testing for asymmetric information in insurance markets the first goal of this paper is to provide a simple and general test of the presence of asymmetric information in contractual relationships within a competitive context we also argue that insurance data are particularly well suited to such empirical investigations to illustrate this claim we use data on contracts and accidents to investigate the extent of asymmetric information in the french market for automobile insurance using various parametric and nonparametric methods we find no evidence for the presence of asymmetric information in this market

do european banks with a covered bond program issue asset backed securities for funding abstract the decline in the issuance of asset backed securities abss since the financial crisis and the comparative advantage of covered bonds cbs as a funding alternative to abss raise the question of whether banks still issue abss as a way to receive funding by applying double hurdle regression models to a dataset of 134 european banks observed during the period from 2007 to 2013 this study reveals that banks with a covered bond program cbp securitize ceteris paribus less of their assets the estimated difference in abs issuance is driven mainly by banks being more likely to issue abss as a funding tool rather than trying to manage their credit risk exposure or to meet regulatory capital requirements consistently a worse liquidity funding position results in higher levels of securitization only for banks without a cbp

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

global imbalances and financial fragility the united states is currently engulfed in the most severe financial crisis since the great depression the crisis was triggered by the crash in the real estate bubble and amplified by the extreme concentration of risk in a highly leveraged financial sector conventional wisdom is that both the bubble and the risk concentration were the result of mistakes in regulatory policy an expansionary monetary policy during the boom period of the bubble and failure to reign in the practices of unscrupulous lenders in this paper we argue that while correct in some dimensions this story misses two key structural factors behind the securitization process that supported the real estate boom and the corresponding lever age first over the last decade the us has experienced large and sustained capital inflows from foreigners seeking us assets to store value caballero emmanuel farhi and pierre olivier gourinchas 2008 second especially after the nasdaq tech bubble and bust excess world savings have looked predominantly for safe debt investments this should not be surprising because a large amount of the capital flow into the us has been from foreign central banks and governments that are not expert investors and are merely looking for a store of value krishnamurthy and annette vissing jorgenson 2008 in this paper we develop a stylized model that captures the essence of this environment the model accounts for three facts observed during the boom and bust phases of the current crisis first during a period of good shocks which we interpret as the period up to the end

the effect of large investors on asset quality evidence from subprime mortgage securities abstract fannie mae and freddie mac the gses the dominant investors in subprime mortgage backed securities before the 2008 crisis substantively affected collateral composition in this market mortgages included in securities designed for the gses performed better than those backing other securities in the same deals holding observable risk constant consistent with the transmission of private information these effects are concentrated in low documentation loans and for issuers that were highly dependent on the gses and were corporate affiliates of the mortgage originators additional analysis of yield spreads shows that these performance differences were not reflected in prices

tax evasion across italy rational noncompliance or inadequate civic concern the paper suggests anexplanation for the geographical dimensionof tax evasion that focuses on thestructure of territorial government taxesadministered by the central government arenot differentiated by regions poor areasmay prefer a combination of lower taxes andlower levels of public services at both thecentral and the local level this isespecially true when income and wealthlevels differ among the areas and thedemand for publicly provided goods iscorrelated to these levels but the use ofnationally uniform tax schedules imposes awelfare burden on poorer areas while thetax rates of local taxes can be adjusted tolocal preferences tax evasion may betacitly accepted as a compensation for thewelfare loss deriving from too highcentrally set tax rates

is the glass steagall act justified a study of the u s experience with universal banking before the glass steagall act of 1933 removed commercial banks from the securities underwriting business we evaluate the argument for the separation of commercial and investment banking that conflicts of interest induce commercial banks to fool the public into investing in securities which turn out to be of low quality a comparison of the performance of securities underwritten by commercial and investment banks prior to the act shows no evidence of this instead the public appears to have rationally accounted for the possibility of conflicts of interest and this appears to have constrained the banks to underwrite high quality securities jel g21 g24 n22

per customer quantity limit and price discrimination evidence from the u s residential mortgage market abstract theoretically if firms face a regulatory per customer quantity limit they should have an incentive to discriminatively charge high demand customers higher prices and make them just willing to buy a quantity equal to the limit in the u s residential mortgage industry mortgages with origination balances above the conforming loan limits cannot be guaranteed by government sponsored enterprises which make lenders face a per customer quantity limit this paper finds that borrowers bunching at the limit pay higher interest rates due to price discrimination this study rules out the alternative explanation that those borrowers are of higher risk lending cost than other borrowers

bank underwriting of debt securities modern evidence this article examines debt securities underwritten by section 20 subsidiaries of bank holding companies relative to those underwritten by investment houses consistent with a net certification effects for banks bank underwriting of lower credit rated firms to whom the bank lends results in relatively higher prices lower yields we find no evidence of conflicts of interest even when an issue is used to repay bank debt further banks bring a relatively larger proportion of small issues to the market contrary to the contention that universal banking stunts availability of finance to small firms bank underwritings appear to benefit small firms article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

mission improbable does petroleum related aid address the resource curse petroleum related aid programmes and projects are a key part of donor activities in oil rich developing countries this paper critically assesses petroleum related aid activities using the norwegian oil for development programme as a main case recent research suggests that institutions or governance are essential in averting a resource curse while governance issues are beginning to receive more attention in these types of programmes they still form a minor part of programme activities the narrow sector focus that characterizes petroleum related aid makes it unlikely that it will produce the higher order institutional changes needed to lift the resource curse petroleum related aid activities address the issue of corruption only to a limited extent given the commercial and political interests of donor countries questions about the integrity and credibility of these types of programmes can be raised

ownership structure speculation and shareholder intervention an institution holding shares in a firm can use information about the firm both for trading speculation and for deciding whether to intervene to improve firm performance intervention increases the value of the institution s existing shareholdings but intervention only increases the institution s trading profits if it enhances the precision of the institution s information relative to that of uninformed traders thus the ability to speculate can increase or decrease institutional intervention we examine key factors that affect the intervention decision the usefulness of short swing provisions and restricted shares in encouraging institutional intervention and implications for ownership structure across different firms institutional investors hold an ever greater fraction of corporate america s equity traditionally these institutions were stock pickers who tried to beat the market through trading if a firm whose stock they held seemed headed for trouble these investors headed for the door the wall street rule more recently some of these institutions have been using the ownership rights attached to their shares to pressure firms to act in the shareholders interest some have even argued that there is a synergy between gathering information for use in trading shares speculation and intelligently pressuring firms to improve performance intervention we argue that these motives can also conflict analyzing these motives allows us to predict which firms are most likely to attract institutional intervention which in turn has crosssectional implications for firm ownership structure recent examples suggest that institutional investors with large stakes sometimes intervene and sometimes follow the wall street rule so that there is indeed a choice to be studied in the early 1990s there was a wave of activism by a variety of large institutional investors among them calpers the california public employees pension fund putnam management a mutual fund manager and j p morgan a bank holding company these institu

the effects of wrongful discharge protection on foreign multinationals evidence from transaction level data using detailed micro level data from 1977 to 1994 we analyze the impact of employment protection measures adopted across us states on the number and the value of new inbound foreign direct investment fdi transactions completed by foreign owned companies our findings point to a robust negative association between the implementation of employment protection laws and both the extensive and the intensive margins of fdi in the us when states adopt regulations that increase employers firing costs fdi transactions by foreign multinational companies become less frequent and decrease in value with stronger negative impacts in more labour intensive industries there is also some evidence of diversion and spillover effects from the adoption of these measures by neighbouring states

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

asymmetric information in insurance general testable implications several recent articles on empirical contract theory and insurance have tested for a positive correlation between coverage and ex post risk as predicted by standard models of pure adverse selection or pure moral hazard we show here that the positive correlationproperty can be extended to general setups competitive insurance markets and cases where risk aversion is public we test our results on a french dataset our tests confirm that the estimated correlation is positive they also suggest the presence of market power

financial regulation and securitization evidence from subprime mortgage loans we examine the consequences of existing regulations on the quality of mortgage loans originations in the originate to distribute otd market the information asymmetries in the otd market can lead to moral hazard problems on the part of lenders we find using a plausibly exogenous source of variation in the ease of securitization that the quality of loan origination varies inversely with the amount of regulation more regulated lenders originate loans of worse quality we interpret this result as a possible evidence that the fragility of lightly regulated originators capital structure can mitigate moral hazard in addition we find that incentives which require mortgage brokers to have skin in the game and stronger risk management departments inside the bank partially alleviate the moral hazard problem in this setting finally having more lenders inside a mortgage pool is associated with higher quality loans suggesting that sharper relative performance evaluation made possible by more competition among contributing lenders can also mitigate the moral hazard problem to some extent overall our evidence suggests that market forces rather than regulation may have been more effective in mitigating moral hazard in the otd market the findings caution against policies that impose stricter lender regulations which fail to align lenders incentives with the investors of mortgage backed securities 2009 elsevier b v all rights reserved

banks and loan sales marketing nonmarketable assets theories of financial intermediation predict that bank loans should not be marketable because of moral hazard problems banks will not conduct credit risk analysis or monitor borrowers if they are not at risk for failing to perform these services throughout most of history bank loans have not in fact been marketable yet by the end of the 1980 s the amount of commercial and industrial loan sales outstanding had grown to over 250 billion from trivial amounts at the beginning of the decade to explain the opening of this loan sales market we present a model of incentive compatible loan sales that allows for implicit contractual features between loan sellers and loan buyers we then test for the presence of these features using a sample of over 800 recent loan sales

securitization and moral hazard evidence from credit score cutoff rules abstract a growing literature exploits credit score cutoff rules as a natural experiment to estimate the moral hazard effect of securitization on lender screening however these cutoff rules can be traced to underwriting guidelines for originators not for securitizers moreover loan level data reveal that lenders change their screening at credit score cutoffs in the absence of changes in the probability of securitization credit score cutoff rules thus cannot be used to learn about the moral hazard effect of securitization on underwriting by showing that this evidence has been misinterpreted our analysis should move beliefs away from the conclusion that securitization led to lax screening

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

financial regulation and securitization evidence from subprime loans we examine the consequences of existing regulations on the quality of mortgage loans originations in the originate to distribute otd market the information asymmetries in the otd market can lead to moral hazard problems on the part of lenders we find using a plausibly exogenous source of variation in the ease of securitization that the quality of loan origination varies inversely with the amount of regulation more regulated lenders originate loans of worse quality we interpret this result as a possible evidence that the fragility of lightly regulated originators capital structure can mitigate moral hazard in addition we find that incentives which require mortgage brokers to have skin in the game and stronger risk management departments inside the bank partially alleviate the moral hazard problem in this setting finally having more lenders inside a mortgage pool is associated with higher quality loans suggesting that sharper relative performance evaluation made possible by more competition among contributing lenders can also mitigate the moral hazard problem to some extent overall our evidence suggests that market forces rather than regulation may have been more effective in mitigating moral hazard in the otd market the findings caution against policies that impose stricter lender regulations which fail to align lenders incentives with the investors of mortgage backed securities

institutions and the resource curse countries rich in natural resources constitute both growth losers and growth winners we claim that the main reason for these diverging experiences is differences in the quality of institutions more natural resources push aggregate income down when institutions are grabber friendly while more resources raise income when institutions are producer friendly we test this theory building on sachs and warner s influential works on the resource curse our main hypothesis that institutions are decisive for the resource curse is confirmed our results contrast the claims of sachs and warner that institutions do not play a role

credit booms and lending standards evidence from the subprime mortgage market this paper links the u s subprime mortgage crisis to demand side factors that contributed to the rapid expansion of the u s mortgage market we show that denial rates were relatively lower in areas that experienced faster credit demand growth and that lenders in these high growth areas attached less weight to applicants loan to income ratios the results are robust to controlling for supply side factors including house price appreciation mortgage securitization and other economic fundamentals and to several robustness tests controlling for endogeneity the results are consistent with the notion that a relaxation of lending standards triggered by an increased demand for loans contributed to the boom and the ensuing crisis together with other supply side explanations these findings shed new light on the relationship between credit booms and financial instability

asymmetric information in securitization an empirical assessment abstract asymmetric information in securitization deals is analyzed based on a unique dataset comprising a million mortgages both securitized and not and using a methodology previously applied to insurance data that looks at the correlation between risk transfer and default probability the main finding is that for given observable characteristics securitized mortgages have a lower default probability than non securitized ones we show that this finding is consistent with banks caring about their reputation for not selling lemons

learning by doing and the dutch disease this paper develops a model of learning by doing and the dutch disease that extends the earlier literature in two ways first it is assumed that both the traded and the non traded sector can contribute to learning second it is assumed that there are learning spillovers between the sectors it is shown that within such a model a foreign exchange gift results in a real exchange rate depreciation in the long run due to a shift in the steady state relative productivity between the traded and the non traded sector in contrast to standard models of the dutch disease production and productivity in both sectors may go up or down the conditions for the different cases are worked out

loan sales and relationship banking firms raise money from banks and the bond market banks sell loans in a secondary market to recycle their funds or to trade on private information liquidity in the loan market depends on the relative likelihood of each motive for trade and affects firms optimal financial structure the endogenous degree of liquidity is not always socially optimal there is excessive trade in highly rated names and insufficient liquidity in riskier bonds we provide testable implications for prices and quantities in primary and secondary loan markets and bond markets further we posit that risk based capital requirements may be socially desirable the term collateralized loan obligations clos was coined in 1989 when corporate loans were first used as collateral in collateralized debt obligations cdos 1 since then the growth in loan sales has been enormous according to lucas et al 2006 1 1 trillion of cdos were outstanding as of 2005 and 50 of their collateral was comprised of loans in addition to pooled securities banks also trade first loss positions on single names through direct sales of individual loans in the united states loan sales have grown from 8 billion in 1991 to 154 8 billion by 2004 2 if a bank securitizes or sells a loan that it originated it is buying insurance on credit events over which it has either more control or more information than the buyer in the face of this informational friction why did the secondary market for corporate loans develop in the 1990s what effect has this had on relationship banking in this paper we characterize when a liquid secondary market for loans arises when a liquid secondary loan market is socially desirable and we provide testable predictions on the effect of the emergence of this market on prices and quantities in bond and primary loan markets our predictions are based on both changes in the parameters that lead to higher loan liquidity and changes in the contracts that are written between banks and firms given this higher liquidity

constitutions and the resource curse abstract utilizing the fact that natural resources are randomly distributed among countries we investigate how public income shocks have different long run economic effects dependent on constitutional arrangements we find that i the so called resource curse is present in democratic presidential countries but not in democratic parliamentary countries ii being parliamentary or presidential matters more for the growth effects of natural resources than being democratic or autocratic and iii natural resources are more likely to reduce growth when proportional electoral systems are in place than when the electoral systems are majoritarian the two first effects appear very robust the last effect less so

default insurance and debt over the life cycle abstract the widespread use of debt and default suggests that unsecured credit markets play an important role in consumption smoothing in this paper i address two previously unanswered questions first how does policy towards debt default affect the evolution of consumption and net worth over the life cycle second how does debt default policy interact with social insurance over the life cycle the findings are as follows first us default policy appears lax in the sense that it creates severe credit constraints especially for the young second eliminating default will lower consumption inequality among the young but will increase it among the old third social insurance alters default risk and in turn loan pricing and therefore matters for purely intertemporal smoothing