DO BANK RELATIONSHIPS MATTER IN PUBLIC DEBT OFFERINGS?

Finance theorists have argued that banks have a comparative advantage over public debtholders and other suppliers of debt both in gathering information about and in monitoring corporate borrowers. Although underwriters of public debt issues and private placements have access to inside information when executing specific transactions, commercial bankers have ongoing relationships with their corporate borrowers that have often been built up over years. Perhaps more important, banks are also often in a better position and have stronger incentives than a dispersed collection of bondholders to keep tabs on what the borrowers do after receiving the capital.
This theoretical argument received striking empirical support from a study by Chris James published in 1987 in the Journal of Financial Economics. Entitled "Some Evidence on the Uniqueness of Bank Loans," the study documented that announcements of new bank lending aggreements by public firms are received positively, on average (and in a large majority of cases) by the stock market. This finding offered a pointed contrast to the neutral to sharply negative stock-price responses that accompany announcements of almost all other kinds of securities offerings, including private placements of debt and public offerings of straight debt.
In this article, the authors discuss their own recently published study that provides another piece of evidence of the value added by banking relationships. Specifically, the authors report that the first public debt offerings of companies with bank relationships carry spreads that are 85 basis points less than the spreads of initial debt issues by comparable firms without bank relationships. As the authors interpret their findings, a banking relationship not only helps to "certify" the value of corporate borrowers to their stockholders, but also provides other lenders with valuable "cross-monitoring" benefits that are reflected in lower borrowing costs.     

Debt Structure Adjustments and Long-Run Stock Price Performance

We examine the long-run implications of debt structure adjustments using a sample of U.S. bond IPOs from 1971 to 1994. Bond IPOs result in simultaneous and pronounced changes in both debt maturity and debt ownership structures. We document that firms engaging in debt IPOs substantially underperform their size-and-book-to-market-matched benchmarks by 33.39 and 55.99% over the 3- and 5-year post-offer periods. Our results are strikingly similar to those reported for equity offers but contrast the evidence for seasoned debt offers. We find evidence that debt IPOs are timed to coincide with the market having the highest expectations concerning firms' prospects. A negative relation is documented between debt maturity and future growth opportunities. In part, the underperformance can be attributed to significantly reduced growth opportunities following the offering. Post-offer underperformance is more pronounced for (a) longer maturity issues and (b) firms that do not experience an increase in bank monitoring. Journal of Economic Literature Classification Numbers: G12, G24, G30, D82.     

External validation of the use of vignettes in cross-country health studies

Cross-country comparisons of subjective assessments are rendered difficult if not impossible because of sub-population specific response style. To correct for this, the use of vignettes has become increasingly popular, notably within cross-country health studies. However, the validity of vignettes as a means to re-scale across sample sub-populations critically rests on the assumption of “response consistency” (RC): that vignettes and self-assessments are evaluated on the same scale. In this paper, we seek to test this assumption by applying objective measures of health along with subjective measures and vignettes. Our results indicate that the assumption of RC is not innocuous and that our extended model relaxing this assumption improves the fit and significantly changes the cross-country rankings of health vis-á-vis the standard Chopit model.     

Opaque financial reports and R2: Revisited

In this study, we revisit the link between R² (synchronicity) and earnings management (opacity) because of the importance of the ongoing debate on the relation between idiosyncratic risk and earnings management in the finance and accounting literatures. Hutton et al. (J. Financial Economics, 2009) provide evidence of a positive link between opacity and R². They interpret their finding to imply that firms with high R² (high synchronicity) have less firm-specific information impounded in their stock price. Our results for this relationship fail to unequivocally support the results reported in Hutton et al. (2009). We show that their results are not only time variant but also not robust to the alternative empirical technique recommended for panel data by Petersen (2009) and alternative estimation of discretionary accruals adjusted for firm performance prescribed by Kothari et al. (2005). We also find no support for a convex relation between idiosyncratic risk and opacity. The findings documented in this study substantially revise some of Hutton et al.'s findings in this important and growing area of research.     

Gendered Nature and Urban Culture: The Dialectics of Gated Developments in Izmir,Turkey

This article adds to recent debates on the emergence of new forms of private gated developments in Turkey that specifically target the upper middle classes. In particular, it focuses on the rise of residential gated developments along the Izmir‐Ce?me expressway to highlight how the dialectics between gender, nature and culture are reinforced in these places. The article, based on a case study of three gated developments in this region, suggests that their production is made possible through a series of dualisms between nature and culture, mobility and fixity, urban public life and gendered domesticity, urban modernity and rural parochialism, polluted city and healthy town. Based on interviews with architects, developers and residents, as well as local‐authority officials in Urla town who sanction these developments, this article argues that contradictions between different sets of dualisms form a central aspect of the processes through which these developments were designed, produced, marketed and inhabited. Taken collectively, these contradictions point broadly to the limits of gated communities in creating stable, adaptable and sustainable patterns of development in Turkey and the global South.     

A general equilibrium model of Value Added Tax evasion: an application to Pakistan

International Economics and Economic Policy - Value Added Taxes (VAT) constitute a major share of tax revenues in developing countries in which tax evasion is widespread. The literature on VAT...     

Voting decision-making of low-income consumers: Literature review and research agenda

This review article examines why and how low-income voters decide to vote for a political candidate. A total of 163 articles in the last 80 years (1944–2023) have been identified through a systematic literature review. Thereafter, the fragmented literature has been organized using a fusion of 3W1H and TCCM (Theory, context, characteristics, and method) frameworks to obtain a comprehensive overview of the low-income voters' behaviour. Accordingly, the study has explained the voting contexts of poor consumers. Besides, the fundamental theories and methods employed in this research domain have been identified. This study revealed three characteristics of ‘voting choice’ of low-income consumers (group identity, communication characteristics, and political environment characteristics) that have been further classified under several sub-themes. This review article pioneers to provide an integrated and organized analysis of the literature on the voting behaviour of low-income consumers, highlighting critical research gaps in theories, contexts, methods, and antecedents that future researchers can examine to extend the discourse in this realm.