Does Poor Performance Damage the Reputation of Financial Intermediaries? Evidence from the Loan Syndication Market

We investigate the effect of poor performance on financial intermediary reputation by estimating the effect of large‐scale bankruptcies among a lead arranger's borrowers on its subsequent syndication activity. Consistent with reputation damage, such lead arrangers retain larger fractions of the loans they syndicate, are less likely to syndicate loans, and are less likely to attract participant lenders. The consequences are more severe when borrower bankruptcies suggest inadequate screening or monitoring by the lead arranger. However, the effect of borrower bankruptcies on syndication activity is not present among dominant lead arrangers, and is weak in years in which many lead arrangers experience borrower bankruptcies.     

THE LOGIC OF AUTHORITARIAN BARGAINS

Dictatorships do not survive by repression alone. Rather, dictatorial rule is often explained as an "authoritarian bargain" by which citizens relinquish political rights for economic security. The applicability of the authoritarian bargain to decision-making in non-democratic states, however, has not been thoroughly examined. We conceptualize this bargain as a simple game between a representative citizen and an autocrat who faces the threat of insurrection, and where economic transfers and political influence are simultaneously determined. Our model yields implications for empirical patterns that are expected to exist. Tests of a system of equations with panel data comprising 80 non-democratic states between 1975 and 1999 generally confirm the predictions of the authoritarian-bargain thesis, with some variation across different categories of dictatorship.     

Trading and Manipulation Around Seasoned Equity Offerings

We investigate the potential for manipulation due to the interaction between secondary market trading prior to a seasoned equity offering (SO) and the pricing of the offering. Informed traders acting strategically may attempt to manipulate offering prices by selling shares prior to the SO, and profit subsequently from lower prices in the offering. The model predicts increased selling prior to a SO, leading to increases in the market maker's inventory and temporary price decreases. Further, since manipulation conceals information, the ratio of temporary to permanent components of the price movements is predicted to increase.     

A Multinational Perspective on Capital Structure Choice and Internal Capital Markets

This paper analyzes the capital structures of foreign affiliates and internal capital markets of multinational corporations. Ten percent higher local tax rates are associated with 2.8% higher debt/asset ratios, with internal borrowing being particularly sensitive to taxes. Multinational affiliates are financed with less external debt in countries with underdeveloped capital markets or weak creditor rights, reflecting significantly higher local borrowing costs. Instrumental variable analysis indicates that greater borrowing from parent companies substitutes for three‐quarters of reduced external borrowing induced by capital market conditions. Multinational firms appear to employ internal capital markets opportunistically to overcome imperfections in external capital markets.     

Bond Insurance: What Is Special About Munis?

Close to 50% of municipal bonds are prepackaged with insurance at the time of issue. We offer a tax‐based rationale for the emergence of third‐party insurance of tax‐exempt bonds. We argue that insurance adds value as it allows a third party to become, in a probabilistic sense, an issuer of tax‐exempt securities. Insurance however reduces value by eliminating the possibility of a capital tax loss. While the net benefit from insurance increases with bond maturity, the benefit may not increase monotonically with default risk. We also provide empirical evidence supportive of the model's predictions.     

Un modèle analytique d’évaluation de l’audit interne faisant appel aux fonctions de croyance, à l’usage de l’auditeur externe

Les auteurs ont pour but de faire progresser la recherche dans le domaine de l’évaluation de l’audit interne en élaborant un modèle d’évaluation de la fonction d’audit interne qui tient compte des relations entre les facteurs précis qu’utilisent les auditeurs externes pour évaluer la solidité de cette fonction. Le modèle repose sur trois facteurs définis par les normes d’audit et par les travaux de recherche antérieurs : la compétence, la qualité du travail et l’objectivité. Les auteurs élaborent une expression analytique du modèle à l’aide du cadre de référence des fonctions de croyance afin de dépasser les limites des études antérieures. Leurs résultats révèlent que la modélisation de la relation « et » est essentielle à l’évaluation de la solidité de la fonction d’audit interne. Au chapitre des relations, l’analyse montre que, lorsque celle qui unit ces trois facteurs est solide ou parfaite, la fonction d’audit interne demeure d’une grande solidité, même en présence d’éléments probants positifs ou négatifs à l’égard de l’un des facteurs. Ce résultat persiste dans la mesure où les niveaux de croyance au sujet des deux autres facteurs sont élevés. Les auteurs démontrent en outre comment la qualité de la gouvernance d’entreprise influe sur l’évaluation de la fonction d’audit interne et comment il est possible de recourir à l’analyse coûts‐avantages dans ce contexte pour mieux déterminer la quantité de travail d’audit externe qu’exige le respect des normes. L’analyse des auteurs révèle que l’étendue du travail d’audit devant être réalisé par l’auditeur externe dépend de la solidité de la fonction d’audit interne et de l’importance des coûts associés aux litiges et au respect de la réglementation auxquels le vérificateur externe doit faire face.