business credit information sharing and default risk of private firms abstract we investigate whether and how business credit information sharing helps to better assess the default risk of private firms private firms represent an ideal testing ground because they are smaller more informationally opaque riskier and more dependent on trade credit and bank loans than public firms based on a representative panel dataset that comprises private firms from all major industries we find that business credit information sharing substantially improves the quality of default predictions the improvement is stronger for older firms and those with limited liability and depends on the sharing of firms payment history and the number of firms covered by the local credit bureau office the value of soft business credit information is higher the smaller the firms and the lower their distance from the local credit bureau office furthermore in spatial and industry analyses we show that the higher the value of business credit information the lower the realized default rates our study highlights the channel through which business credit information sharing adds value and the factors that influence its strength

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

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

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

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

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

measuring the default risk of small business loans a survival analysis approach in this paper we report that although medium maturity loans originated under the sba 7 a loan guarantee program are targeted to small firms that fail to obtain credit through conventional channels the default experience is comparable to that of a large percentage of loans held by larger commercial banks we establish that the default behavior of these loans is time sensitive as a loan seasons the likelihood of default increases initially peaks in the second year and declines thereafter using a discrete time hazard framework we show that the likelihood of default is conditional on borrower lender and loan characteristics and changes in economic conditions

how does land fragmentation affect off farm labor supply panel data evidence from china abstract this article provides a deeper theoretical understanding of the linkages between land fragmentation and off farm labor supply in china andinvestigates this relationship empirically in a more direct way than does the existing literature drawing upon a rural household panel data setcollected in zhejiang hubei and yunnan provinces from 1995 to 2002 we estimate the effects in two steps first we estimate the effect of landfragmentation on labor productivity second we estimate the effect of land fragmentation on off farm labor supply the production function resultsshow that land fragmentation indeed leads to lower agricultural labor productivity implying that land consolidation will make on farm work moreattractive and thus decrease off farm labor supply however the effect of land consolidation on off farm labor supply is not signi cant one likelyexplanation for this result may be the potentially imperfect labor markets jel classi cations j22 q15 q24 r23 keywords

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

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

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

high tech firms and credit rationing abstract informational frictions between borrowers and lenders differ across classes of borrowers innovative firms undertake high risk high return projects which are likely to be little understood by financial intermediaries as a consequence they may end up allocating too large a share of funds to traditional low risk low return projects this proposition finds some support in a cross section of italian manufacturing firms using several proxies to classify firms into high tech and low tech groups and direct information on each firm s access to bank credit high tech firms are found to be more likely to be credit constrained than low tech firms the results suggest that the responsiveness of r d expenditure to cash flow found in the literature is likely due to pervasive credit constraints on innovative firms rather than to cash flow proxying for future expectations the paper also sheds light on the main factors affecting the probability of a firm being rationed in the credit market

the choice between bank debt and trade credits in business start ups this paper investigates the choice between bank debt and trade credit in business start ups while trade credit is more expensive than bank debt suppliers tend to follow a more lenient liquidation policy when client firms encounter financial distress as a result suppliers are more willing to renegotiate the outstanding debt or grant additional debt whereas banks are more likely to liquidate borrowers upon default given the risky nature of business start ups we argue that the entrepreneur s choice of debt instruments reflects these differences in liquidation policy between lenders and is thus determined by the venture s failure risk the entrepreneur s private control benefits that are lost upon liquidation and the liquidation value of firm assets using unique data on 325 first time business start ups we find that firms in industries with high historical start up failure rates and entrepreneurs who tend to highly value private benefits of control use less bank debt these effects are especially prevalent in start ups where assets have a high liquidation value and thus banks are more likely to liquidate the venture following default

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

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

financial constraints and firm post entry performance abstract firms finance production by internally generated funds and external loans the benefits of leverage however come with a cost this cost is related to the uncertainty banks face about the firm s quality and output price as time evolves banks learn about the firm and adjust the terms of the loan contract because of this firms do not have equal access to credit small young firms face greater binding debt constraints than more mature firms with well known prospects the firm survival rate as well as the firm rate of growth are therefore important issues in analyzing firm post entry performance

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

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

bank information monopolies and the mix of private and public debt claims this article examines the determinants of the mix of private and public debt using detailed information on the debt structure of 250 publicly traded corporations from 1980 through 1990 we find that the relationship between bank borrowing and the importance of growth opportunities depends on the number of banks the firm uses and whether the firm has public debt outstanding for firms with a single bank relationship the reliance on bank debt is negatively related to the importance of growth opportunities in contrast among firms borrowing from multiple banks the relationship is positive

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

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

sovereign stress and smes access to finance evidence from the ecb s safe survey abstract we study the effect of sovereign stress on smes capital structure using restricted access data from the european central bank we find that during the sovereign debt crisis and controlling for borrowers quality firms in stressed countries became more likely to be denied credit to be credit rationed and to face higher loan rates less creditworthy firms were not more likely to become credit constrained suggesting no flight to quality in lending we also find that in order to make up for the decline in bank credit firms in stressed countries began relying considerably more on retained earnings and government subsidies

the countercyclical role of italian local banks during the financial crisis abstractthe article analyses the role of local banks in italy during the 2008 2009 crisis from the perspective of the relationship lending model during the crisis the risk of cascading failures of financial organizations has dramatically increased thus causing a return of attention to local banking as a possible source of countercyclical behaviours in the financial markets thanks to their ability to establish fiduciary long term relationships with small businesses the purpose of this article is to test this hypothesis and to disentangle the response of local banks during the financial turmoil according to their governance structure and location our results show that non independent local banks and to a limited extent cooperative banks located in the rural area actually played a significant countercyclical role across the crisis policy implications suggest that prudential supervision should rethink the indicators of systemic risk in order to differentiate banks according to their capability of mitig

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

bank information monopoly and trade credit do only banks have information about small businesses according to previous studies a bank can set a higher interest rate for small firms by establishing a lending relationship since information asymmetry limits competition between banks therefore the bank can acquire monopoly rent from small firms however if small firms can use trade credit which is another financial source the bank cannot extract monopoly rent in this article we examine whether small firms can use trade credit if the bank sets a higher interest rate using panel data of small firms in japan our analysis shows that when the interest rate the bank sets is too severe or worsened for the borrower the ratio of trade payables increases and the bank loses its amount of loans this result implies that trade creditors alleviate the problems of bank information monopolies in japan

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

financial intermediation and regime switching in business cycles the authors study a one sector growth model where capital investment is credit financed and there is an adverse selection problem in credit markets the presence of adverse selection creates an indeterminacy of equilibrium many equilibria display permanent fluctuations characterized by transitions between walrasian regimes and regimes of credit rationing cyclical contractions involve declines in real interest rates increases in credit rationing and withdrawals of savings from banks for some configurations of parameters all equilibria display cyclical fluctuations the authors provide sufficient conditions for deterministic cycles consisting of m periods of expansion followed by n periods of contraction to exist copyright 1998 by american economic association

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

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

fear anger and credit on bank robberies and loan conditions we study the impact of emotions on real world decisions made by loan officers by analyzing the loan conditions of loans granted immediately after a bank branch robbery we find significant differences in conditions of the loans granted after a robbery compared to changes in loan conditions that occur contemporaneously at unaffected branches in general loan officers seem to adopt so called avoidance behaviour in accordance with the literature on posttraumatic stress their avoidance behavior is halved within two weeks after the robbery and the effect further varies depending on the presence of a firearm during the robbery

loan underpricing and the provision of merger advisory services abstract this paper investigates the primary and secondary syndicated bank loan market to analyze the effect on pricing when the financial institution commingles syndicated lending with merger advisory services in particular we investigate the connection between the acquirer s choice of financial advisor in a merger and future financing commitments we find evidence of underpricing of syndicated bank loans in both the primary and secondary market in the primary market we show that non acquisition loans granted by merger advisors to acquiring firms after the merger announcement date are charged a lower all in spread relative to acquisition loans if there has been a prior lending relationship consistent with this finding we find that syndicated bank loans for non acquisition purposes arranged by the acquirer s advisor after the merger announcement date trade in the secondary market at a significant discount since the terms on these non acquisition loans are not set upon merger announcement they are most subject to risk shifting and underpricing agency problems these findings offer evidence consistent with the existence of loss leader and potentially conflicted loans priced at below market terms that are offered by the acquirer s relationship bank advisor in order to win merger advisory business

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

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

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

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

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

house prices collateral and self employment this paper explores the role of the collateral lending channel to facilitate small business starts and self employment in the period before the financial crisis of 2008 we document that between 2002 and 2007 areas with a bigger run up in house prices experienced a strong increase in employment in small businesses compared to employment in large firms in the same industries this increase in small business employment was particularly pronounced in industries that need little startup capital and can thus more easily be financed out of increases in housing as collateral our results highlight the importance of the collateral lending channel during the period of the house price boom in the creation of small establishments we show that this effect is separate from the aggregate demand channel that relies on home equity based borrowing leading to increased demand and employment creation

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

information and bank credit allocation abstract private information obtained by lenders leads to borrower capture to the extent that such information cannot be communicated credibly to outsiders we analyze how this capture affects the loan portfolio allocation of informed lenders first we show that banks charge higher interest rates and finance relatively less creditworthy borrowers in market segments with greater information asymmetries second when faced with greater competition from outside lenders banks reallocate credit toward more captured borrowers flight to captivity third if borrower quality and captivity are sufficiently correlated an increase in the competitiveness of uninformed lenders can worsen the informed lender s overall loan portfolio the model explains observed consequences of financial liberalizations

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

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

a macroprudential approach to financial regulation many observers have argued that the regulatory framework in place prior to the global financial crisis was deficient because it was largely microprudential in nature a microprudential approach is one in which regulation is partial equilibrium in its conception and aimed at preventing the costly failure of individual financial institutions by contrast a macroprudential approach recognizes the importance of general equilibrium effects and seeks to safeguard the financial system as a whole in the aftermath of the crisis there seems to be agreement among both academics and policymakers that financial regulation needs to move in a macroprudential direction in this paper we offer a detailed vision for how a macroprudential regime might be designed our prescriptions follow from a specific theory of how modern financial crises unfold and why both an unregulated financial system as well as one based on capital rules that only apply to traditional banks is likely to be fragile we begin by identifying the key market failures at work why individual financial firms acting in their own interests deviate from what a social planner would have them do next we discuss a number of concrete steps to remedy these market failures we conclude the paper by comparing our proposals to recent regulatory reforms in the united states and to proposed global banking reforms

banks regulatory buffers liquidity networks and monetary policy transmission based on a quarterly regulatory dataset for german banks from 1999 to 2004 this paper analyzes the effects of banks regulatory capital on the transmission of monetary policy in a system of liquidity networks the dynamic panel regression results provide evidence in favor of the bank capital channel theory banks holding less regulatory capital and less interbank liquidity react more restrictively to a monetary tightening than their peers

how do changes in monetary policy affect bank lending an analysis of austrian bank data using a panel of austrian bank data we show that the lending decisions of the smallest banks are more sensitive to interest rate changes and that for all banks sensitivity changes over time we propose to estimate the groups of banks that display similar lending reactions by means of a group indicator which after estimation indicates each bank s classification additionally we estimate a state indicator that indicates the periods during which the lending reaction differs from what we normally observe bayesian methods are used for estimation a sensitivity analysis and a forecast evaluation confirm our model choice copyright 2006 john wiley sons ltd

the role of bank relationships in the interbank market this paper empirically explores the effect of bank lending relationships in the interbank market we use data from the e mid market that represents the only transparent electronic platform in europe and usa unaffected by search costs and other fictions we show that stable relationships exist and that they played a significant role during the 2007 2008 financial crisis trading with preferred counterparts is associated with more favorable rates for both lenders and borrowers and carries larger trading volumes the results point to a peer monitoring role of relationship lending which contributes at a time of financial distress to a smooth liquidity redistribution among banks relationship lending thus plays an important positive role for financial stability

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

informed lending and security design we examine the role of security design when lenders make inefficient accept or reject decisions after screening projects lenders may be either too conservative in which case they reject positive npv projects or too aggressive in which case they accept negative npv projects in the first case the uniquely optimal security is debt in the second case it is levered equity in equilibrium profitable projects that are relatively likely to break even are financed with debt while less profitable projects are financed with equity highly profitable projects are financed by uninformed arm slength lenders professional lenders have specialized expertise in screening projects unlike the typical entrepreneur to whom they lend they have been exposed to a wide variety of projects in the past professional lenders have experienced loan officers and analysts who know precisely what information is relevant how to treat soft information such as management quality and how to weigh the various pieces of information in making a forecast of the project s cash flows and default risk this paper examines how securities should be optimally designed when lenders make inefficient accept or reject decisions after screening projects in our model screening generates an informative albeit private signal about the project s profitability high signals indicate a positive net present value npv and low signals indicate a negative npv where the project s npv is increasing

capital structure decisions during a firm s life cycle the study reported here examines the financing choices of small and medium sized firms i e those most vulnerable to information and incentive problems through the lens of the business life cycle we argue that the controversy in the empirical literature regarding the determinants of capital structure decisions is based on a failure to take into account the different degrees of information opacity and consequently firms characteristics and needs at specific stages of their life cycles the results show that in a bank oriented country firms tend to adopt specific financing strategies and a different hierarchy of financial decision making as they progress through the phases of their business life cycle contrary to conventional wisdom debt is shown to be fundamental to business activities in the early stages representing the first choice by contrast in the maturity stage firms re balance their capital structure gradually substituting debt for internal capital and for firms that have consolidated their business the pecking order theory shows a high degree of application this financial life cycle pattern seems to be homogeneous for different industries and consistent over time

an examination of the factors associated with bank switching in the u k small firm sector previous research has consistently shown that a large number of firms are sufficiently dissatisfied with their bank relationship to have considered switching to an alternative bank in practice however the number of firms which actually switch banks is relatively low this paper examines empirical evidence from a postal survey of small firms in order to investigate this paradox binomial and multinomial logistic regression is used to identify the characteristics which discriminate between a group of firms considering switching banks and two other groups namely those which had switched banks in the previous three years and those which had not switched banks and were not considering doing so the paper tests the hypothesis that some small firms may be informationally captured in that they are tied into their current bank relationship due to difficulties in conveying accurate information about their performance the results provide some evidence in support of the hypothesis in that rapidly changing information particularly changing technology was a characteristic associated with firms which were considering switching but had not switched however there was no significant evidence to support the hypothesis that superior performing firms are more likely to be informationally captured growth and perceived business success were both associated with firms which switched banks there was strong evidence that the main drivers of the decision to switch or consider switching banks were difficulties obtaining finance and dissatisfaction with the service provided the results also showed that firms which were considering switching banks tended to use more alternative non banking sources of finance it is concluded that some firms will resolve difficulties obtaining finance by switching banks whereas others will use alternative sources of finance depending on the balance between the benefits of switching such as increased finance and switching costs including information provision

optimal monetary policy with countercyclical credit spreads we study optimal monetary policy in a new keynesian dynamic stochastic general equilibrium dsge model with a credit channel and relationship lending in banking we show that borrowers bank specific deep habits give rise to countercyclical credit spreads which in turn make optimal monetary policy depart substantially from price stability under both discretion and commitment our analysis shows that the welfare costs of setting monetary policy under discretion with respect to the optimal ramsey plan and of using simpler suboptimal policy rules are strictly increasing in the magnitude of deep habits in credit markets and market power in banking

corporate liquidity and capital structure we solve for a firm s optimal cash holding policy within a continuous time contingent claims framework using dividends short term borrowing and equity issues as controls assuming mean reversion of earnings optimal cash is non monotone in business conditions and increasing in the level of long term debt the model matches closely a wide range of empirical benchmarks and predicts cash and leverage dynamics in line with the empirical literature firm value is quite insensitive to changes in the level of long term debt the model has interesting implications for asset substitution hedging and pecking order growth opportunities do not greatly affect cash holding policy

political influence and declarations of bank insolvency in japan this paper investigates how politics affects bank supervision by examining determinants of bank failures in japan during 1999 2002 a period during which bank regulators were called upon to resolve insolvent banks in preparation for the lifting of a blanket deposit guarantee the empirical results suggest that japan s bank regulators had tendency to delay declarations of insolvency in prefectures that supported senior politicians of the ruling liberal democratic party ldp this result which is robust to a host of bank level and prefecture level controls suggests that bank supervision is prone to political influence that delays efficient resolution of insolvency

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

the financing of innovation learning and stopping we consider the financing of a research project under uncertainty about the time of completion and the probability of eventual success we distinguish between two financing modes namely relationship financing where the allocation decision of the entrepreneur is observable and arm s length financing where it is unobservable we find that equilibrium funding stops altogether too early relative to the efficient stopping time in both financing modes the rate at which funding is released becomes tighter over time under relationship financing and looser under arm s length financing the tradeoff in the choice of financing modes is between lack of commitment with relationship financing and information rents with arm s length financing

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

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

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

model based clustering of non gaussian panel data based on skew t distributions we propose a model based method to cluster units within a panel the underlying model is autoregressive and non gaussian allowing for both skewness and fat tails and the units are clustered according to their dynamic behavior equilibrium level and the effect of covariates inference is addressed from a bayesian perspective and model comparison is conducted using bayes factors particular attention is paid to prior elicitation and posterior propriety we suggest priors that require little subjective input and have hierarchical structures that enhance inference robustness we apply our methodology to gdp growth of european regions and to employment growth of spanish firms

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

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

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

bank loan terms and conditions for eurozone smes the evolution of bank loan price and non price terms and conditions t cs for the 2009 2011 period are investigated using firm level survey data for a sample of eurozone small and medium sized enterprises the raw firm responses which are of a discrete nature denoting tightening or easing of the t cs or no change at all are modeled by a bivariate ordered probit model according to the results obtained there are sizeable differences between countries with the protagonists of the sovereign debt crisis greece ireland portugal spain exhibiting predicted probabilities of tightening that are considerably above the eurozone average in addition price t cs exhibit a substantial tightening over time finally firms net interest expenses and profitability emerge as important determinants in explaining the cross sectional variation in bank loan t cs that they face

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

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

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

the number and the closeness of bank relationships abstract we analyze a firm s optimal choice over the number of creditors and the extent of information disclosed to them by dealing with many creditors and disclosing essential confidential information a firm can keep its cost of credit low this however is associated with a relatively high probability that valuable information leaks to competitors leading to lower expected net returns from product market operations the importance of these two countervailing effects varies with size time industry and the form of the financial sector which yields a number of empirically testable hypotheses

the benefits of relationship lending in a cross country context a meta analysis relationship lending may create benefits for borrowers by reducing information asymmetries however empirical evidence is mixed we conduct a meta analysis to summarize and explain the heterogeneity in the results in the literature using hand collected information from 101 studies in the united states europe asia and latin america from 1970 to 2010 we find that strong relationships are generally beneficial for borrowers but lending outcomes differ across the relationships dimensions long lasting exclusive and synergy creating bank relationships are associated with higher credit volume and lower loan rates these benefits are more likely in the united states and in countries where bank competition is high they are not related to the importance of small and medium sized enterprises in an economy suggesting that prevalence of relationship lending does not necessarily come along with borrower benefits our inferences are robust when we control for observed systematic heterogeneity in the original

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

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

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

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

investment cash flow sensitivities credit rationing and financing constraints in small and medium sized firms the controversy on whether investment cash flow sensitivity is a good indicator of financing constraints is still unsolved we apply a comprehensive approach by cross validating our analysis with both balance sheet and qualitative data on self declared credit rationing and financing constraints on a sample of mainly small and medium sized firms our qualitative information shows that self declared credit rationing is weakly related to both traditional a priori factors such as firm size age and location and lenders rational decisions taken on the basis of their credit risk models we use the qualitative information on firms which were denied additional credit to provide evidence relevant to the investment cash flow sensitivity debate the evidence shows that self declared credit rationing significantly discriminates between firms which possess or not such sensitivity while a priori criteria do not the same result does not apply when we consider the wider group of financially constrained firms which do not seem to have a higher investment cash flow sensitivity supporting the more recent empirical evidence in this direction