a model of forum shopping owners of intellectual property or mere sponsors of an idea e g authors security issuers sponsors of standards resort to more or less independent certifiers to persuade potential users buyers or adopters of the worth of their property or idea we analyze the sponsor s choices ofcertifier and design social preferences regarding these choices and the impacts thereon of multiple categories of users of a downstream presence of the sponsor and of certifier market power finally we study strategic forum shopping by sponsors of competing ideas

federal borrowing and short term interest rates this paper is an empirical study of the effects of federal government borrowing on short term interest rates it is often taken for granted that increases in federal borrowing cause higher short term rates but little empirical support exists for this assumption in fact this paper demonstrates that federal borrowing is a relatively unimportant and insignificant determinant of short term rates an implication of this result is that financial crowding out effects of government deficit spending may not be overly large postulates about interest rate behavior are the driving force behind many hypotheses of the crowding out literature however these interest rate effects have received relatively little direct attention in this literature this is surprising since as a general rule the stronger the interest rate effect is the stronger the crowding out effect will be an empirical determination of the size of the deficit spending interest rate effect gives some empirical content to the crowding out controversy in section ii of this paper the relationship between federal borrowing interest rates and crowding out is discussed and a loanable funds model of short term interest rates is developed in section iii the regression model is generated and tested the essential result is that variation in three month treasury bill rates is caused by expected inflation changes in the monetary base and by changes in the level of economic activity there is no statistically significant relation between short term interest rates and federal borrowing in section iv additional regression tests are performed which confirm the results in section iii and the problem of simultaneous equation bias is discussed the final part of the paper is a discussion of some implications of the results reported in sections iii and iv

evidence on whether banks consider carbon risk in their lending decisions banks face a dilemma in choosing between maximising profits and facilitating the sustainable use of resources within a carbon constrained future this study provides empirical evidence on this dilemma investigating whether a bank loan announcement for a firm with high carbon risk conveys information to investors about the firm s carbon risk exposure collected through a bank s pre loan screening and ongoing monitoring we use a sample of 120 bank loan announcements for asx listed firms over the period 2009 2015 we measure high low carbon risk exposure based on whether firms meet do not meet the reporting threshold of the nger scheme we document positive and significant excess loan announcement returns for loan renewals for high carbon risk firms but not for loan initiations further we document a more significant loan announcement return for renewals with favourable term revisions finally we find no evidence that the market differentiates between domestic and foreign lenders taken together our results suggest that investors perceive that banks incorporate carbon risk considerations into their lending decisions our results highlight the value of banks as financial intermediaries given the information asymmetry surrounding firms carbon risk exposure and more generally the need to extend modern banking theory to consider issues such as the impact of banks csr reputation on lending decisions

underwriting by commercial banks incentive conflicts scope economies and project quality the authors study the issue of commercial bank underwriting of securities their analysis examines the incentive conflict faced by intermediaries that both lend and underwrite securities thereby imposing a cost on their customers seeking to raise capital despite this cost firms may choose to use such an intermediary if there are sufficiently large scope economies in combined lending and underwriting the authors demonstrate that the regulatory separation of such combined intermediation may be optimal if firms recognize the intermediary s subsequent incentive conflict when choosing projects to be funded and if there is a social cost to bank funding of poor quality projects they also examine the conditions for intermediaries reputation building to mitigate the incentive conflict without the need for regulation

do banks provide financial slack we study the decision to choose bank debt rather than public securities in a firm s marginal financing choice using a sample of 500 firms over the 1980 to 1993 time period we find that firms are relatively more likely to choose bank loans when variables that measure asymmetric information problems are elevated the sensitivity of the likelihood of choosing bank debt to information problems is greater for firms with no public debt outstanding these results are consistent with the hypothesis that banks help alleviate asymmetric information problems and that firms weigh these information benefits against a wide range of contracting costs when choosing bank financing why do some firms borrow from public sources while others rely exclusively on private lenders the answer to this question is not well understood existing theories suggest that a firm must consider the tradeoff between the benefits and costs of bank debt financing relative to other potential financing choices the potential benefits of bank financing include low moral hazard and adverse selection costs and ease of renegotiation in financial distress 1 the potential costs of bank financing include monitoring costs suboptimal liquidation outcomes and distortions induced by information monopolies 2 the goal of this paper is to identify whether adverse selection problems influence a firm s choice between new bank debt public debt or common stock in particular we are interested in assessing the empirical validity of the hypothesis that banks have the ability to accurately price a firm s claims thus inducing a preference for firms that are undervalued by the market to

drexel burnham lambert s bankruptcy and the subsequent decline in underwriter fees abstract in the 1980s drexel burnham lambert dominated the underwriting of junk bonds with close to a 50 market share in 1990 drexel went bankrupt and was liquidated and the percentage underwriting fees for junk bonds subsequently dropped dramatically we present strong evidence that the exit of drexel burnham lambert and the resulting increase in competition for market share were major contributing factors to the decline in junk bond underwriter fees

finance as a driver of corporate social responsibility finance is grease to the economy therefore we assume that it may affect corporate social responsibility csr and the sustainability of economic development too this paper discusses the transmission mechanisms between finance and sustainability we find that there is no simple one to one relationship between financial development and sustainable development but there are various often indirect linkages it appears that most of the literature concentrates on the role of public shareholders when it comes to changing corporate policy and performance in a more sustainable direction however this focus neglects the potential impact of the credit channel and private equity on a firm s non financial policies and performance these very powerful mechanisms can govern business policies and practices therefore there appears to be much more scope for finance to promote socially and environmentally desirable activities and to discourage detrimental activities than has been acknowledged in the academic literature so far

bond underwriting by banks and conflicts of interest evidence from japan during the pre war period abstract article 65 of the securities and exchange law of japan which was carried into effect in 1948 prohibited banks from underwriting corporate securities partially because of the concern that combining the banking and securities businesses might result in a potential conflict of interest this paper studies the pricing and long term default performance of industrial bonds underwritten by commercial banks the industrial bank of japan ibj and trust firms as compared to those underwritten by investment houses during the pre war period in japan when banks were allowed to underwrite industrial bonds the evidence rejects the concern about the conflicts of interest

corporate social responsibility in the international banking industry this article aims at providing a framework to assess corporate social responsibility with international banks currently it is mainly rating institutions like eiris and kld that provide information about firms social conduct and performance however this is costly information and it is not clear how the rating institutions arrive at their conclusion we develop a framework to assess the social responsibility of internationally operating banks we apply this framework to more than 30 institutions and find significant differences among individual banks countries and regions furthermore it appears that social responsibility of these banks has significantly improved between 2000 and 2005

risk reputation and ipo price support immediately following an initial public offering underwriters often repurchase shares of poorly performing offerings in an apparent attempt to stabilize the price using proprietary nasdaq data i study the price effects and determinants of price support some of the key findings are 1 stabilization is substantial inducing price rigidity at and below the offer price 2 i find no evidence that stocks with larger information asymmetries are stabilized more strongly 3 larger underwriters stabilize more perhaps to protect their reputations with investors and 4 investment banks with retail brokerage operations stabilize much more than other banks inconsistent with the view that stabilization benefits primarily institutional investors

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

new evidence on financial crowding out this paper has provided evidence that federal government borrowing has in fact as least for the period 1970 through 1982 exercised a significant impact upon short term interest rates in the private sector in particular it is shown here that the rate of change of the interest yield on three month t bills exercises a positive and very highly significant impact upon the rate of change of the prime rate of interest to the extent that private sector spending is sensitive to the interest rate a very strong argument on behalf of financial crowding out can be made

risky debt investment incentives and reputation in a sequential equilibrium the agency relationship of corporate insiders and bondholders is modeled as a dynamic game with asymmetric information the incentive effect of risky debt on the investment policy of a levered firm is studied in this context in a sequential equilibrium of the model a concept of reputation arises endogenously resulting in a partial resolution of the classic agency problem of underinvestment the incentive of the firm to underinvest is curtailed by anticipation of favorable rating of its bonds by the market this anticipated pricing of debt is consistent with rational expectations pricing by a competitive bond market and is realized in equilibrium some empirical implications of the model for bond rating debt covenants and bond price response to investment announcements are explored

anticompetitive financial contracting the design of financial claims this paper presents the first model where entry deterrence takes place through financial rather than product market channels in standard models of the interaction between product and financial markets a firm s use of financial instruments deters entry by affecting product market behavior whereas in our model entry deterrence occurs by affecting the credit market behavior of investors towards entrant firms we find that in order to deter entry the claims held on incumbent firms should be sufficiently risky i e equity in contrast to the standard branderlewis 1986 result that debt deters entry the model sheds light on the policy debate on the separation of banking as to whether banks should be permitted to hold equity in firms it also provides an explanation for why venture capitalists hold automatically convertible securities in start up firms

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

information reliability and a theory of financial intermediation this paper is an analysis of when it will be beneficial for agents engaged in the production of information to form coalitions the model is cast in a financial market framework thus leading to an identification of conditions sufficient for the existence of financial intermediaries intermediation is shown to improve welfare if informational asymmetries are present and the information generated to rectify these asymmetries is potentially unreliable the usual appeal to transactions costs to explain intermediation is not needed

on the coexistence of banks and markets we examine the coexistence of banks and financial markets by studying a credit market where the qualities of investment projects are not observable and the investment decisions of entrepreneurs are not contractible standard banks can alleviate moral hazard problems while financial markets operated by investment banks can alleviate adverse selection problems in competition standard banks are forced to increase repayments since financial markets can attract the highest quality borrowers this in turn increases the share of shirkers and may make lending unprofitable for standard banks the coexistence of financial markets and standard banks is socially inefficient the same inefficiency may occur with the entrance of sophisticated banks operating with a combination of rating and ongoing monitoring technologies

the berlin stock exchange in imperial germany a market for new technology analysing 474 cases of firms going public in the german capital between 1892 and 1913 we show that innovative firms could rely on the berlin stock market as a source of financing the data also reveal that initial public offerings ipo of innovative firms were characterized by particularly low underpricing comparatively high first trading prices and no long run underperformance we interpret these empirical results as evidence for the surprising fact that contemporary investors had rational expectations

market response to bank relationships evidence from korean bank reform abstract this paper examines how the forced closure of failing banks and the transfer of their loans to surviving banks affect the market value of firms that borrow from the closed banks pre existing relationships between firms and the banks that acquire their loans are detrimental to the positive valuation effects of the event banks may have an incentive to favor pre existing relationships to increase the value of previously extended loans therefore loan renewals to firms with prior relationships do not signal borrower quality to the market which is aware of the banks conflicts of interest this study highlights the importance of the specific mechanisms employed to replace failed banks without decreasing the value of their client firms

signalling and the pricing of new issues this paper develops a signalling model with two signals two attributes and a continuum of signal levels and attribute types to explain new issue underpricing both the fraction of the new issue retained by the issuer and its offering price convey to investors the unobservable intrinsic value of the firm and the variance of its cash flows many of the model s comparative statics results are novel empirically testable and consistent with the existing empirical evidence on new issues in particular the degree of underpricing which can be inferred from observable variables is positively related to the firm s post issue share price

the peaceful conspiracy bond markets and international relations during the pax britannica this article provides foundations to polanyi s famed argument that monopoly power in the global capital market served as an instrument of peace during the pax britannica 1815 1914 our perspective is novel we focus on the role of intermediaries and certification we show that when information and enforcement are imperfect there is scope for the endogenous emergence of prestigious intermediaries who enjoy a monopoly position and as a result control government actions they can implement conditional lending they subject the distribution of credit to the adoption of peaceful policies prestigious intermediaries act that way because of their concern with maintaining an unblemished track record when wars increased risks of default our analysis which brings together insights from different disciplines provides a significant extension to and departure from recent research on how countries accumulate reputational capital

investment bank reputation and the price and quality of underwriting services the relation between investment bank reputation and the price and quality of bond underwriting services is studied here after controlling for endogeneity in issuerunderwriter matching i find that reputable banks obtain lower yields and charge higher fees but issuers net proceeds are higher these relations are pronounced in the junk bond category in which reputable banks underwriting criteria are most stringent these findings suggest that banks underwriting decisions reflect reputation concerns and are thus informative of issue quality they also suggest that economic rents are earned on reputation and thereby provide continued incentives for underwriters to maintain reputation in capital markets investment banks play the important role of bridging firms that need capital with investors that seek investment opportunities intermediation services are valuable first because the banks specialization in the sales and marketing of securities helps lower the issuers transactional costs of borrowing but perhaps more importantly investment banks can provide value through their role in lowering the issuers informational cost of capital this role arises from the information asymmetry that typically exists between insiders the issuing firms and outsiders the investors in security issuance events such an information gap as akerlof demonstrated in his classic 1970 paper at best causes investors to discount the securities and at worst can threaten the existence of the market investment banks standing between the insiders and the outsiders seem to be in the perfect position to reduce information asymmetry and lower the cost of capital that issuers would otherwise have to pay but how does an investment bank solve its own information problem visa vis the investor one solution is the reputation capital at stake for the intermediary a key difference between investment banks and ordinary issuers lily hua fang is from finance area insead this paper is based on a chapter of my dissertation i am indebted to my advisors gary gorton robert holthausen andrew metrick david musto and ayako yasuda for their guidance and support i owe special thanks to an anonymous referee whose insightful comments helped me improve the paper greatly i also want to thank franklin allen john core petra todd jay ritter and robert stambaugh the editor for valuable feedback comments and suggestions from seminar participants at boston college insead

a theory of the syndicate form follows function we relate the organizational form of investment banking syndicates to moral hazard in team production although syndicates are dissolved upon deal completion membership stability across deals represents a barrier to entry that enables the capture of quasi rents this improves incentives for individual bankers to cultivate investor relationships that translate into greater expected proceeds reputational concerns of lead bankers amplify the effect we derive conditions under which restricted entry and designation of a lead banker strictly pareto dominate in which case it is also strictly pareto dominant for the syndicate s fee to be greater than members cost of participation copyright the american finance association 2001

the effect of lender identity on a borrowing firm s equity return previous research demonstrates that a firm s common stock price tends to fall when it issues new public securities by contrast commercial bank loans elicit significantly positive borrower returns this article investigates whether the lender s identity influences the market s reaction to a loan announcement although we find no significant difference between the market s response to bank and nonbank loans we do find that lenders with a higher credit rating are associated with larger abnormal borrower returns this evidence complements earlier findings that an auditor s or investment banker s perceived quality signals valuable information about firm value to uninformed market investors previous studies show that certain types of loan announcements generate significantly positive abnormal returns to the average borrower s equity 1 this finding contrasts with the negative equity returns generally associated with a corporation s issuance of public securities smith 1986 this difference in market reactions indicates that private and public securities are not perfect substitutes for the average firm in this sense lender identity defined as public versus private lender significantly impacts the borrower s abnormal equity return the standard theoretical explanation for this difference is that private lenders either obtain private information about the firm s value or they have the incentive and ability to monitor firm behavior more effectively than other outside monitors can although the empirical literature on private lending has evaluated primarily commercial bank loans and lines of credit these theoretical arguments apply equally to any type of private

inflation and government deficits there is a pronounced positive correlation of inflation andgovernment deficits in the united states since world war ii the purpose of this paper is to test the three leading explanationsof this correlation these three explanations are a a deficitincreases prices through a wealth effect b a deficit results inthe federal reserve purchasing debt thus increasing the moneysupply and prices and c expected inflation increases the deficit which is the change in the nominal value of bonds no supportis found for either of the first two hypotheses the results indi cate that expected government deficits have no significance forfuture inflation since world war ii the united states has experienced large federal government deficits and a sustained peacetime inflation three differentconnections between the deficits and inflation are prominent in theliterature the most direct connection between government deficits and inflationis that by increasing the real value of outstanding bonds and perceived netwealth a deficit can raise total spending and the price level this connec tion is also the most long standing and is suggested by metzler 1951 andpatinkin 1965 for example monetarists generally and buchanan and wagner 1977 in particularhave emphasized a different link between deficits and inflation they sug gest that the federal reserve purchases government bonds when the trea sury sells bonds thus increasing high powered money the money supply and the price level the federal reserve might behave this way for exam ple because it is attempting to hold down interest rates on governmentsecurities when deficits occur recently barro 1978 1979 has put forward a hypothesis that deficitsare a result of inflation rather than inflation being a result of deficits thegovernment deficit is the change in the nominal value of outstanding gov ernment bonds if the anticipated inflation rate increases then the nomi nal value of bonds must increase i e the government will run a deficit tokeep the same anticipated real amount of bonds all three of these possible connections between government deficitsand inflation are consistent with the observed positive correlation of defi cits and inflation the implications however are strikingly different con

investment banks as corporate monitors in the early twentieth century united states we study the effect of financial relationships on firms investment decisions and access to external finance in the early twentieth century securities underwriters commonly held directorships with american corporations section 10 of the clayton antitrust act prohibited bankers from serving on the boards of railroads for which they underwrote securities we find that following the implementation of section 10 railroads with strong preexisting relationships with underwriters saw declines in their investment rates valuations and leverage and increases in their costs of external funds reassuringly we do not observe similar effects among industrials and utilities which were not subject to section 10 our results are consistent with underwriters on corporate boards acting as delegated monitors and highlight the potential for regulations intended to address conflicts of interest to disrupt valuable information flows

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

alternative information sources and the information content of bank loans this paper examines the information content of bank loan agreements we differentiate borrowers according to financial analysts percentage earnings forecast errors and most recent forecast revisions the empirical results suggest that banks rely on other indicators as initial screening devices to determine where to best deploy their evaluation and monitoring efforts if these other indicators are reliable and signalimproving prospects banks do little further investigation however if the indicators are noisy and signal declining prospects banks have incentives to expend resources to investigate the borrowers resulting in the production of valuable information recent theories of financial intermediation concentrate on the role of banks in reducing informational asymmetry leland and pyle 1977 suggest that informational asymmetries may be the primary reason that intermediaries exist campbell and kracaw 1980 demonstrate that an important function of financial intermediation is the production of information diamond 1984 develops a model which shows that financial intermediaries can exist simply because they provide an efficient means of evaluating and monitoring borrowers these information transmission theories argue that banks provide unique information production services in an imperfect capital market they suggest that banks know more about the prospects of the firms they lend to than do others thus bank loan agreements should convey useful information to the market a number of researchers empirically examine the uniqueness of bank loans fama 1985 approaches the issue by examining the rates on certificates of deposit and other high grade commercial papers he concludes that since bank borrowers bear the cost of reserve requirements there must be something special about bank loans james 1987 conducts an event study around the announcement of bank credit agreements and reports a significantly positive two day announcement return his results provide evidence support

emerging carbon constraints for corporate risk management abstract while discussions about global sustainability challenges abound the financial risks that they incur albeit important have received less attention we suggest that corporate risk assessments should include sustainability related aspects especially with relation to the natural environment and encompass the flux of critical materials within a company s value chain such a comprehensive risk assessment takes into account input as well as output related factors with this paper we focus on the flux of carbon and define carbon constraints that emerge due to the disposition of fossil fuels in the input dimension and due to direct and indirect climate change effects in the output dimension we review the literature regarding the financial consequences of carbon constraints on the macroeconomic sector and company level we conclude that a financial consequences seem to be asymmetrically distributed between and within sectors b the individual risk exposure of companies depends on the intensity of and dependency on carbon based materials and energy and c financial markets have only started to incorporate these aspects in their valuations this paper ends with recommendations on how to incorporate our results in an integrated carbon risk management framework

financial innovation in microcap public offerings abstract this paper examines external financing of small and growth firms using a regulatory experiment in the us microcap market the paper focuses on a new financing method for entrepreneurial firms small public offerings under regulation a which was significantly expanded by 2015 amendments regulation a offerings serve as a financing alternative for issuers that seek public capital but are unable to conduct a traditional registered public offering compared to small registered public offerings regulation a involves fewer requirements and draws smaller younger companies often raising capital without intermediaries or on a best efforts basis regulation a companies raise less capital on average after accounting for their historical financials the use of regulation a increased significantly following the 2015 shock particularly in market segments that had more private placements and traditional public offerings different types of issuers are pursuing regulation a and registered offerings and regulation a does not appear to draw issuers away from traditional public offerings

reassessing the government s discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility abstract the paper reexamines the government s discount rate policy in the context of new evidence on international capital mobility the relationship between deficits and interest rates the relationship between consumer interest rates and the consumer s rate of time preference and intergenerational compensation it concludes that the approximate discount rate for government decisions will differ depending on the policy problem and that the government s borrowing rate is appropriate in some cases and in others the private rate should be used for long term policies the benefit cost rationale for discounting breaks down and must be reestablished on principles incorporating intergenerational equity

keeping ethical investment ethical regulatory issues for investing for sustainability regulation must target the financial sector which often funds and profits from environmentally unsustainable development in an era of global financial markets the financial sector has a crucial impact on the state of the environment the long standing movement for ethically and socially responsible investment sri has recently begun to advocate environmental standards for financiers while this movement is gaining more adherents it has increasingly justified responsible financing as a path to be prosperous rather than virtuous this trend partly owes to how financial institutions view their legal responsibilities the business case motivations that now predominantly drive sri are not sufficient to make the financial sector a means to sustainable development some modest legal reforms to improve the quality and extent of sri have yet to make a tangible difference a more ambitious strategy to promote sri for environmental sustainability is possible based on reforming the fiduciary duties of financial institutions such duties tied to concrete performance standards could make financiers invest in more ethically responsible ways other collateral reforms to financial markets including improved corporate environmental reporting are required to promote sustainability

commercial bank underwriting of credit enhanced bonds are there certification benefits to the issuer recent studies have expanded the commercial bank certification hypothesis to include banks acting in an underwriting capacity this paper further develops that research by focusing on the industrial revenue bond market in which banks have the unique opportunity to simultaneously act as both credit guarantor and underwriter when explicitly allowing for bank issued standby letters of credit guarantees we find significantly greater yield spreads for those bonds underwritten by commercial banks compared to bonds underwritten by investment banks overall no net benefit appears to accrue to the bond issuer when attempting to achieve joint or double certification benefits by employing commercial banks as both credit guarantor and underwriters except in the special case where the same bank acts as both guarantor and underwriter this limited certification effect is further validated when the credit quality of participating banks is accounted for this result is consistent with an economy of scope in monitoring and reusing information

distance and private information in lending we study the effects of physical distance on the acquisition and use of private information in informationally opaque credit markets using a unique data set of all loan applications by small firms to a large bank we show that borrower proximity facilitates the collection of soft information leading to a trade off in the availability and pricing of credit which is more readily accessible to nearby firms albeit at higher interest rates ceteris paribus analyzing loan rates and firms decision to switch lenders provides further evidence for banks strategic use of private information however distance erodes our lender s ability to collect proprietary intelligence and to carve out local captive markets suggesting that the requisite soft information is primarily local the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

ipos with buy and sell side information production the dark side of open sales the proposed model by incorporating both 1 banker screening of new issues and 2 costly evaluation by investors is the first to admit endogenous double sided information production it demonstrates a nontrivial link between these two sides the banker wishes to structure a sale conducive to investor research because selling to an uninformed pool would result in his own shirking one application of this paradigm indicates that contrary to the findings of most ipo models larger investor pools are not always better this result resolves the participation restriction puzzle of why bankers do not open sales to all bidders even when doing so would maximize competition and reduce underpricing copyright 2005 oxford university press

do bank loan relationships still matter james 1987 and lummer and mcconnell 1989 find that during the 1970s and 1980s the market responded positively to announcements of bank lending agreements however many of the advantages associated with bank lending relationships have largely disappeared since the 1980s due to financial system changes and greater availability of and less costly financial information we find that bank loan announcements produced positive abnormal returns in the 1980s but by the latter part of our sample period those announcement returns disappear entirely we do find that bank loan relationships may still be valuable to smaller poorer performing firms or during periods of high credit risk spreads

investment bank reputation information production and financial intermediation we model reputation acquisition by investment banks in the equity market entrepreneurs sell shares in an asymmetrically informed equity market either directly or using an investment bank investment banks who interact repeatedly with the equity market evaluate entrepreneurs projects and report to investors in return for a fee setting strict evaluation standards unobservable to investors is costly for investment banks inducing moral hazard investment banks credibility therefore depends on their equity marketing history investment banks evaluation standards their reputations underwriter compensation the market value of equity sold and entrepreneurs choice between underwritten and nonunderwritten equity issues emerge endogenously

anatomy of initial public offerings of common stock initial public offerings of common stocks ipos are typically underpriced in this paper the author develops and tests the hypothesis that underpricing serves as a form of insurance against legal liability and the associated damages to the reputations of investment bankers the empirical results based on samples of ipos that were brought to the market before and after the securities act of 1933 provide considerable support for the implicit insurance hypothesis specifically gross underpricing and market segmentation between prestigious and fringe investment bankers in originating unseasoned new issues appear to be peculiar to the post 1933 era a number of studies have documented that unseasoned common stocks typically garner large positive abnormal returns during a short period following the initial offering in his recent review of the empirical evidence on the initial returns of common stock offerings smith 36 concluded that the returns from offer price to after market price have exceeded fifteen percent his calculations did not include some of the earlier results obtained by mcdonald and fisher 23 and logue 20 when their samples are combined with those in smith s review the initial returns of unseasoned equity offerings appear even larger over seventeen percent these results imply that underwriters consistently offer the securities at substantial discounts from their values that are set in the after market in other words initial public offerings ipos appear to be underpriced what is even more puzzling is the fact that in some time periods underpricing appears to be systematically larger than in other periods ibbotson and jaffe 15 and ritter 29 have documented that during the postwar era there have been a number of periods in which the initial returns of common stocks have been extremely high ritter for example reported that the average return from the offer price to the first after market price was over forty eight percent for ipos in 1980 and 1981 1 similarly the initial returns of unseasoned issues of common stock brought to the market in 1950 1951 1961 and 1968 were unusually large these periods in which ipos were grossly underpriced are referred to as the hotissue markets why do investment bankers underprice ipos why do issuers

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

a theory of the transition to secondary market trading of ipos abstract we develop a model in which investment banks and institutional investors collaborate in smoothing an initial public offering s ipos transition to secondary market trading their intervention promotes welfare under the assumption that significant new information arrives in the market in the immediate aftermath of the ipo under this assumption it is optimal to stage the offering and suboptimal to commit to selling shares at a uniform price the optimal strategy yields an economic rationale for secondary market price stabilization for ipos carried out via a well coordinated network of repeat institutional investors

signalling by underpricing in the ipo market abstract empirical evidence suggests the existence of hot issue markets for initial public offerings in certain periods and in certain industries new issues are underpriced and rationing occurs this paper develops a model consistent with this observation which assumes the firm itself best knows its prospects in certain circumstances firms with the most favorable prospects find it optimal to signal their type by underpricing their initial issue of shares and investors know that only the best can recoup the cost of this signal from subsequent issues

traders vs relationship managers reputational conflicts in full service investment banks we present a model that explains why investment bankers struggle to manage conflicts of interest banks can build a type reputation for technical competence by performing complex deals that may not serve their clients interest on the other hand banks can sustain a behavioral reputation by refraining from doing so a behavioral reputation is a luxury reserved for banks that have proven their abilities the model sheds light on conflicts between the trading and advisory divisions of investment banks as well as the consequences of technological change for time variation in the relative strength of behavioral and type reputation concerns

investment banker reputation and two stage combination carve outs and spin offs abstract this study examines whether investment banker reputation impacts the initial period returns of two stage combinations carve outs followed by spin offs all prior literature regarding investment banker reputation is based on single stage events ipos an analysis is conducted of all completed two stage carve outs spin offs from 1981 to 2002 findings indicate that underwriters for two stage combinations retain their reputation in contrast with the single stage findings of carter et al carter r b dark f h piwowar m s 2002 ipos and underwriter reputation redeeming the value of reputation working paper iowa state university that investment bankers redeemed cashed in their reputation also this study finds that the carter et al reputation factors dominate the loughran and ritter loughran t ritter j r 2002 why don t issuers get upset about leaving money on the table in ipos the review of financial studies 15 2 413 443 reputation factors

carbon risk carbon risk awareness and the cost of debt financing we seek insights into potential benefits for firms adopting strategies to improve business sustainability in a carbon constrained future we investigate whether lenders incorporate a firm s exposure to carbon related risk into lending decisions through the cost of financing and if so importantly whether firms can mitigate the penalty by demonstrating an awareness of their carbon risks we use a sample of 255 firm year observations from eight industries over the period 2009 2013 we measure carbon related risk exposure as the firm s historical carbon emissions and our primary measure of carbon risk awareness is based on the firm s willingness to respond to the carbon disclosure project cdp survey we document a positive association between cost of debt and carbon risk for firms failing to respond to the cdp further this association is economically meaningful with a one standard deviation increase in carbon risk mapping into between a 38 and 62 basis point increase in the cost of debt equally we find that this penalty is effectively negated for firms exhibiting carbon risk awareness our results are robust when we consider alternate measures of carbon awareness disclosure through alternative medium to the cdp and firms annual cash investment in new capital assets using cleaner technology our results highlight not only the importance of carbon awareness as a business strategy for polluting firms but also its importance to lenders exposed to their clients default and reputational risk the debt market appears to incorporate historical carbon emissions and forward looking indicators of carbon performance

analytical issues in external financing alternatives for sbes as the amount of information about an enterprise is generally not neutral with respect to firm size financiers have problems to identify the default risk associated with a borrower or to have control over a borrower s investments this review paper analyses how various control mechanisms are fit to reduce this information problem and how various types of capital suppliers are endowed to finance small business enterprises

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

public information ipo price formation and long run returns japanese evidence the price formation process of jasdaq ipos is more transparent than in the united states the transparency facilitates analysis of important issues in the ipo literature why offer prices only partially adjust to public information and adjust more fully to negative information and why adjustments are related to initial returns the evidence indicates that early price information conveys the underwriter s commitment to compensate investors for acquiring and or disclosing information offer prices reflect pre ipo market values of public companies and implicit agreements between underwriters and issuers that originate well before the offering underadjustment of offer prices is substantially reversed in the aftermarket copyright c 2009 the american finance association

on resolving the dilemma of rent control this research examines the motivations for adopting rent control and discusses a policy alternative designed to respond to the political appeal of rent control while minimising the investment distortion capricious redistribution and administrative complexity of most controls the policy involves limiting regulation to those rents paid by households in the tenant population that are deemed unable to afford adequate housing all rental units in a jurisdiction register their rents with the relevant authority and are assigned a controlled rent landlords must charge the controlled rent only for eligible households but receive the difference between that rent and the market rent from the government the analysis considers the design of such a policy its behavioural incentives and some administrative implications there is also consideration of the appeal of this policy relative to both conventional controls and policies more popular in the literature such as a housing allowance

corporate social responsibility in the banking industry motives and financial performance abstract the current study investigates the association between corporate social responsibility csr and financial performance fp and discusses the driving motives of banks to engage in csr three motives namely strategic choices altruism and greenwashing suggest that the relationship between csr and fp is positive non negative and non existent respectively we obtained our sample which covered 2003 2009 from the ethical investment research service eiris databank and bankscope database the data consists of 162 banks in 22 countries we then classified the banks into four types based on their degree of engagement in csr this study proposes the use of an extended version of the heckman two step regression in which the first step adopts a multinomial logit model and the second step estimates the performance equation with the inverse mills ratio generated by the first step the empirical results show that csr positively associates with fp in terms of return on assets return on equity net interest income and non interest income in contrast csr negatively associates with non performing loans hence strategic choice is the primary motive of banks to engage in csr

a theory of price control price or rent control is but one of many forms of legislative action which interfere with private contracting in the market place to delimit the scope of my analysis i shall use the term price control to refer only to any set of regulations which satisfies the following three conditions first the control must fix the price or income terms of private contracts this categorically excludes any laws which regulate the distribution of income among the contracting parties on a share or percentage basis 2 second the control must involve no appropriation of proceeds to or from the government taxation and subsidization are thus excluded finally the fixing of price must not be associated with direct government sales purchases or manipulation of resources so as to maintain the regulated price 3 by this stipulation price support is also excluded even on such terms legal regulations to control price are still many and varied to evaluate our understanding of the class of phenomena which we seek to explain it is essential that we discover implications refutable by facts by this criterion the available body of economic theory pertaining to price control is deficient indeed the massive literature on the subject offers few such implications 4 an alternative approach to analyzing the observable effects of price control is presented here

neoclassical political economy an application to trade policies abstract this paper starts with a review of the literature on neoclassical political economy and then goes on to apply this perspective to the issue of trade liberalization in this connection the paper critically discusses various political economy models which have been advanced to explain patterns of trade policies in both developed and developing countries and assesses them in light of recent empirical evidence the paper also makes a brief review of the empirical planning studies which estimate the gains from trade liberalization

the pricing of initial public offerings a dynamic model with information production this paper presents an information theoretic model of ipo pricing in which insiders sell stock in both the ipo and the secondary market have private information about their firm s prospects and outsiders may engage in costly information production about the firm high value firms knowing they are going to pool with low value firms induce outsiders to engage in information production by underpricing which compensates outsiders for the cost of producing information the information is reflected in the secondary market price of equity giving a higher expected stock price for high value firms

originator performance cmbs structures and the risk of commercial mortgages this article examines information and incentive problems that can exist in the market for commercial mortgages that are pooled and repackaged as commercial mortgage backed securities cmbss we find that mortgages that are originated by institutions with large negative stock returns in the quarters prior to the origination date tend to have higher credit spreads and default more than other mortgages with similar observable characteristics properties financed with these mortgages also exhibit weaker post securitization operating performance in addition stock price loser institutions are anxious to securitize mortgages they originate more quickly finally we find that credit rating agencies require higher levels of subordination for cmbs pools i e view these pools as riskier that include more mortgages originated by underperforming originators this evidence is consistent with reputation models in which poorly performing originators have less incentive to carefully evaluate the credit quality of prospective borrowers thereby letting relatively riskier mortgages pass through their weaker screening standards the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press