auditors response to political connections and cronyism in malaysia this paper extends the literature on the role of political economy in financial reporting and auditing by testing two hypotheses the first hypothesis predicts that there will be a greater increase in audit effort and audit fees for malaysian firms with political connections as a result of the asian financial crisis than for non politically connected firms because these firms have a higher risk of financial misstatements the second hypothesis predicts that the audit fees of politically connected firms will decline when capital controls are introduced by the government as a ploy to financially assist politically connected firms to rebound from the crisis and thus reduces the risk of financial misstatements the results show that there is a greater increase in audit fees for firms with political connections than for non politically connected firms as a result of the asian financial crisis however there is a decline in audit fees for politically connected firms after the capital controls are implemented

what do we know about macroeconomics that fisher and wicksell did not the answer to the question in the title is a lot in this essay i argue that the history of macroeconomics during the 20th century can be divided into three epochs

comment on cole the view that small rms face greater problems in obtaining credit thanlarge rms has a long history going back at least as far as the loan relationshipmodels of hodgeman 1961 and wood 1975 and the credit rationing work ofja ee and modigliani 1969 nevertheless there are few studies that provideor analyze direct evidence that credit is rationed with nonprice terms to rms at the macro level most empirical studies of business credit availability use in direct proxies ranging from early studies such as ja ee and modigliani 1969 who gauged availability by the share of small sized loans among all bank loans to more modern models that point to a role of cash ow as a determinant ofinvestment at the micro level empirical studies have indirectly tested forthe existence of credit rationing by assessing the behavior of loan pricing e g berger and udell 1992 1995 testing whether liquidity or cash owhas a greater impact on investment by smaller rms relative to larger rms e g fazzari et al 1988 or investigating whether smaller rms more heavilyuse expensive trade credit during periods of tight credit e g ja ee 1971 pe tersen and rajan 1994 cole 1998 lls a void in the literature on credit availability by testing how rm characteristics a ect a small rm s likelihood of experiencing a loan denialusing a unique cross section data set that provides direct evidence of nonpricecredit rationing this paper nds that preexisting nancial service relationshipswith a lender have a positive e ect on the probability of loan approvals con sistent with prior studies arguing that banks gain information about credit riskfrom monitoring borrower deposit activity e g black 1975 fama 1985 nakamura 1993 in addition results indicate that much of the e ect of

testing dependence between gdp and tourism s growth rates abstract the main aim of this paper is to link the economic behaviour and statistical properties of gdp and tourism receipts growth rates through modelling the dependence to that end two developed economies such as the united kingdom non tourist oriented and spain tourist oriented and an emerging economy such as croatia tourist oriented are considered as case studies therefore a copula based garch approach is employed to describe the dependence structure between gdp and tourism receipts growth rates in this respect any causality and cointegration between tourism and gdp could justify public policies that promote a more efficient public resource allocation in the tourism industry additionally evidence of dependence between growth rates can justify the extent and direction of these policies results indicate that there is a significant asymmetric and positive dependence between tourism and gdp growth rates for the three countries studied though only for croatia is it time varying over time

new issues in corporate finance flow of funds data are used to compare methods of finance in 5 countries over the period 1970 to 1985 many of the problems associated with previous studies are avoided by estimating net instead of gross financing proportions the degree of consolidation of accounts reciprocal arrangements between borrowers and lenders and compensating deposit requirements on borrowers no longer distort financing patterns corrections for inflation are provided by employing flow rather than stock figures and using own aggregation procedures to derive stock measures significant variations in financing emerge these are not readily explained by traditional descriptions of corporate finance in particular taxation as an alternative the paper suggests that relationships between borrowers and lenders establish forms of commitment that are conducive to the provision of long term finance the separation between investment and finance which has been the starting point of corporate finance theory is untenable in a multiperiod context in which terms of finance define future allocation of control

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

political connections and corporate investments evidence from the recent anti corruption campaign in china abstract taking advantage of corruption scandals in china we construct a natural experiment and identify the ousting of corrupt politicians and firms connected with them through bribery and personal relationships event firms we find that the investment expenditure of event firms declines significantly after the ousting of the politicians compared with that of non event firms especially for non soes we also find that after the ousting of the politicians investment efficiency improves for event soes but declines for event non soes compared with their non event counterparts we also document that the ousting of the politicians influences firm investment decisions more after the recent anti corruption campaign for bribing firms and for firms in more corrupt regions these results are robust to alternative measurements of key variables and specifications

banking development socioeconomic structure and income inequality abstract using rich unique data from the italian local credit markets provinces this paper investigates the impact of local banking development on income inequality and the role of the socioeconomic structure in this link exploiting the italian historical banking regulation to instrument for the local presence of bank branches we find that local banking development mitigates income inequality however the finance inequality nexus manifests itself only in relatively advanced areas when we study the structural channels of influence we uncover evidence that banking development can reduce inequality by affecting geographical mobility and urbanization while it has modest effects through the development of material infrastructures and human capital

optimal currency composition for china s foreign reserves a copula approach this paper investigates the optimal currency composition for a country s foreign reserves in the context of china we examine the asymmetric fat tail and complex dependence structure in distributions of currency returns a skewed fat tailed and pair copula construction is then built to capture features of higher moments in a d vine copula approach we show that under the disappointment aversion effect the central bank in our model can achieve sizeable gains in expected economic value from switching from the mean variance to copula modelling we find that this approach will lead to an optimal currency composition that allows china to have more space for international currency diversification while maintaining the leading position of the us dollar in the currency shares of china s reserves

bank credit rationing and the customer relation abstract this paper investigates the theory that preference in situations of bank rationing is given to those customers with the strongest customer relation it has shown that within a certainty model where competitive pressure among banks requires full compensation for other bank relationships neither deposit levels nor intertemporal demand would produce the preferential treatment claimed it has also been shown that the prime borrowers would be unable to bargain effectively for credit line protection from such occasions of credit restriction

accounts receivable management policy theory and evidence this paper develops and tests hypotheses that explain the choice of accounts receivable management policies the tests focus on both cross sectional explanations of policy choice determinants as well as incentives to establish captives we find size concentration and credit standing of the firm s traded debt and commercial paper are each important in explaining the use of factoring accounts receivable secured debt captive finance subsidiaries and general corporate credit we also offer evidence that captive formation allows more flexible financial contracting however we find no evidence that captive formation expropriates bondholder wealth firms typically sell merchandise on credit rather than requiring immediate cash payment such credit sales generate accounts receivable although credit terms and credit collection procedures have been studied see smith 1980 there has been little systematic analysis of the organizational and financial structures employed to manage the firm s accounts receivable these decisions merit more careful attention for two reasons first receivables are a substantial fraction of corporate assets for example 1986 compustat data indicate that accounts receivable are 21 0 of u s manufacturing corporations total assets second we observe substantial diversity in firms use of specialized contracts and intermediaries in their accounts receivable management policies firms can 1 establish a captive finance subsidiary 2 issue accounts receivable secured debt 3 factor 4 employ a credit reporting firm 5 retain a credit collection agency or 6 purchase a credit insurance policy 1 in this paper we demonstrate that accounts receivable management policy offers opportunities for both the development of a robust theory as well as empirical testing of the theory s implications although the data necessary to

discussion of what determines corporate transparency the goal of bushman piotroski and smith hereafter bps is to extend our understanding of financial information systems around the globe they focus on the availability of firm specific information to those outside of publicly traded firms to examine how and why this information varies across countries given the breadth of the question and the scope of global work the paper includes far ranging discussions of these factors and a large number of empirical variables however the analyses address two relatively straightforward questions first which aspects of the information system are observed to occur together second how are these aspects of the information system related to the government s role in the economy clearly these are important questions global variation in financial markets and accounting is a topic increasingly studied by academics in accounting as well as economics and finance these variations have been attributed with affecting economic development within countries and affecting the ability to transact business across countries la porta et al 1997 clayton jorgensen and kavajecz 2002 leuz nanda and wysocki 2003 bradshaw bushee and miller 2003 given the increasing globalization of business in general it is only reasonable to expect that studies of global

strategic liquidity supply and security design we study how securities and issuance mechanisms can be designed to mitigate the adverse impact of market imperfections on liquidity in our model asset owners seek to obtain liquidity by selling claims contingent on privately observed future cash flows liquidity suppliers can be competitive or strategic in the optimal trading mechanism associated to an arbitrary given security issuers with low cash flows sell their entire holdings of the security while issuers with high cash flows are typically excluded from trade by designing the security optimally issuers can avoid exclusion altogether we show that the optimal security is debt because of its low informational sensitivity debt mitigates the adverse selection problem furthermore by pooling all issuers with high cash flows debt also reduces the ability of a monopolistic liquidity supplier to exclude them from trade in order to better extract rents from issuers with lower cash flows

firm size credit scoring accuracy and banks production of soft information research on sme bank financing generally assumes that smaller firms are more opaque from a lender s perspective we propose that the discriminatory power of credit scoring models can be thought of as a proxy for firm opaqueness given that when these models perform poorly lenders must invest in the production of soft information to supplement the financial data used in these models measuring the discriminatory power of probit default models across quintiles of the irish sme size distribution we show that our proxy for firm opaqueness increases monotonically as firms get smaller this finding supports an assumption that is the starting point to a wide strand of literature on sme bank financing our findings can also be interpreted as providing an insight to the literature on the determinants of banks choice of lending technology while smaller banks may as found in a substantial previous literature produce larger amounts of soft information due to their organizational advantages they may also do

team theory garbage cans and real organizations some history and prospects of economic research on decision making in organizations this essay attempts to articulate and advance a long term agenda for organizational economics the essay begins with a general discussion of four specific items on this agenda and then moves to a more specific discussion of decision making in organizations beginning with two polar opposite conceptions team theory and garbage cans and then describing several recent economic models part of the rationale for writing this essay is that this agenda has both substantive and methodological commonalities with the work of james march copyright 2003 oxford university press

what is economic sociology and should any economists care a couple years ago two of my colleagues independently proposed approximately the same title for their respective contributions to a series of lunchtime talks why erving goffman is my hero and should be yours too i emerged from these two lunches mightily impressed both by goffman s 1959 insights into the presentation of self in everyday life and by the potential for goffman s micro sociological research to inspire a major new research stream in behavioral game theory in a similar spirit i considered titling this introduction why robert merton is my hero but this approach seemed prone to at least two problems first explaining hero worship in a short space would probably require poetry which is not my forte second i feared that the title would be opaque to those economists who would immediately think of robert c merton the nobel laureate in financial economics rather than his father robert k merton one of the great sociologists in the history of that discipline i take the ideas in these papers and their underlying sociological literatures quite seriously in fact one sociologist friend recently declared that i have an economist s eye for the sociological guy more precisely my interest is in economic sociology which i will define as the sociology of economic actors and institutions see the two handbooks of economic sociology by smelser and swedberg 1994 forthcoming for volumes of detail in this introduction i will highlight some of the prominent themes from economic sociology that are illustrated in these papers and suggest which kinds of economists might find these themes interesting

equilibrium loan pricing under the bank client relationship abstract we determine the loan interest rate policy of a lender who is better informed about a client than other potential lenders the informational advantage possessed by the informed lender derives from the durability of information acquired as a result of an extant relationship given heterogeneous potential loan rate offers to the client by competitive lenders and client search costs the incumbent lender s policy of loan interest rate offers is examined we show that the optimal loan rate will exceed the incumbent lender s cost of funds and will exceed the average offer of competing lenders the potential lenders will offer loan rates that are exceeded by their cost of funds implying immediate losses in order to attract the client and to thereby earn expected profits in the future finally we show that the expected remaining duration of a lender client relationship is decreasing in the existing length of the relationship thus clients that have been with a particular lender longer will be more likely to leave and establish a relationship with another lender

the exploitation of relationships in financial distress the case of trade credit this paper develops optimal pricing lending and renegotiation strategies for companies in relationships where one firm is highly dependent on the other long term trade creditor firm relationships induce dependent trade creditors to grant more concessions in debt renegotiations than nondependent creditors anticipating these larger renegotiation concessions not only do less financially stable firms prefer trade credit but all firms agree to pay a higher interest rate for trade credit the model also explains the existence of teaser interest rates and convenience classes findings are consistent with those of the relationship lending literature

financial intermediation delegated monitoring and long term relationships abstract this paper considers the consequences of enduring relationships for bank structure and policy in an information based banking model adding a richer time dimension allows repeated lending between the intermediary and borrower this contract lets a bank produce information and enforce compliance more easily than direct monitoring of the borrower s organization this implies an asymmetric banking structure banks enter long term relationships with borrowers but not with depositors next it shows how enduring relationships solve problems with loan participations and security underwriting by commercial banks

an economic approach to influence activities in organizations members of organizations spend considerable time effort and ingenuity attempting to influence decision makers such influence activities may bring benefits to the organization but they also involve real costs this essay offers an economic rationale for such influence activity as representing rational self interested behavior in the presence of informational asymmetries and an analysis of how the design of the organization s structure and policies should respond to the incentives for attempting influence it is posited that information valuable for the organization s decision making is directly available only to members of the organization who have some personal stake in the decisions these individuals may then have an incentive to try to manipulate the information they develop and provide in order to influence the resulting decisions to their benefits this can be costly both in degrading the quality of decision making and in diverting the attention and effort of the organization s members from more productive activities the organization has three different methods it can employ to discourage excessive influence activities and to encourage more directly productive uses of time and effort it can limit access to decision makers and participation in decision making it can alter its decision making criteria to favor those performing well in productive activities and it can provide direct financial incentives to encourage the desired allocation of effort it is shown that an efficiently designed organization will use such financial incentives only as a last resort instead it will always first alter its decision participation policies and decisionmaking criteria

dependence structure between nominal and index linked bond returns a bivariate copula and dcc garch approach this article investigates the dependence structure related to four french nominal and index linked bonds with various maturities and reference indices to achieve this aim we estimate various copulas to select the appropriate one for our data we also compare results obtained using the copula method with multivariate dynamic conditional correlation garch dcc garch modelling the major issue in this study is that the best copulas used to model the dependence among bond returns are the plackett and student models we also find a dynamic correlation between bond returns in particular the relationship between nominal and indexed bonds is characterized by an asymmetric dependence moreover the results obtained by the copula approach are confirmed by those obtained by multivariate garch modelling our empirical study provides a useful method that may be employed by decision makers to quantitatively introduce dependence and spillover effects in their bond issuance policy for investors we propose optimal

trade credit and informational asymmetry commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held by offering trade credit a seller can identify prospective defaults more quickly than if financial institutions were the sole providers of short term financing the information is valuable in cases where the seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments traditional explanations for the widespread use of trade credit fall into two categories the financing motive holds that capital market imperfections enable sellers to finance buyer purchases at lower cost than financial institutions ferris 4 argues that trade credit provides payment flexibility and thus reduces the overall need for buyers and sellers to maintain precautionary balances emery 3 contends that noncompetitive rents of financial institutions can be circumvented by sellers and buyers through provision of trade credit however the financing motive is not sufficient to explain why small suppliers offer trade credit the wide cross sectional variation in terms or why large buyers often take the prompt payment discount late a second set of explanations is best described as pricing motivations for trade credit provision nadiri 10 argues that availability of alternative payment terms can increase product demand but does not indicate why the offered terms could not be duplicated by financial institutions schwartz and whitcomb 14 argue that trade credit is used to circumvent robinson patman and similar prohibitions on price discrimination the correctness of this position depends on the charge to users of trade credit exceeding the cost of provision by the seller although the explanation is possible in principle an empirical question remains as to why variations in actual credit terms appear to be based on product market rather than buyer characteristics the literature also contains analyses of the impact of changing macroeconomic conditions on trade credit terms and aggregate credit flows schwartz 13 for example employs a financing motive for trade credit to conclude that restrictive monetary policy can be partly mitigated by liberalization of trade credit terms by firms with relatively easy access to capital markets however a microeconomic

the higher cost of follow up loans this paper uses unique data and looks at the interest margin for follow up finance vis a vis first round finance applying data for asset values we examine the substitution between collateral and interest margins consistent with the theories of bester 1985 besanko and thakor 1987 and the empirical evidence of cressy 1996b we find that a trade off between collateral and interest margins exists our main result indicates that follow up finance is more expensive for loans but not for overdrafts we suggest that a relatively fixed asset base land and buildings as seen in higher security to loan values raises the price and risk of successive financial increments this explains the higher relative cost of follow up finance to borrowers

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

repossession and the democratization of credit we exploit a 2004 credit reform in brazil that simplified the sale of repossessed cars used as collateral for auto loans we show that the reform expanded credit to riskier self employed borrowers who purchased newer more expensive cars the legal change has led to larger loans with lower spreads and longer maturities although the credit reform improved riskier borrowers access to credit it also led to increased incidences of delinquency and default our results shed light on the consequences of a credit reform and highlight the crucial role that collateral and repossession play in the liberalization and democratization of credit

is relationship lending special evidence from credit file data in germany the german financial market is often characterized as a bank based system with strong bank customer relationships the corresponding notion of a housebank is closely related to the theoretical idea of relationship lending it is the objective of this paper to provide a direct comparison between housebanks and normal banks as to their credit policy therefore we analyze a new data set representing a random sample of borrowers drawn from the credit portfolios of five leading german banks over a period of five years we use credit file data rather than industry survey data and thus focus the analysis on information that is directly related to actual credit decisions in particular we use bank internal borrower rating data to evaluate borrower quality and the bank s own assessment of its housebank status to control for information intensive relationships the major results of our study support the view that housebanks are able to establish a distinct behavioral pattern consistent with the idea of long term commitment we find that housebanks do provide liquidity insurance in situations of unexpected deterioration of borrower ratings with respect to loan pricing we find no evidence for intra or intertemporal price differentiation related to housebanking

business cycles and monetary regimes in emerging economies a role for a monopolistic banking sector abstract this study shows that the presence of imperfect competition in the banking system propagates external shocks and amplifies the business cycle strategic limit pricing aimed at protecting retail niches from potential competitors generates countercyclical bank markups markup increments during recessions directly increase borrowing costs for firms and indirectly damage the financial position of firms balance sheets increasing the risk perception of lenders i use bayesian techniques and data from argentina to show that the inclusion of monopolistic banking improves the fit of the new keynesian small open economy model

collateral type of lender and relationship banking as determinants of credit risk abstract this paper analyses the determinants of the probability of default pd of bank loans we focus the discussion on the role of a limited set of variables collateral type of lender and bank borrower relationship while controlling for the other explanatory variables the study uses information on the more than three million loans entered into by spanish credit institutions over a complete business cycle 1988 2000 collected by the bank of spain s credit register central de informacion de riesgos we find that collateralised loans have a higher pd loans granted by savings banks are riskier and finally that a close bank borrower relationship increases the willingness to take more risk

modeling exchange rate dependence dynamics at different time horizons despite an extensive body of research the best way to model the dependence of exchange rates remains an open question in this paper we present a new approach which employs a flexible time varying copula model it allows the conditional correlation between exchange rates to be both time varying and modeled independently from the marginal distributions we introduce a dynamic specification for the correlation using the fisher transformation applied to euro us dollar and japanese yen us dollar our results reveal a significantly time varying correlation dependent on the past return realizations we find that a time varying copula with the proposed correlation specification gives better results than alternative dynamic benchmark models the dynamic copula model outperforms at six different time horizons ranging from hourly to daily confirming the model specification c 2010 elsevier ltd all rights reserved

a longer look at the asymmetric dependence between hedge funds and the equity market this paper reexamines at a range of investment horizons the asymmetric dependence between hedge fund returns and market returns given the current availability of hedge fund data the joint distribution of longer horizon returns is extracted from the dynamics of monthly returns using the filtered historical simulation we then apply the method based on copula theory to uncover the dependence structure therein while the direction of asymmetry remains unchanged the magnitude of asymmetry is attenuated considerably as the investment horizon increases similar horizon effects also occur on the tail dependence our findings suggest that nonlinearity in hedge fund exposure to market risk is more short term in nature and that hedge funds provide higher benefits of diversification the longer the horizon

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

the copula garch model of conditional dependencies an international stock market application abstract modeling the dependency between stock market returns is a difficult task when returns follow a complicated dynamics when returns are non normal it is often simply impossible to specify the multivariate distribution relating two or more return series in this context we propose a new methodology based on copula functions which consists in estimating first the univariate distributions and then the joining distribution in such a context the dependency parameter can easily be rendered conditional and time varying we apply this methodology to the daily returns of four major stock markets our results suggest that conditional dependency depends on past realizations for european market pairs only for these markets dependency is found to be more widely affected when returns move in the same direction than when they move in opposite directions modeling the dynamics of the dependency parameter also suggests that dependency is higher and more persistent between european stock markets

commodity currencies and commodity prices modelling static and time varying dependence abstractthis article employs the copula approach to study the relationship between exchange rates and commodity prices for large commodity exporters using data for the nominal exchange rates of four commodity currencies australian canadian and new zealand dollars and norwegian krone against the us dollar and the relevant country specific commodity price indices constructed on a daily basis we find 1 a positive dependence between the values of commodity currencies and commodity indices i e a commodity index increases when a respective currency appreciates and provides several explanations for this finding 2 no major asymmetries in the tail dependence for most pairs of exchange rates and commodity indices and 3 a pronounced increase in the time varying tail dependence following the global financial crisis

political connection and leverage some malaysian evidence abstract this paper extends prior work on the linkage between politically connected pcon firms and capital structure in developing countries specifically this paper focuses on the association between malaysian pcon firms and leverage and is motivated by the results of fraser et al 2006 who report a positive association between leverage and political patronage controlling for a potential misspecification in that paper this study documents that a significant proportion almost 12 of the malaysian pcon firms have negative equity and builds on the previous paper by providing fresh evidence that market to book ratio is positively associated with leverage and that borrowing pcon firms have significantly lower roa compared to non pcon firms

creditor concentration an empirical investigation most of the literature on multiple banking assumes equal financing shares however unequal asymmetric or concentrated bank borrowing is widespread and creditor concentration is only weakly correlated with the number of bank relationships this paper therefore investigates the determinants of creditor concentration for german firms using a comprehensive firm bank level dataset for the time period between 1993 and 2003 we document that corporate borrowing from banks is very often concentrated even for the largest firms in our sample leveraged firms and firms with more redeployable assets concentrate their borrowing from banks as are firms dealing with a relationship lender that is profitable that has lower monitoring costs or that operates in a concentrated regional lending market

political incentives to suppress negative information evidence from chinese listed firms this paper tests the proposition that politicians and their affiliated firms i e firms operating in their province temporarily suppress negative information in response to political incentives we examine the stock price behavior of chinese listed firms around two visible political events meetings of the national congress of the chinese communist party and promotions of high level provincial politicians that are expected to asymmetrically increase the costs of releasing bad news the costs create an incentive for local politicians and their affiliated firms to temporarily restrict the flow of negative information about the companies the result will be fewer stock price crashes for the affiliated firms during these event windows followed by an increase in crashes after the event consistent with these predictions we find that the affiliated firms experience a reduction an increase in negative stock return skewness before after the event these effects are strongest in the three month period directly preceding the event among firms that are more politically connected and when the province is dominated by faction politics and cronyism additional tests document a significant reduction in published newspaper articles about affected firms in advance of these political events suggestive of a link between our observed stock price behavior and temporary shifts in the listed firms information environment

troubled banks impaired foreign direct investment the role of relative access to credit during the 1980 s theories were developed to explain the striking correlation between real exchange rates and foreign direct investment fdi however this relationship broke down for japanese fdi in the 1990 s as the real exchange rate appreciated while fdi plummeted we propose the relative access to credit hypothesis and show that unequal access to credit by japanese firms contributes to the explanation of declining japanese fdi using bank level and firm level data sets we find that financial difficulties at banks were economically and statistically important in reducing the number of fdi projects by japanese firms into the united states jel g21 f36

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

debtor in possession financing and bankruptcy resolution empirical evidence abstract debtor in possession dip financing is unique secured financing available to firms filing for chapter 11 opponents of dip financing argue that it leads to overinvestment alternatively dip financing can allow funding for positive net present value projects that increase the likelihood of reorganization and reduce time in bankruptcy using a large sample of bankruptcy filings we find little evidence of systematic overinvestment dip financed firms are more likely to emerge from chapter 11 than non dip financed firms dip financed firms have a shorter reorganization period they are quicker to emerge and also quicker to liquidate the reorganization period is even shorter when prior lenders provide the dip financing

who pays the price of brokerage transferring constraint through price setting in the staffing sector this article analyzes how a broker s ability to affect prices and extract superior value from its position has economic consequences for the actors tied to it i argue that intermediaries may exercise partial control in price setting by transferring the price constraints imposed on them by the actors on one side of the market to those on the other side in so doing they generate unequal returns for the brokered parties who then receive different prices due to the nature of the tie between the broker and its other exchange partners i investigate this argument using a novel mix of quantitative and qualitative data gathered from an intermediary in the staffing sector the results show that the broker is able to transfer discounts offered to valued buyers clients on to the sellers workers matched with them instead of reducing its own margins as a result actors with the same resource endowments receive different prices depending on the relationships among other exchange partners in a given triadic ne

the evolution of debt policies new evidence from business startups abstract we investigate the evolution of entrepreneurial firms debt policies over a period of 15 years after startup considering leverage debt specialization debt maturity and debt granularity our analysis is based on a unique sample covering all non financial belgian firms founded between 1996 and 1998 we find that the debt policy of entrepreneurial firms is remarkably stable over time the debt policy in the initial year of operation is a very important determinant of future debt policies even after controlling for traditional contemporaneous determinants the founder ceo has an important impact on the stability of debt policies the influence of initial debt policies on future debt policies is significantly reduced when the founder ceo is replaced or when s he dies combined our findings support imprinting theory

political connection and cost of debt some malaysian evidence abstract this paper investigates the association between malaysian politically connected pcon firms and the cost of debt we extend previous research that finds malaysian pcon firms are perceived as being of higher risk by the market and by audit firms by providing evidence that lenders also perceive these firms as being of higher risk we also find that pcon firms have a significantly 1 higher extent of leverage 2 higher likelihood of reporting a loss 3 higher likelihood of having negative equity and 4 higher likelihood of being audited by a big audit firm we suggest that pcon firms are charged higher interest rates by lenders as a result of efficient contracting given their higher inherent risks additionally we find that ceo duality present in pcon firms is perceived by lenders as being more risky and that a higher proportion of independent directors on the audit committee mitigate this perceived risk

capital structure and political patronage the case of malaysia this paper extends prior work on the links between political patronage and capital structure in developing economies three proxies of political patronage are developed and applied to a group of malaysian firms over a 10 year period we find a positive and significant link between leverage and each of the three measures of political patronage we also find evidence of an indirect link between political patronage and capital structure through firm size and profitability

the variety of maturities offered by firms and institutional investment in corporate bonds we study how a firm s decision to offer bonds of various maturities affects the portfolio allocations of institutional investors we argue that because of lower information collection costs institutional investors tilt their portfolios towards firms that offer bonds of various maturities we show that this translates into lower bond yields both in the primary and in the secondary bond markets

borrowing relationships intermediation and the cost of issuing public securities abstract this paper investigates how an established borrowing relationship affects the costs associated with initial public offerings of equity our model illustrates how the existence of a borrowing relationship reduces the ex ante uncertainty about the value of the issuing firm s equity in the secondary market if underpricing is related to uncertainty a borrowing relationship can reduce underpricing empirically we find that other things equal ipos of firms with previously established borrowing relationships are underpriced substantially less than other ipos

bank credit rates across the business cycle evidence from a french cooperative contracts database abstract financial theory indicates that bank firm relationships can induce a hold up problem resulting in higher interest rates yet only weak empirical confirmation of this result exists moreover the potential influence of the business cycle on the bank firm relationship still requires empirical consideration with a unique contracts data set collected from a french cooperative bank between 1996 and 2009 this study shows that the effects of bank firm relationships on the credit rate depend on economic conditions and that the hold up problem is at play only during economic recessions

free markets and fettered consumers are consumers sufficiently self interested and self reliant so that privatized markets deliver the efficiency and welfare gains they promise why are consumers uncomfortable in markets and in some case sufficiently opposed to market solutions to prevent their implementation what can be done to prepare consumers so that they function satisfactorily in markets and understand the advantages of market based resource allocation this paper examines the foundations of consumer behavior and attitudes in markets and proposes a program of scientific research to determine how consumers cope in privatized markets and the implications for market design of the limits of self reliance

co dependence of extreme events in high frequency fx returns in this paper we investigate extreme events in high frequency multivariate fx returns within a purposely built framework we generalize univariate tests and concepts to multidimensional settings and employ these novel techniques for parametric and nonparametric analysis in particular we investigate and quantify the co dependence of cross sectional and intertemporal extreme events we find evidence of the cubic law of extreme returns their increasing and asymmetric dependence and of the scaling property of extreme risk in joint symmetric tails

building an incentive compatible safety net abstract bank safety nets originally proposed as a means of stabilizing financial systems have become an important destabilizing influence government protection of bank debts encourages banks to undertake excessive risk particularly in response to adverse shocks to asset values reforms that would remove the destabilizing moral hazard consequences of government protection are considered both from the perspective of economic desirability and political feasibility requiring banks to maintain a minimal proportion of subordinated debt finance and restricting the means by which government recapitalization of insolvent banks occurs are the central features of promising reforms to the safety net

the relationship between u k banks and their small business customers much emphasis is placed upon the benefits to both parties of a good relationship between banks and their small business customers having explained the significance of smes in the u k economy the papers goes on to consider briefly some of the arguments which underpin the rationale for these relationships the roles of information and communication are discussed and the poor co ordination between banks smes and their accountants is highlighted evidence from over 6 000 small businesses in response to the forum of private business survey in 1994 is then presented this demonstrates the strong positive association between more participative relationships and more positive perceptions of their banks by firms finally it is suggested that a virtuous circle of information and communication could be established if the parties cooperate in a systematic process of risk assessment

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

the determinants of contract terms in bank revolving credit agreements the paper examines the determinants of contract terms on bank revolving credit agree ments revolvers of medium large publicly traded companies we model the duration maturity secured status and pricing decisions within a simultaneous decision frame work thereby overcoming the biased and inconsistent estimates in prior single equation studies of debt contract terms we find strong interrelationships between contract terms with significant bi directional relationships between duration and secured status and be tween the all in spread and commitment fees and a unidirectional relationship from both duration and secured status to all in spread we also illustrate how several single equa tion studies of contract terms draw incorrect conclusions because of their inappropriate assumption that other contract terms and leverage were exogenous finally our results sup port the hypothesis that the setting of contract terms plays an important role in alleviating contracting problems

lending by example direct and indirect effects of foreign banks in emerging markets using a novel dataset that allows us to trace the bank relationships of a sample of mostly unlisted firms we explore which borrowers are able to benefit from foreign bank presence in emerging markets our results suggest that the limits to financial integration are less tight than the static picture of firm bank relationships implies even though foreign banks are more likely to engage large and foreign owned firms after an acquisition a bank is 20 less likely to terminate a relationship with a firm if the acquirer is foreign rather than domestic most importantly within a credit market firms appear to have the same access to financial loans and ability to invest whether they borrow from a foreign bank or not while foreign banks benefit all firms by indirectly enhancing credit access

corporate lobbying political connections and the bailout of banks abstract political involvement has long been shown to be a profitable investment for firms that seek favorable regulatory conditions or support in times of economic distress but how important are different types of political involvement for the timing and magnitude of political support to answer this question we take a comprehensive look at the lobbying expenditures and political connections of banks that were recipients of government support under the 2008 troubled asset relief program tarp we find that politically engaged firms were not only more likely to receive tarp funds but they also received a greater amount of tarp support and received the support earlier than firms that were not politically involved

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

deregulation technological change and the business lending performance of large and small banks according to deyoung et al journal of financial services research 2004 deregulation and technological change has divided the us banking industryinto two primarysize based groups verylarge banks specializing in the use of hard information to make standardized loans and smaller banks specializing in the use of soft information and relationship development to make non standardized loans we evaluate business lending performance for small and large banks over the 1993 2001 period small business lending bysmall banks is characterized byrelationship development and non standardized loans consistent with deyoung et al s model we find that after controlling for market concentration cost of funds and a variety of other factors that might influence yields smaller banks perform better than larger banks in the small business lending market however larger banks appear to have the advantage in credit card lending a market characterized byimpersonal relationships and standardized loans interestingly we find evidence that larger banks have been making inroads in the market for the smallest business loans a result consistent with the use of credit scoring bylarge banks to make

the financial power of the powerless socio economic status and interest rates under partial rule of law in advanced economies interest rates vary inversely with the borrower s socio economic status which itself depends inversely on default risk these relationships depend on the impartiality of the law where the law is markedly biased in favour of certain groups the latter will pay a surcharge for capital legal power as measured by privileges before the law thus undermines financial power the capacity to borrow cheaply developing this argument this paper also tests it through judicial records from ottoman istanbul 1602 1799 three privileged ottoman groups men muslims and titled elites all paid relatively high interest rates conditional on various loan characteristics this article is protected by copyright all rights reserved

financial liberalisation in emerging markets how does bank lending change financial liberalisation has often failed in the past due to underestimated problems of structural change we analyse such changes in lending behaviour of thai commercial banks during a liberalisation phase by way of unique micro data liberalisation has expected positive effects such as lowering the interest rate spread and collateral requirements liberalisation causes structural change such as a decline in collateral based and relationship banking however the liberal isation evidence is consistent with more risk taking such as lending to more risky projects and less protection against default the thai experience suggests obvious policy lessons

a matter of relational style loan officer consistency and exchange continuity in microfinance social scientists have long considered what mechanisms underlie repeated exchange three mechanisms have garnered the majority of this attention formal contracts relational contracts and relationally embedded social ties although each mechanism has its virtues all three exhibit a common limitation an inability to fully explain the continuation and stability of intertemporal exchange between individuals and organizations in the face of change drawing on extensive quantitative data on approximately 450 000 microfinance loans made by a microfinance institution in mexico from 2004 to 2008 that include random assignment of loan officers this research proposes the concept of relational styles to help explain how repeated exchange is possible in the face of personnel change we define relational styles as systematically reoccurring patterns of interaction employed by social actors within and across exchange relationships in this paper between microfinance clients and loan officers we show that relati

the importance of equity finance for r d activity this article analyzes the importance of equity finance for the r d activity of small and medium sized enterprises we use information on almost 6 000 german smes from a company survey using the intensity of banking competition at the district level as an instrument to control for endogeneity we find that a higher equity ratio is conducive to a higher r d intensity owners may only start r d activities if they have the financial resources to sustain them until successful completion we find a larger influence of the equity ratio for young companies equity may be more important for young companies which have to rely on the original equity investment of their owners since they have not yet accumulated retained earnings and can rely less on bank financing

effect of the number of banking relationships on credit availability evidence from panel data of spanish small firms this paper investigates how the choice between single or multiple banking relationships affects credit availability for a complete panel of small and medium sized spanish firms the results seem to indicate the existence of rationing since a substitution relation has been found between trade and bank credit we also analyse the relationship between the level of indebtedness and the interest rate for each group of firms the results show that those smes that work with fewer financial intermediaries obtain fewer funds for the same increase in the interest rate which indicates that these companies have more financial restraints