collateral heterogeneity in risk attitude and the credit market equilibrium abstract this paper examines the argument that the availability of collateral rules out credit rationing a model of the credit market with ex ante asymmetric information and heterogeneous entrepreneurs attitudes toward risk is set up it is shown that due to the interplay between project choice and entrepreneurs preferences using collateral as a signal to screen safer projects may prove impossible instead a partially separating two contract equilibrium with rationing at one contract emerges contrary to previous theoretical research and consistently with conventional wisdom and systematic evidence the use of collateral is never negatively correlated with project risk

bank capital borrower power and loan rates we examine how bank capital and borrower bargaining power affect loan spreads consistent with previous studies higher bank capital has a negative impact on loan rates but borrower cash flow has a significant effect on this impact compared with high capital banks low capital banks charge more for borrowers with low cash flow but offer greater marginal discounts as these borrowers cash flow rises these effects are largely focused on more bank dependent borrowers we find some evidence that low capital banks charge a higher premium for bank dependent borrowers systematic risk but not for their total equity risk or default risk received january 27 2015 editorial decision july 7 2018 by editor philip strahan authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

corruption and inflation abstract this paper analyzes the relationship between corruption and inflation using alternative indicators of corruption i find a significant positive association between corruption and inflation even after controlling for a variety of other determinants of the latter

special purpose entities and bank loan contracting abstract in this study we show that a firm s use of special purpose entities spes is associated with unfavorable loan contract terms including higher loan rates collateral requirements and restrictive covenants further analyses suggest that the association between the use of spes and unfavorable loan contract terms is primarily due to the increase in the information risk faced by lenders as firm managers can easily use spes to manipulate earnings and hide losses specifically we find that the use of spes has a more pronounced effect on increasing the cost of loans and causing more stringent non price loan terms when managers have a stronger incentive to manipulate earnings and when banks have less knowledge about the spe sponsor firms due to the lack of prior lending relationship in addition we find that the use of spes is associated with a greater likelihood of accounting restatements and greater information asymmetry between inside managers and outside capital suppliers

corruption a review as is increasingly recognised in academic literature and by international organisations corruption acts as a major deterrent to growth and development the aim of this survey is to organise and summarise existing theoretical and empirical work on corruption with a view to identifying opportunities for further research the paper begins with a brief overview of key definitions of corruption and then turns to a review of the factors that favour or deter the growth of corruption together with a brief look at related models this is followed by an examination of the consequences of corruption for society and the consideration of measures that might help to reduce corruption the paper ends with suggestions for future research and includes summaries of data sources and key variables for use in this research

taxes on tax exempt bonds implicit tax rates priced in the cross section of municipal bonds are approximately two to three times as high as statutory income tax rates with implicit tax rates close to 100 using retail trades and above 70 for interdealer trades these implied tax rates can be identified because a portion of secondary market municipal bond trades involves income taxes after valuing the tax payments market discount bonds which carry income tax liabilities trade at yields around 25 basis points higher than com parable municipal bonds not subject to any taxes the high sensitivities of municipal bond prices to tax rates can be traced to individual retail traders dominating dealers and other institutions the issue of how taxes affect asset prices is an important issue in finance accounting and economics in theoretical models examining the effect of taxes

competitive equilibrium in the credit market under asymmetric information abstract we study a competitive credit market equilibrium in which all agents are risk neutral and lenders a priori unaware of borrowers default probabilities admissible credit contracts are characterized by the credit granting probability the loan quantity the loan interest rate and the collateral required the principal result is that in equilibrium lower risk borrowers pay higher interest rates than higher risk borrowers moreover the lower risk borrowers get more credit in equilibrium than they would with full information no credit is rationed and collateral requirements are higher for the lower risk borrowers

deposit insurance reform what are the issues and what needs to be fixed abstract the current problems in the commercial banking industry have led to widespread calls for reform of the deposit insurance contract on the grounds that it promotes moral hazard we review the empirical evidence for the significance of moral hazard as an important cause of the present crisis we then evaluate various reform proposals grouped into two broad classes proposals that seek to impose greater discipline on bank stockholders and proposals to increase the disciplinary role of bank debtholders finally we identify some issues that have received inadequate attention in the literature on bank regulation

symmetrical information and credit rationing graphical demonstrations as this article shows the pro debtor u s bankruptcy code alone can cause credit rationing even without asymmetrical information in the market because the code entails substantial costs to lenders if borrowers file for bankruptcy in the absence of bankruptcy cost lenders are always justified in raising interest rates and clearing markets if the bankruptcy cost is nontrivial however lenders profits are concave in the relevant range of interest rates thus lenders cannot always clear the market by using higher rates the study reported here also found that the use of collateral in debt contracts can reduce rationing but that even 100 percent collateral does not eliminate all rationing possibilities a positive relationship was found between credit risk and the amount of pledged collateral which is not necessarily true with models based on asymmetrical information

banks liquidity and the cost of liquidity to corporations we consider the liquidity shock banks experienced following the collapse of the asset backed commercial paper abcp market in the fall of 2007 to investigate whether banks liquidity conditions affect their ability to provide liquidity to corporations we find that banks that borrowed more from the federal home loan bank system or the federal reserve s discount window following that liquidity shock passed a larger portion of their borrowing costs onto corporations seeking access to liquidity when compared to the precrisis period this increase is larger among banks with a bigger exposure to the abcp market credit lines that pose more liquidity risk to banks and borrowers that are likely dependent on the credit line provider our findings show that the crisis that affected the banking system had a negative effect not only on the price of credit to corporations but also on the price corporations pay to guarantee access to liquidity

lending to small businesses the role of loan maturity in addressing information problems we investigate what determines the maturity of lines of credit to small businesses our results provide strong support for the hypothesis that shorter loan maturities serve to mitigate the problems associated with borrower risk and asymmetric information that are typical of small business lending we find that maturity is shorter for firm owners that have poor credit histories are older and less experienced and for firms that are more informationally opaque supporting the notion that collateral and maturity are substitute mechanisms in mitigating agency problems we also find strong evidence that maturity increases with collateral pledges that personal collateral is associated with longer maturities than business collateral and that collateral types that better mitigate agency problems reduce the sensitivity of loan maturity to informational asymmetries and risk finally while it is argued that relationship lending may mitigate information asymmetry we find no relation between loan maturity and stronger firm creditor ties

the transition of corruption from poverty to honesty measures of corruption and income are highly correlated across countries we use prehistoric measures of biogeography as instruments for modern income levels we find that our instrumented incomes explain the cross country pattern of corruption just as well as do actual incomes this result demonstrates that the long run causality is entirely from income to corruption hence there is a corruption transition as countries get rich corruption vanishes

collateral loan quality and bank risk abstract most commercial loans are made on a secured basis yet little is known about the relationship between collateral and credit risk several theoretical studies find that when borrowers have private information about risk the lowest risk borrowers tend to pledge collateral in contrast conventional wisdom holds that when risk is observable the highest risk borrowers tend to pledge collateral an additional issue is whether secured loans as opposed to secured borrowers tend to be safer or riskier than unsecured loans empirical evidence presented here strongly suggests that collateral is most often associated with riskier borrowers riskier loans and riskier banks

what determines the level of informal venture finance investment market clearing forces and gender effects we undertake the first research to move analysis beyond estimating the propensity for a person to become an informal investor and onto the core concern which is the total volume of venture finance we find that a 1 increase in entrepreneurial activity increases the number of informal investors by 1 7 however the average invested amount declines by 0 8 leading to a net positive total increase of about 0 9 this result indicates that to a considerable extent demand for informal investment creates its own supply as a result the research finds that market forces help solve finance constraints for new ventures and hence lessen the need for public policy intervention this effect is stronger for males than females

a conceptual framework for constructing a corruption diffusion index in this paper we propose a conceptual framework for constructing a diffusion index of changes in overall perceptions with respect to corruption the corruption diffusion index we construct lies between 0 the greatest overall deterioration in corruption perceptions and 100 the greatest overall improvement in corruption perceptions with 50 no change in corruption perceptions as the critical reference the proposed methodology is applied to the 2010 2011 global corruption barometer survey data possible refinements of the proposed methodology to capture the potentially multi dimensional nature of corruption and the practical challenges associated with the empirical implementation are discussed

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

product market competition and the cost of bank loans evidence from state antitakeover laws abstract the extant literature documents a positive relationship between a firm s takeover vulnerability and its agency cost of debt using state antitakeover laws as an exogenous measure of variation in takeover vulnerability i investigate whether product market competition has a disciplinary effect that can lower a firm s cost of bank loans after taking into account the industry composition of borrowers i find that banks charge higher spreads to borrowers that are vulnerable to takeovers but only in concentrated industries in the absence of disciplinary competitive pressure the effect of takeover vulnerability on the cost of bank loans is mitigated for larger firms firms followed by analysts firms with existing credit ratings non family firms and for borrowers with shorter maturity loans or loans with covenants and collateral in place taken together the results suggest that the effect of governance on the cost of financing is not homogenous across all industries and that concentrated industry firms may need to use supplementary governance mechanisms to mitigate debt holder agency problems

bank behavior based on internal credit ratings of borrowers abstract this study examines the relation of bank loan terms to borrower risk defined by the banks internal credit rating the analysis is not restricted to a static view it also incorporates rating transition and its implications on the relation money illusion and phenomena linked with relationship banking are discovered as important factors the results show that riskier borrowers pay higher loan rate premiums and rely more on bank finance housebanks obtain more collateral and provide more finance caused by money illusion in times of high market interest rates loan rate premiums are relatively small whereas in times of low market interest rates they are relatively high there was no evidence for an appropriate adjustment of loan terms to rating changes

the pricing effect of certification on syndicated loans abstract to verify if a delegated monitor can certify its ability to perform its assigned tasks we test whether syndicated loans in which a larger share of the facility is retained by the arranger have lower interest rates for a large sample of syndicated loans in over 80 countries we find that this certification effect exists and is greater for facilities characterized by greater due diligence and monitoring efforts further for listed companies the announcement effect of the new loan on the stock price is an increasing function of the portions of the loan retained by the arranger

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

empirical determinants of corruption a sensitivity analysis many variables have been proposed by past studies as significant determinants of corruption this paper asks if their estimated impact on corruption is robust to alteration of the information set a global sensitivity analysis based on the leamer s extreme bounds analysis gives a clear answer five variables are robustly related to corruption corruption is lower in richer countries where democratic institutions have been preserved for a long continuous period and the population is mainly protestant corruption is instead higher where political instability is a major problem finally a country s colonial heritage appears to be a significant determinant of present corruption

secured lending and default risk equilibrium analysis policy implications and empirical results the authors examine collateral in a competitive equilibrium in which borrowers can choose hidden actions and may additionally possess hidden knowledge apart from explaining the widespread use of collateral despite deadweight costs they show that an increase in the riskless interest rate causes equilibrium loan rates and collateral requirements to increase a decline in the deadweight costs of collateral reduces the equilibrium collateral use under moral hazard and an increase in the borrower s project size reduces equilibrium collateral use under moral hazard some of these predictions are tested and found to be supported by the data copyright 1991 by royal economic society

foreign entry and bank competition abstract foreign entry and bank competition are modeled as the interaction between asymmetrically informed principals the entrant uses collateral as a screening device to contest the incumbent s informational advantage both better information ex ante and stronger legal protection ex post are shown to facilitate the entry of low cost outside competitors into credit markets the entrant s success in gaining borrowers of higher quality by offering cheaper loans increases with its efficiency cost advantage this paper accounts for evidence suggesting that foreign banks tend to lend more to large firms thereby neglecting small and medium enterprises the results also explain why this observed bias is stronger in emerging markets

does corporate lending by banks and finance companies differ evidence on specialization in private debt contracting this paper establishes empirically the existence of specialization in private market corporate lending adding a new dimension to the public versus private debt distinctions now common in the literature comparing corporate loans made by banks and by finance companies we find that the two types of intermediaries are equally likely to finance information problematic firms however finance companies tend to serve observably riskier borrowers particularly more leveraged borrowers evidence supports both regulatory and reputation based explanations for this specialization in passing we shed light on various theories of debt contracting and intermediation and present facts about finance companies

do existing corruption levels matter in controlling corruption cross country quantile regression estimates abstract we examine the determinants of corruption using recent cross sectional data for nearly one hundred countries while the causes of corruption have drawn economists interest in recent years our main contribution is to examine the corruption determinants throughout the conditional distribution of corruption across nations are there different causes of corruption in highly corrupt nations compared to the least corrupt countries for instance we examine whether greater democracy and more economic freedom consistently reduce corruption among the most and the least corrupt our results for the significant determinants support some findings in the literature but also provide new conclusions in many cases quantile regression estimates are quite different from those from ols regressions among the most corrupt nations larger governments and greater economic freedom do not appear to reduce corruption but greater democracy seems to alleviate it our results suggest that some current corruption control policies may be reconsidered especially among the most corrupt and least corrupt nations

short term loans and long term relationships relationship lending in early america recent banking theory holds that durable firm bank relationships are valuable to both parties this paper uses the contract specific loan records of a 19th century u s bank and shows that firms with extended relationships received three principal benefits first firmswith extended relationships had lower credit costs second long term customers provided fewer personal guarantees which were an alternative to collateral third long term customers were more likely to have loan terms renegotiated during a credit crunch these findings support theories that banks realize cost advantages through the use of proprietary information

asymmetric valuations and the role of collateral in loan agreements loan contracts with provision for collateral are of two general types in one the collateral may be an existing asset of the borrowing firm which is pledged to a lender in the event of default in this case collateral does not increase the assets that the borrower would lose if there is default since all the borrower s assets are attachable therefore the expected marginal cost to the borrower of providing an additional unit of collateral includes principally transactions costs associated with the collateral l this describes the usual type of commercial loan arrangement with the collateral being either equipment real estate accounts receivable or inventories in the other type of loan contract the collateral is an additional asset that is given up by the borrower if there is default that is in addition to the usual assets that are available to its lenders the borrower assigns as collateral to a creditor an asset that would normally not be legally attachable this arrangement is more common in small business loans that are secured by a personal asset e g a house of the entrepreneur likewise debt issued by a legally separate subsidiary may be secured by an asset of the parent firrn in these cases the expected marginal cost to the borrower the owner manager of the small firm or the parent corporation in the latter example of providing an additional unit of collateral

economic uncertainty and corruption evidence from a large cross country data set a vast amount of research has considered numerous causes and correlates of corruption also there have been many studies of the consequences of various forms of uncertainty however exploration of the nexus between economic uncertainty and corruption appears scarce after providing an intuitive and heuristic linkage between general economic uncertainty and corruption this article uses a large cross country data set to augment a fairly standard model with simple proxies for uncertainty and to investigate how economic uncertainty might affect the prevalence of corruption in addition a quantile regression framework is used to judge how the strength of various covariates may differ with the level of corruption seven main points emerge from the estimates first economic uncertainty is associated positively with corruption and the relation seems to be robust across measures of uncertainty and corruption second quantile regression estimates indicate considerable parametric heterogeneity across the dist

collateral and competitive equilibria with moral hazard and private information the authors examine equilibrium credit contracts and allocations under different competitivity specifications and explain the economic roles of collateral under these specifications both moral hazard and adverse selection are considered the principal message is that how a competitive equilibrium is conceptualized significantly affects the characterization of equilibrium credit contracts specifically some well known results in the rationing literature are shown to rest delicately on the adopted equilibrium concept two somewhat surprising results emerge first high quality borrowers with unlimited collateral may be priced out of the market despite the bank having idle deposits second high quality borrowers may put up more collateral this paper explores the allocational consequences of alternative credit market competitivity specifications and explains the different economic roles of collateral under these specifications we model banks that lend to borrowers financing projects with payoffs depending on a priori unknown borrower attributes and ex post unobservable borrower actions borrowers are assumed to have unconstrained access to collateral our analysis is based on two concepts of competitive equilibrium under both banks compete in the sense that they earn zero expected profits however under the first concept of equilibrium ti as in jaffee and russell 11 all rents accrue to borrowers whereas under the second concept t2 all rents accrue to depositors as in stiglitz and weiss 17 our research makes two main points first we demonstrate that the manner in which a competitive equilibrium is conceptualized importantly influences the characterization of equilibrium credit allocations specifically one of the findings is that the rationing equilibria of stiglitz and weiss 17 and others should be viewed as rather delicate things in that they are very sensitive to the competitivity specification used for instance

eight questions about corruption this paper will discuss eight frequently asked questions about public corruption 1 what is corruption 2 which countries are the most corrupt 3 what are the common characteristics of countries with high corruption 4 what is the magnitude of corruption 5 do higher wages for bureaucrats reduce corruption 6 can competition reduce corruption 7 why have there been so few recent successful attempts to fight corruption 8 does corruption adversely affect growth

drilling and debt this paper documents a previously unrecognized debt related investment distortion using detailed project level data for 69 firms in the oil and gas industry we find that highly levered firms pull forward investment completing projects early at the expense of long run project returns and project value this behavior is particularly pronounced prior to debt renegotiations we test several channels that could explain this behavior and find evidence consistent with equity holders sacrificing long run project returns to enhance collateral values and by extension mitigate lending frictions at debt renegotiations

disequilibrium in the uk corporate loan market in the last decade a debate has resurfaced about whether financial constraints stemming from asymmetric information and incentive problems play an important role in propagating monetary policy shocks this paper investigates the monetary transmission mechanism in the uk and its impact on the availability of bank credit to small and medium size firms the empirical specification is based on a disequilibrium model that allows for the possibility of transitory credit rationing sample firms are classified endogenously into borrowing constrained and borrowing unconstrained the analysis of credit rationing takes into account not only firm specific variables but also important macroeconomic factors such as the prevailing monetary conditions and the stage of the business cycle we find that i firms assets play an important role as collateral in mitigating borrowing constraints ii during periods of tight monetary conditions corporate demand for bank credit increases whereas the supply of bank loans is reduced iii to avoid bank credit rationing smaller companies increase their reliance on interfirm credit iv the proportion of borrowing constrained firms is significantly higher during the recession years of the early 1990s than at other times

comovement or safe haven the effect of corruption on the market risk of sovereign bonds of emerging economies during financial crises in this study i explore the role of corruption in the cross market time varying linkage between sovereign bonds of emerging markets and the us stock market it shows that corruption plays a prominent role in the behaviour of capm beta under different market conditions the sensitivity of sovereign bonds issued by countries perceived as more corrupt to systematic shocks increases during financial crises the prices of bonds issued by less corrupt countries are determined more idiosyncratically under extreme market conditions and realize more hedging benefits against s p 500 risk to explain these findings i integrate results from behavioural finance i propose a comovement model built on barberis et al 2005 where investors load more worldwide news on sovereign bonds issued by more corrupt countries when their sentiment deteriorates

negotiated measurement rules in debt contracts this paper investigates contractual definitions of net income and net worth and the cross sectional variation in definitions of net income in a large sample of private debt contracts to shed light on the debt contracting demand for accounting numbers the descriptive evidence indicates that removing transitory earnings is one principal concern in the measurement of earnings but not in the measurement of net worth in the extreme contracts are never written on comprehensive income as an earnings concept whereas accumulated other comprehensive income is included in net worth in most contracts in contrast conservative adjustment in the sense of including certain types of negative earnings but not the corresponding positive earnings does not seem to be a primary consideration in measuring net income and net worth cross sectionally i find that net income is more likely to be defined differently from the gaap when net income plays a more important role in a contract when the loan maturity is longer and when transitory earnings are less useful for debt contracting collectively the evidence shows that debt contracting parties choose contracting variables in a manner consistent with efficient contracting and that transitory earnings are relatively less useful in measuring firm performance for debt contracting

unfair credit allocations this article investigates the impact of credit allocation on heterogeneous wealth entrepreneurs we show that with decreasing risk aversion and unobservable wealth poorer borrowers exert more effort as a consequence of endogenous adverse selection they are either excluded from the market or necessarily subsidize richer borrowers in a pooling equilibrium resulting in a paradoxical and inequitable redistribution alternatively a less likely separating equilibrium may occur in which poor types bear the entire weight of separation in the form of excess risk taking

collateral and rationing sorting equilibria in monopolistic and competitive credit markets the authors examine how market structure affects credit allocation under universal risk neutrality and asymmetric information about borrowers they consider both monopolistic and perf ectly competitive banks and examine the role of collateral in each ca se when a bank is a monopolist on the loan side they find collatera l is never used and asymmetric information results in reduced bank le nding under perfect competition collateral has a useful sorting rol e moreover rationing is possible even with collateral availability and perfectly elastic deposit supply in this setting the authors sh ow co signers are valuable social welfare properties of the monopoly and competitive equilibria are also compared copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

clustered pricing in the corporate loan market theory and empirical evidence abstract existing theories explaining security price clustering as well as clustering in the retail deposit and mortgage markets are incompatible with the clustering in the corporate loan market we develop a new theoretical model that the attitude of the lender toward the uncertainty about the quality of the borrower leads to the clustering of spreads our empirical results support our theoretical model and we find that clustering increases with the degree of uncertainty between the lender and the borrower in contrast clustering is less likely when the uncertainty about the quality of the borrower has been reduced through repeated access and through prior interactions of the lender and the borrower

public guarantee schemes corruption and gender a european sme level analysis does a corrupt politico institutional environment affect the demand of public subsidies for credit access so called public guarantee schemes by small and medium sized enterprises smes helmed

cost of capital and public loan guarantees to small firms in this paper we study the determinants of the spread charged by banks under a uk policy intervention scheme aimed at supporting access to the credit market for small firms through guarantee backed loans we exploit a unique dataset containing data on 29 266 guarantee backed loans under the uk sflg scheme over the period 2000 to 2005 results suggest that lower spreads are offered for loans of larger amounts and higher durations for service firms for larger firms and for those located in the most advanced regions higher spreads are applied to high tech manufacturing firms and to loans issued for working capital purposes we also find that the presence of other extant debt is associated with a relatively higher spread and that this effect is especially significant for the subset of firms that have reached a maximum debt capacity based on collateralized assets further we also find that the higher the incidence of the publicly guaranteed debt over the total amount of outstanding loans the lower on average the spread however an increase in the guaranteed coverage leads to a contraction in the spread only for loans aimed at covering working capital needs rather than investments

the value of private sector business credit information sharing the us case this paper investigates the value added by private information exchanges that share information on business payment performance we discuss how this information is collected and disseminated by the worlds largest private information broker dun bradstreet we provide the first empirical examination of the importance of this information at the lending decision level our findings indicate that exchange generated information provides significant explanatory power in failure prediction models controlling for other credit information that is easily available to lenders our study complements the work of jappelli and pagano information sharing lending and defaults cross country evidence centre for economic policy research discussion paper 2184 1999 who find in cross country macro level tests that information exchanges add value 2003 elsevier science b v all rights reserved

assessing the effect of public subsidies on firm r d investment a survey this survey examines the empirical literature on the relationship between public r d subsidies and private r d investment over the past five decades the survey reveals a considerable heterogeneity of empirical results that cannot be explained fully by methodological issues we aim to provide further explanations of the possible causes of that heterogeneity in particular we emphasise a set of issues that in our view are critical to understanding the potential effect of public r d subsidies on private r d spending special attention is paid to the dynamic aspects and composition of firm r d the constraints faced by the firm such as financial constraints and the amount and source of public subsidies none of these issues have been investigated in depth we formulate a set of research assumptions to guide future empirical research in this field

on the profitability and cost of relationship lending abstract we provide evidence on the costs and profitability of relationship lending by banks we derive bank specific measures of loan rate smoothing for small business borrowers in response to exogenous shocks to their credit risk and to interest rates and then estimate cost and profit functions to examine how smoothing affects bank costs and profits our results suggests that in general loan rate smoothing in response to a credit risk shock is not part of an optimal long term contract between a bank and its borrower while loan rate smoothing in response to an interest rate shock is

tax loss selling and the january effect evidence from municipal bond closed end funds this paper provides direct evidence supporting the tax loss selling hypothesis as an explanation of the january effect examining turn of the year return and volume patterns for municipal bond closed end funds which are held mostly by tax sensitive individual investors we document a january effect for these funds but not for their underlying assets we provide evidence that this effect can be largely explained by tax loss selling activities at the previous year end moreover we find that funds associated with brokerage firms display more tax loss selling behavior suggesting that tax counseling plays a role among the numerous stock return anomalies probably none has generated more interest than that of the turn of the year or january effect the phenomenon in which small capitalization stocks realize unusually high returns in early january 1 the literature offers a number of hypotheses to explain this phenomenon including the tax loss selling hypothesis the window dressing hypothesis the insider trading information release hypothesis and the seasonality of the risk return relation hypothesis given existing evidence in some support for the first two hypotheses the debate continues with respect to which of these the tax loss selling of individual investors or the window dressing of

commitment lending under asymmetric information theory and tests on u k startup data u k business startup data is used to examine the role of contract parameters in solving the bank s problem of lending under asymmetric information margins are found to be a direct function of the probability of failure and an inverse function of security for given loan size consistently with collateral being invoked to solve the moral hazard problem business survival is also found to be enhanced by owner equity inputs for given debt again consistent with a requirement for owner financial inputs to enhance unobservable effort security rises along with loan size and survival chances a finding consistent with a a firm loan size effect larger borrowers have lower marginal admin cost to the bank and with b positive borrower self selection better borrowers offer collateral because they are less likely to experience forfeiture observable business characteristics are found to play an important intermediary role in the solution to the moral hazard problem more mature proprietors have more experience business commitment assets for borrowing and the willingness to use them for loan collateral their contract parameters reflect these facts

the real effect of banking crises finance or asset allocation effects some international evidence abstract this paper analyzes whether the decline in economic growth that follows a banking crisis occurs because of a reduction in the amount of credit available finance effect or a worsening in the allocation of investable resources asset allocation effect we use a sample of more than 2500 industrial firms in 18 developed and developing countries that experienced 19 systemic banking crises between 1989 and 2007 the results indicate that banking crises negatively affect firms intangible investments which intensifies the economic downturn the negative growth effect produced by the worsening of the investment allocation is stronger in countries with highly developed financial systems and institutions

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

a free press is bad news for corruption abstract this paper tests the proposition that a free press may be a powerful control on corruption we find evidence of a significant relationship between more press freedom and less corruption in a large cross section of countries this result is robust to specification and sample and the relationship is not sensitive to the choice of a particular measure of corruption or of press freedom furthermore we present evidence which suggests that the direction of causation runs from higher press freedom to lower corruption

role of collateral and personal guarantees in relationship lending evidence from japan s sme loan market this paper investigates the determinants of the use of collateral and personal guarantees in japan s sme loan market we find that firms riskiness does not have a significant effect on the likelihood that collateral is used we find however that main banks whose claims are collateralized monitor borrowers more intensively and that borrowers who have a long term relationship with their main banks are more likely to pledge collateral these findings are consistent with the theory that the use of collateral is effective in raising the bank s seniority and enhances its screening and monitoring this incentive effect for the bank becomes tenuous for personal guarantees

default risk cannot explain the muni puzzle evidence from municipal bonds that are secured by u s treasury obligations fama 1977 and miller 1977 predict that one minus the corporate tax rate will equate after tax yields from comparable taxable and tax exempt bonds empirical evidence shows that long term tax exempt yields are higher than theory predicts two popular explanations for this empirical puzzle are that relative to taxable bonds municipal bonds bear more default risk and include costly call options i study u s government secured municipal bond yields which are effectively default free and nonmalleable these municipal yields display the same tendency to be too high i conclude that differential default risk and call options do not explain the municipal bond puzzle article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

regional determinants of small firm loans under the u k loan guarantee scheme the loan guarantee scheme was initiated in 1981 in order to alleviate a perceived constraint in the ability of small firms to secure bank finance due to a lack of collateral this paper shows that a national small firms support scheme has at the point of delivery had quite different coverage across regions briefly the initial evidence suggests that the northern regions of england have been the major net beneficiaries of the scheme primarily at the expense of northern ireland and scotland further analysis identified house prices as the single most important determinant of loan size acting via a collateral effect on loan numbers and value fixed regional effects were dominant particularly in the south east and north west

does variability in crimes affect other crimes the case of international corruption and shadow economy abstractusing data on more than 125 countries this article attempts to add to the research linking corruption and the shadow economy by examining the effect of variability uncertainty in one whi

tax distortions and bond issue pricing abstract original issue premium oip bonds are the norm in the us tax exempt market but very rare in the taxable market a tax subsidy helps explain this disparity unlike bonds issued at par or discount the price of oip bonds can fall and yet remain above par providing secondary market buyers with more tax exempt coupon and less taxable market discount gain the subsidy for oip bonds explains additional previously undocumented empirical facts in a calibration exercise the subsidy s expected cost to the u s treasury is estimated at 1 7 billion per year

a factor analytic approach to bank condition abstract this paper explores a new approach to early warning systems for commercial banks factor analysis and logit estimation are used to measure the condition of individual institutions and to assign each of them a probability of being a problem bank the model employs widely used financial ratios and information taken from bank examinations the factors produced by the model for use in the logit estimation are very similar to the camel rating system used by bank examiners empirical results show that the combination of factor analysis and logit estimation is a promising method of evaluating bank condition

organizational distance and use of collateral for business loans abstract this paper examines the effect of organizational distance i e distance between the headquarters of the bank that grants a loan and the location of the borrower on the use of collateral for business loans by spanish banks on the basis of the recent lender based theory of collateral inderst r mueller h m 2007 a lender based theory of collateral journal of financial economics 84 826 859 we find that for the average borrower the use of collateral is higher for loans granted by local lenders than by distant ones we also show that the difference in the likelihood of collateral in loans granted by local lenders relative to distant lenders is higher among older and larger firms than respectively younger and smaller firms we also find that banks use lending technologies that are different for near and for distant firms in response to organizational diseconomies

the importance of accounting changes in debt contracts the cost of flexibility in covenant calculations abstract in this paper we examine how the exclusion of voluntary and mandatory accounting changes from the calculation of covenant compliance affects the interest rate charged on the loan after controlling for self selection bias and other factors known to affect loan spreads we find that the rate charged is 84 basis points lower when voluntary accounting changes are excluded and 71 basis points lower when mandatory accounting changes are excluded our results suggest that borrowers are willing to pay substantially higher interest rates to retain accounting flexibility that may help them avoid covenant violations and to avoid duplicate record keeping costs

a simple model of the taxable and tax exempt yield curves i examine the anomalous behavior of the taxable and tax exempt yield curves long municipal yields appear too high relative to the equivalent after tax yield that can be earned in treasury or corporate bonds i discuss existing explanations of the problem and propose a simple model that relates the yields of taxable bonds to the yield curve for par tax exempts the ratio of the tax exempt yield to the taxable yield increases with maturity in the model so it is consistent with observed phenomena such as inverted yield curves for taxables and contemporaneous rising yield curves for tax exempts statistical and descriptive comparisons between the yields predicted by the model and observed yields on par bonds that the model has some promise in explaining the apparent anomalies in the behaviors of the two yield curves article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

monetary policy in a financial crisis what are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis under what conditions will a cut stimulate output and employment and raise welfare under what conditions will a cut have the opposite effects we answer these questions in a general class of open economy models where a financial crisis is modeled as a time when collateral constraints are suddenly binding we find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy then a cut in the interest rate is most likely to result in a welfare reducing fall in output and employment when these frictions are absent a cut in the interest rate improves asset positions and promotes a welfare increasing economic expansion

the price concentration relationship in banking the commonly observed positive correlation between market concentration and profitability may be explained by noncompetitive pricing behavior as argued by the structure performance hypothesis or by the greater efficiency of firms with dominant market shares as argued by the efficient structure hypothesis by examining the price concentration relationship instead of the profit concentration relationship this paper tests the structure performance hypothesis in a manner that excludes the efficient structure hypothesis as an alternative explanation of the results the results strongly support the structure performance hypothesis and are robust with respect to model specification measurement of concentration and econometric technique copyright 1989 by mit press