeds to creditors, this relationship is significantly muted for bank debt as opposed to public debt. This finding is consistent with the conjecture that bank debt provides enhanced flexibility when compared to public debt. Further we find that asset sale announcement period abnormal stock returns are increasing in firms’ use of bank debt, but not public debt. This suggests that market participants believe that banking relationships are leading to better decision making for this particular type of investment/liquidation decision. We find no significantly different effects of bank vs. public debt on the initial decision to undertake an asset sale in the first place. Thus, in the context of asset sales, the main observable difference arises in the use of proceeds decision, rather than the initial asset sale decision.     

Bank Debt versus Bond Debt: Evidence from Secondary Market Prices

This paper uses a new data set of daily secondary market prices of loans to analyze the specialness of banks as monitors. Consistent with a monitoring advantage of loans over bonds, we find the secondary loan market to be informationally more efficient than the secondary bond market prior to a loan default. Specifically, we find that secondary market loan returns Granger cause secondary market bond returns prior to a loan default. In contrast, secondary market bond returns do not Granger cause secondary market loan returns prior to a loan default.     

Property Asset Bubbles: Evidence from the Sydney Office Market

The cyclical variation in office construction, vacancies, rents, and values over the last decade has been enormous throughout the world. Reasons advanced for this enormity include prolifigate lenders, egotistical developers, and even rational behavior in the face of uncertainly and long construction periods. Our analysis of the Sydney office market suggests a fourth contributing factor: the failure of investors to understand the workings of property markets. Given the incentives of developers to build when value rises substantially above replacement cost and not to build when value is low relative to replacement cost, the property market has to be mean reverting. We provide direct evidence that Sydney investors did not incorporate mean reversion into their vacancy rate forecasts at the cyclical trough and as a result under valued properties. We provide indirect evidence that mean reversion of cash flows was not incorporated at the cyclical peak and that this triggered excessive construction and vacancies. That is, the Sydney office market in the late 1980s is another example of excess price volatility or an asset price bubble.     

Asset Quality Misrepresentation by Financial Intermediaries: Evidence from the RMBS Market

We document that contractual disclosures by intermediaries during the sale of mortgages contained false information about the borrower's housing equity in 7–14% of loans. The rate of misrepresented loan default was 70% higher than for similar loans. These misrepresentations likely occurred late in the intermediation and exist among securities sold by all reputable intermediaries. Investors—including large institutions—holding securities with misrepresented collateral suffered severe losses due to loan defaults, price declines, and ratings downgrades. Pools with misrepresentations were not issued at a discount. Misrepresentation on another easy‐to‐quantify dimension shows that these effects are a conservative lower bound.     

Asset Pricing in Partially Segmented Markets: Evidence from the Finnish Market

This paper analyzes asset pricing in a partially segmented market where citizens of a small country are allowed to hold only their domestic securities, whereas the rest of the investors (“foreigners”) are essentially allowed to hold all securities. In this market setting it may occur that the citizens of the small country are willing to pay less for their domestic securities than are the foreign investors. The paper derives equilibrium required rates of return for different investors in this market setting which perfectly occurred in Finland and tests this equilibrium model using data from the Finnish stock market. Empirical results are consistent with the hypotheses derived from the model.     

区域房地产信贷运行与房地产市场稳定性相互影响的实证分析——以大连市为例

房地产行业作为二、三线城市经济的重要产业,对二、三线城市经济发展起着举足轻重的作用。但近两年来二、三线城市房地产市场出现震荡下行趋势。对此,辖内金融机构纷纷采取积极措施支持房地产市场的稳健发展。本文以大连市为例,运用GARCH模型提取房地产市场价格波动序列,并通过Granger因果检验和向量误差修正模型的脉冲响应函数,对区域内房地产信贷投放规模和质量两个因素与辖区房地产市场稳定性之间相互影响的渠道和冲击响应进行了实证探讨。最后,结合实证结果和二、三线城市当前房地产市场的实际情况,提出相关政策建议。     

The Timing of Asset Sales: Evidence of Earnings Management?

This paper presents empirical evidence from a sample of publicly traded Singaporean firms on the question: to what extent do firms manage earnings through the timing of asset sales? Previous studies have focused on accounting motives behind asset sales, ignoring the need to also consider economic motives. Some empirical evidence is provided to support the hypothesis that managers of firms with decreasing net earnings–per–share smooth earnings upwards using asset sales.     

Household Liquidity Constraints and Labor Market Outcomes: Evidence from a Danish Mortgage Reform

We study the causal effect of liquidity constraints on individual labor market outcomes by exploiting the 1992 mortgage reform in Denmark, which for the first time allowed homeowners to borrow against housing equity for nonhousing purposes. Following the reform, liquidity-constrained homeowners increased debt levels and had higher earnings growth and lower employment rates. The option to borrow against housing equity enabled liquidity-constrained individuals to move to high-wage jobs and invest in valuable human and physical capital. The results imply that relaxing household liquidity constraints during recessions can create better job matches, potentially increasing earnings and output in the longer run.     

发展企业债券市场促进商业银行资产业务结构调整

企业债券市场发展带来的“挤出效应”日益显现，大型优质企业开始更多地利用债券市场进行融资，对银行信贷资金的依赖程度逐步下降，商业银行传统的、以大型企业为主要服务对象的信贷市场开始面临渐趋收窄的局面。商业银行必须加快资产业务结构调整，面向中小企业，为中小企业提供融资服务；要将外在的市场压力转化为内在的发展动力，通过加强机制和体制创新，切实提高风险管理水平，进一步改进和完善中小企业金融服务。     

The Effect of Market Segmentation and Illiquidity on Asset Prices: Evidence from Exchange Listings

This article documents the effect on share value of listing on the New York Stock Exchange and reports the results of a joint test of Merton's (1987) investor recognition factor and Amihud and Mendelson's (1986) liquidity factor as explanations of the change in share value. We find that during the 1980s stocks earned abnormal returns of 5 percent in response to the listing announcement and that listing is associated with an increase in the number of shareholders and a reduction in bid-ask spreads. Cross-sectional regressions provide support for both investor recognition and liquidity as sources of value from exchange listing.     

Short‐Term Debt as Bridge Financing: Evidence from the Commercial Paper Market

We analyze why firms use nonintermediated short‐term debt by studying the commercial paper (CP) market. Using a comprehensive database of CP issuers and issuance activity, we show that firms use CP to provide start‐up financing for capital investment. Firms’ CP issuance is driven by a desire to minimize transaction costs associated with raising capital for new investment. We show that firms with high rollover risk are less likely to enter the CP market, borrow less CP, and borrow more from bank credit lines. Further, CP is often refinanced with long‐term bond issuance to reduce rollover risk.     

Short-Term External Debt and Foreign Exchange Rate Volatility in Emerging Economies: Evidence from the Korea Market

Abstract:

We empirically analyze the main determinants of foreign exchange rate (FX) volatility in emerging market economies using the data of Korea corporations and financial institutions. We find that short-term external debt is more important than trading volume of foreign investors in explaining FX volatility. Our results suggest that short-term debt-controlling measures, such as a tax levy on short-term borrowing, can be more effective in moderating FX volatility than can the measures affecting the trading volume, such as a Tobin tax.     

Divisional Informativeness Gap and Value Creation from Asset Sales

Nanda and Narayanan (1999) show that the information asymmetry between the managers and market participants regarding divisional cash flows helps explain the value creation on asset sales. Based on their theoretical framework, the divisional informativeness gap hypothesis predicts that the announcement‐period return increases with the difference in cash‐flow informativeness of retained and divested divisions prior to the divestiture. Our results, using industry‐average earnings response coefficient as a proxy for cash‐flow informativeness of a division, support this prediction. The effect is stronger when a conglomerate retains the division with relatively greater growth opportunities.     

次贷危机中资产证券化对金融市场流动性的影响

次贷危机是一场金融市场流动性紧缩的危机.在流动性紧缩的过程中,连接多个利益主体的资产证券化负有很大责任.本文采用计量经济理论中的VAR模型对次贷危机中资产证券化对金融市场流动性的影响进行实证分析,发现在次贷危机的演进过程中,资产证券化确实对金融市场的流动性产生了持久的负面冲击效应,并导致了流动性紧缩的传导和扩散.因此,...     

Cross‐sectional Tests of Conditional Asset Pricing Models: Evidence from the German Stock Market

We study the performance of conditional asset pricing models and multifactor models in explaining the German cross‐section of stock returns. We focus on several variables, which (according to previous research) are associated with market expectations on future market excess returns or business cycle conditions. Our results suggest that the empirical performance of the Capital Asset Pricing Model (CAPM) can be improved when allowing for time‐varying parameters of the stochastic discount factor. A conditional CAPM using the term spread explains the returns on our size and book‐to‐market sorted portfolios about as well as the Fama‐French three‐factor model and performs best in terms of the Hansen‐Jagannathan distance. Structural break tests do not necessarily indicate parameter instability of conditional model specifications. Another major finding of the paper is that the Fama‐French model – despite its generally good cross‐sectional performance – is subject to model instability. Unconditional models, however, do a better job than conditional ones at capturing time‐series predictability of the test portfolio returns.     

Debt and taxes: Evidence from the real estate industry

Compelling empirical evidence documenting a material effect of corporate taxes on leverage decisions is limited, in part because of difficulties in constructing an effective proxy for the firm's tax benefit of debt. We examine leverage decisions across taxable and nontaxable real estate firms—firms for which we can measure the relative tax benefit of debt with little error. The tax hypothesis implies that for firms with similar asset portfolios, taxable firms should have more debt than their nontaxable counterparts. Consistent with this, leverage ratios of taxable real estate firms are higher than their nontaxable counterparts, but the magnitude of this difference is at most one-half of that implied by studies that employ simulated marginal tax rates.     

Mortgage Brokers and the Refinancing Transaction: Evidence from CRA Borrowers

This study adds to an emerging literature on the lending practices of mortgage brokers during the run-up in home prices prior to 2006. Following a sample of low— and moderate-income borrowers through the first years following home purchase, the analysis identifies differences in the refinancing transaction associated with the use of mortgage brokers vs. retail lenders. Specifically, the analysis includes measures of the refinancing process, including whether the lender initiated contact with the borrower, whether the terms of the mortgage changed at closing, and the level of borrower satisfaction in hindsight. Care must be taken in extrapolating from this sample to the broader mortgage market, as all borrowers refinanced out of 30-year fixed-rate purchase mortgages in the Community Advantage Program (CAP). Nevertheless, analysis of this sample offers unique insight into borrowers’ interactions with mortgage brokers during the refinancing transaction. Origination with a mortgage broker, compared with origination through a retail lender, is associated with both a less satisfactory refinancing process and a higher likelihood of refinancing into an adjustable-rate mortgage (ARM).     

Financial Reporting Quality,Debt Maturity,and the Cost of Debt: Evidence from China

This paper investigates the influence of different financing channels—bond issuance or bank loans—as well as debt maturity and the quality of financial reporting on the cost of debt in China. The authors find that conservative accounting is an important characteristic of high-quality financial reporting that can reduce the cost of longer maturity debt such as bank loans and bonds. Even state-owned enterprises, which have fewer financial constraints than non-state-owned enterprises, benefit from accounting conservatism's ability to reduce financial costs. Moreover, the findings indicate that bond investors are concerned about the issuer's fundamentals, while banks are more likely to focus on the operation and bankruptcy risk of borrowers.     

Appraisal Quality and Residential Mortgage Default: Evidence from Alaska

We empirically examine the effect of appraisal quality on subsequent mortgage loan performance using data from the high volatility housing market of Alaska in the 1980s. We develop measures of appraisal quality by computing the residual between a hedonic estimate of house value using available information from other appraisals compared to actual ex ante appraised value. We then estimate proportional hazard models of mortgage default and find that several measures of appraisal quality, particularly appraised value in excess of hedonic estimates, are significantly related to default risk. Using valuations subsequent to loan default, we are also able to evaluate how well house price indices perform in terms of estimating current loan-to-value and offer some additional evidence on the controversy over the role of net equity versus trigger events as determinants of mortgage default. We also show that defaults are related to ex ante measures of housing market conditions, with additional implications for underwriting policies and the current industry trend away from traditional appraisal and toward automated valuation.