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Journal of Banking & Finance
Number of Followers: 193  
 
  Hybrid Journal Hybrid journal (It can contain Open Access articles)
ISSN (Print) 0378-4266
Published by Elsevier Homepage  [3184 journals]
  • Does Investor Risk Perception Drive Asset Prices in Markets'
           Experimental Evidence
    • Abstract: Publication date: Available online 13 September 2019Source: Journal of Banking & FinanceAuthor(s): Jürgen Huber, Stefan Palan, Stefan Zeisberger We explore how individual risk perception influences prices and trading behavior in a market setting. Specifically, our study lets experimental participants trade assets characterized by varying shapes of return distributions. While common mean-variance models predict identical prices for most of our assets, we find trading prices to differ significantly. Assets that are perceived as being less risky on average (despite having identical volatility) trade at significantly higher prices. Individually, traders who perceive a certain asset to be less risky are also net buyers on average. With regard to different risk measures, our results show that the probability of a loss is the strongest predictor of transaction prices and risk perception. All these results hold also for experienced traders and when traders can trade two assets at the same time.
       
  • Corporate Innovation, Likelihood to be Acquired, and Takeover Premiums
    • Abstract: Publication date: Available online 11 September 2019Source: Journal of Banking & FinanceAuthor(s): Szu-Yin (Jennifer) Wu, Kee H. Chung We analyze the effect of a firm's innovation activities on its likelihood to be acquired and the takeover premium using a large sample of M&A transactions. We show that firms with larger innovation outputs and R&D investments are more likely to be acquired, receive unsolicited bids, and receive multiple bids. The takeover premium increases with the target firm's innovation output, and this positive relation is stronger when there are more competing bidders, when acquiring firms’ product markets are competitive, and when technological proximity is lower in the acquiring firms’ industry. Both the acquirer's cumulative abnormal return around the announcement date and post-acquisition operating performance are positively related to the target firm's innovation output and R&D spending.
       
  • Gender Gap in Peer-to-Peer Lending: Evidence from China
    • Abstract: Publication date: Available online 10 September 2019Source: Journal of Banking & FinanceAuthor(s): Xiao Chen, Bihong Huang, Dezhu Ye This paper documents and analyzes the gender gap in the online credit market. Using data from Renrendai, a leading peer-to-peer lending platform in China, we show that lending to female borrowers is associated with better loan performance, including a lower probability of default, a higher expected profit, and a lower expected loss than for their male peers. However, despite the higher creditworthiness, we don't find any measurable gender impact on funding success rate, meaning that female borrowers have to compensate lenders by providing higher profitability to achieve a similar funding probability. These evidences indicate the existence of a gender gap that discriminate against female borrowers. Further analysis implies that this gender gap is independent of the amount of information disclosed by borrowers.
       
  • NNGuidance on strategic information: investor-management disagreement and
           firm intrinsic value
    • Abstract: Publication date: Available online 10 September 2019Source: Journal of Banking & FinanceAuthor(s): Anna Agapova, Nikanor Volkov We investigate the decision by corporate management to voluntarily disclose information that pertains to a firm's strategy. We find the likelihood of disclosure to be a tradeoff between the benefit of reducing information asymmetry and the cost of investors disagreeing with the strategy; this cost varies with the firm's intrinsic value. Higher levels of investor-management disagreement and of information asymmetry increase the likelihood that managers will disclose strategic information; those at firms with higher intrinsic value, however, are less likely to do so. Our results vary in statistical significance across different proxy specifications, but hold qualitatively. They are robust to the use of exogenous shocks to investor-management disagreement and information asymmetry. The evidence supports a causal link between investor-management disagreement and strategic disclosure.
       
  • Together or apart' The relationship between currency and banking
           crises
    • Abstract: Publication date: Available online 5 September 2019Source: Journal of Banking & FinanceAuthor(s): Sylvester C.W. Eijffinger, Bilge Karataş The purpose of this study is to provide empirical evidence on the links between currency and banking crises. Panel data probit and bivariate probit models are estimated to a sample of 21 developed and developing countries having monthly observations between the years 1985 and 2010. The findings indicate that banking crises precede currency crises, and vice versa. Currency crises also indirectly influence future banking crises probability through external shocks, liberalized financial markets, or highly-leveraged banking sectors. The study also finds evidence of contemporaneous correlation between the two crises. The results not only confirm the theoretical links between banking and currency crises, but also underline the importance of higher frequency data in analyzing the relationship between various financial crises.
       
  • Aggregate Investor Sentiment and Stock Return Synchronicity
    • Abstract: Publication date: Available online 4 September 2019Source: Journal of Banking & FinanceAuthor(s): Timothy K. Chue, Ferdinand A. Gul, G. Mujtaba Mian We show that the returns of individual stocks become more synchronous with the aggregate market during periods of high investor sentiment. We also document that the effect of sentiment on stock return synchronicity is especially pronounced for small, young, volatile, non-dividend-paying and low-priced stocks. This ‘difference in difference’ suggests that stocks with these characteristics are affected more by sentiment—consistent with previous studies. Our results support the hypothesis that greater constraints on arbitrage and the prevalence of sentiment-driven demand during periods of high sentiment lead to increased comovement among stocks.
       
  • Institutional Investors’ Cognitive Constraints during Initial Public
           Offerings
    • Abstract: Publication date: Available online 4 September 2019Source: Journal of Banking & FinanceAuthor(s): Shenghao Gao, Ruichang Lu, Chenkai Ni Using detailed bid prices from institutional investors for 474 IPOs in China from 2010 to 2012, we find that 62.07% of the bid prices cluster at integers. This phenomenon is more pronounced for IPO firms that are smaller or younger or that exhibit more volatile profitability. Furthermore, the percentage of integer bid prices decreases from 62.07% to 7.58% after a regulatory mandate that significantly reduces the valuation uncertainty of IPOs. Expecting a positive first-day return, institutional investors round the bid price upward to the nearest integer to increase their odds of share allocation. Consequently, the offer price increases and the post-issuance return decreases with the increasing fraction of integer bid prices. Overall, these results suggest that institutional investors, possibly constrained by cognitive resources, carry over heuristics to their bidding activities in IPOs.
       
  • Bank margins and profits in a world of negative rates
    • Abstract: Publication date: October 2019Source: Journal of Banking & Finance, Volume 107Author(s): Philip Molyneux, Alessio Reghezza, Ru Xie By investigating the influence of negative interest rate policy (NIRP) on bank margins and profitability, this paper identifies country- and bank- specific characteristics that amplify or weaken the effect of NIRP on bank performance. Using a dataset comprising 7,359 banks from 33 OECD member countries over 2012–16 and a difference-in-differences methodology, we find that bank margins and profits fell in NIRP-adopter countries compared to countries that did not adopt the policy. Moreover, this adverse NIRP effect depends on bank specific-characteristics such as size, funding structure, business models, assets repricing and product – line specialization. The effectiveness of the pass-through mechanism of NIRP can also be affected by the characteristics of a country's banking system, namely, the level of competition and the prevalence of fixed/floating lending rates.
       
  • Short Interest, Stock Returns and Credit Ratings
    • Abstract: Publication date: Available online 30 August 2019Source: Journal of Banking & FinanceAuthor(s): Xu Guo, Chunchi Wu This paper investigates the role of credit risk in the relationship between short-selling activity and future stock returns. We find that the predictive power of short interest for future returns is concentrated in the worst-rated stocks. Low-grade stocks with the largest short interest decrease outperform those with the largest short interest increase by 1.09 percent in the following month. This return spread is robust to controls for cross-sectional effects and firm characteristics, and is much more pronounced during periods of high investor sentiment and low liquidity. Distressed firms with large short interest increases experience a worse performance subsequently.
       
  • Bank Credit and Trade Credit: Evidence from Natural Experiments
    • Abstract: Publication date: Available online 27 August 2019Source: Journal of Banking & FinanceAuthor(s): Shenglan Chen, Hui Ma, Qiang Wu Prior studies find mixed evidence about the substitution relation between bank credit and trade credit. In this paper, using two bank interest rate deregulations in China, we revisit the substitution hypothesis by examining how exogenous increases in the availability of bank credit affect trade credit. We find that firms with higher credit risk increased their use of bank credit and reduced their use of trade credit after the 2004 bank interest rate ceiling deregulation, whereas firms with lower credit risk increased their use of bank credit and reduced their use of trade credit after the 2013 bank interest rate floor deregulation. Our results provide supportive evidence for the substitution hypothesis that firms reduce their use of trade credit after the relaxation of bank credit and suggest that bank credit is more favorable short-term financing than trade credit.Using the removal of the upper limit on interest rates in 2004 and the removal of the lower limit on interest rates in 2013 in China as two comparing natural experiments, we find trade credit is reduced 16.7% after the upper limit on interest rates is eliminated. Compared to high-quality firms, the reduction is 7.9% more for low-quality firms. Meanwhile, we find trade credit is increased 3.8% after the lower limit interest rates is eliminated. Compared to high-quality firms, the increase is 4.2% more for low-quality firms. Our results support the substitute relation between bank credit and trade credit.
       
  • Determinants of intraday dynamics and collateral selection in centrally
           cleared and bilateral repos
    • Abstract: Publication date: October 2019Source: Journal of Banking & Finance, Volume 107Author(s): Alfonso Dufour, Miriam Marra, Ivan Sangiorgi Using a novel dataset, we study intraday trades of overnight general collateral repurchase agreements (repos) on Italian government bonds. We focus both on repos cleared by central counterparties (CCPs) and traded bilaterally. Intraday bond supply, liquidity and duration significantly affect the spread of repo rates over the European Central Bank (ECB) deposit rate, but after the ECB quantitative easing interventions this impact is much reduced. During the European sovereign debt crisis, the increase in margins further deteriorates repo costs, creating a negative procyclical effect. Once we control for the impact of margin costs, CCP-based repos do not appear to be significantly cheaper than bilateral repos. We also show that bonds with lower liquidity and specialness, greater supply and longer duration are more likely to be selected as collateral. However, during the crisis, CCP-repo borrowers choose collateral bonds with higher liquidity and lower duration to reduce margin and repo trading costs.
       
  • Incentives and Culture in Risk Compliance
    • Abstract: Publication date: Available online 21 August 2019Source: Journal of Banking & FinanceAuthor(s): Elizabeth Sheedy, Le Zhang, Kenny Chi Ho Tam In the finance industry, risk compliance has become an important issue after numerous policy violations resulting in significant costs for financial institutions and society as a whole. We run a lab-in-the-field experiment with 269 finance professionals, to investigate the effects of financial incentives and workplace culture on risk compliance. Relative to variable remuneration (linked to expected profits), fixed remuneration increases the proportion of people complying by as much as 25.1 percentage points. This is achieved with no diminution in productivity. Relative to a profit-focused workplace culture, a risk-focused workplace culture increases the proportion of people complying by 16.3 percentage points.
       
  • Activist Investors and Open Market Share Repurchases
    • Abstract: Publication date: Available online 21 August 2019Source: Journal of Banking & FinanceAuthor(s): Don M. Autore, Nicholas Clarke, Baixiao Liu This study examines the role of activist investors in firms’ decisions to conduct open market share repurchases. Compared with firms making ordinary share repurchases, firms making activist-involved repurchases have more cash holdings, are more undervalued, experience better subsequent stock performance and similar improvements in operating performance, and eventually repurchase more shares. Moreover, repurchasing firms in which an activist investor claims to take a passive role exhibit no undervaluation, and repurchasing firms that make multiple repurchases exhibit share undervaluation only in repurchases where an activist is involved. In all, our findings suggest that activist-involvement is associated with improved corporate repurchase decisions.
       
  • Elite Law Firms in the IPO Market
    • Abstract: Publication date: Available online 19 August 2019Source: Journal of Banking & FinanceAuthor(s): Pablo Moran, J. Ari Pandes IPOs with underwriters that retain an elite law firm exhibit a lower average first-day return. This empirical pattern remains after controlling for an extensive set of proxies associated with existing explanations of IPO initial returns. We rationalize this finding with a pre-IPO pricing model, in which underwriters convey their lack of conflicts of interest to the issuer by engaging an elite law firm. Consistent with this selection channel and our model’s predictions, we find a lower incidence of elite law firm involvement and a larger difference in average first-day return associated with elite law firms during the dot-com period. We document similar findings with respect to the dispersion of IPO first-day returns and a pattern in the issuers’ re-hiring decision of investment banks consistent with our theory.
       
  • Competition and Risk Taking in Banking: The Charter Value Hypothesis
           Revisited
    • Abstract: Publication date: Available online 14 August 2019Source: Journal of Banking & FinanceAuthor(s): Stefan Arping Conventional wisdom suggests that greater competition in banking, by eroding bank charter values, exacerbates banks’ incentives to take excessive risks. This paper presents a model in which, contrary to this view, competition can cause banks to act more prudently: As competition intensifies and profit margins decline, banks face more-binding threats of failure, to which they may respond by taking lower risks. Nonetheless, competition is unambiguously destabilizing in this model: The direct effect of lower margins on bank failure rates always outweighs the prudence effect. A key implication is that the effects of competition on bank risk taking and on failure risk can move in opposite directions.
       
  • Financial Market Development and Firm Investment in Tax Avoidance:
           Evidence from Credit Default Swap Market
    • Abstract: Publication date: Available online 13 August 2019Source: Journal of Banking & FinanceAuthor(s): Hyun Hong, Gerald J. Lobo, Ji Woo Ryou Lenders reduce their monitoring efforts after hedging their credit risk exposure through credit default swap (CDS) contracts, which are akin to insurance against borrowers’ adverse credit events. In this study, we examine whether, upon observing the reduced lender monitoring following CDS trading, shareholders demand that borrowing firms invest in more aggressive tax planning strategies, which were previously constrained by risk-averse lenders. Using a difference-in-differences design that exploits the variation in timing of the inception of CDS trading, we document that borrowers exhibit greater tax avoidance after the inception of CDS trading. Consistent with shareholders stepping up their demands post-CDS, we find that the increase in tax avoidance is stronger for (i) firms with more powerful and influential shareholders, as measured by dedicated institutional investors, (ii) firms with stronger shareholder defenders, as measured by board independence and board size, and (iii) firms with more strategic default options. We also find that borrowers with higher levels of tax avoidance are less likely to file for bankruptcy in the future. Our findings are robust to a battery of sensitivity checks, including controlling for cost of debt and endogeneity, as well as using alternative measures of tax avoidance.
       
  • IPO Pricing Deregulation and Corporate Governance: Theory and Evidence
           from Chinese Public Firms
    • Abstract: Publication date: Available online 8 August 2019Source: Journal of Banking & FinanceAuthor(s): Ping He, Lin Ma, Kun Wang, Xing Xiao The disciplinary role of the financial market could interact with a firm's choice of internal corporate governance. We prove that when the efficiency of the initial public offering (IPO) pricing improves, entrepreneurs choose stronger corporate governance structures as way of committing to extract fewer private benefits in exchange for higher prices. Using a difference-in-difference method that exploits the asymmetric impacts of the IPO pricing deregulation on the Chinese mainland and Hong Kong markets, we find that improving the efficiency of IPO pricing has a positive impact on a firm's corporate governance quality. This impact is more pronounced for firms with lower tangibility, for firms with higher market-to-book ratios, and for state-owned enterprises. Our findings demonstrate that the development of the financial market can promote economic development through improving corporate governance.
       
  • An Equilibrium Model of Risk Management Spillover
    • Abstract: Publication date: Available online 7 August 2019Source: Journal of Banking & FinanceAuthor(s): Shiyang Huang, Ying Jiang, Zhigang Qiu, Zhiqiang Ye This paper investigates the effects of relative performance concerns on fund managers’ behavior when managers are heterogeneous in their risk management practices. We find that relative performance concerns have distinct effects on different managers as follows: managers without risk management constraints conduct risk management, while those with risk management constraints do not change their trading. Our results suggest that a small number of fund managers with risk management requirements can have a significant impact on the market. Our theory can potentially reconcile the long-lasting debate regarding the impact of risk management on financial markets.
       
  • Did connected hedge funds benefit from bank bailouts during the financial
           crisis'
    • Abstract: Publication date: Available online 6 August 2019Source: Journal of Banking & FinanceAuthor(s): Robert W. Faff, Jerry T. Parwada, Eric K.M. Tan We examine whether connected hedge funds (i.e. those that are prime-brokerage clients of bailout banks) benefited from bailout programs initiated in seven countries during the 2007–2009 financial crisis. We find that being connected to a bailout bank is generally beneficial for hedge funds in that it lowers the rate of fund failure. However, this benefit becomes smaller during the post bailout period, for example, due to the greater risk-taking and higher leverage of such funds subsequent to bailouts. As such, our findings provide support for the moral hazard hypothesis.
       
  • Women on boards and bank earnings management: from zero to hero
    • Abstract: Publication date: Available online 6 August 2019Source: Journal of Banking & FinanceAuthor(s): Yaoyao Fan, Yuxiang Jiang, Xuezhi Zhang, Yue Zhou We examine how women on boards influence bank earnings management. Using the likelihood of a board appointing women directors based on a Blau index of gender diversity in each director's total employment connections outside our sample banks for identification, we find an inverted U-shaped relation between women on boards and bank earnings management. Specifically, when there exists only a marginal number of women directors, banks are more likely to manipulate earnings. But, when the number of women directors reaches three or more, bank earnings management declines. This inverted U-shaped impact is intensified if women sit on audit or nomination committees, is moderated if women directors have higher education levels and more board experience, and is unchanged during the 2007-2009 financial crisis. Our results hold when we use alternative measures of bank earnings management, employ GMM estimations and test for alternative hypotheses for the inverted U-shaped relation.
       
  • Portfolio Selection with Mental Accounts: An Equilibrium Model with
           Endogenous Risk Aversion
    • Abstract: Publication date: Available online 29 July 2019Source: Journal of Banking & FinanceAuthor(s): Gordon J. Alexander, Alexandre M. Baptista, Shu Yan In Das et al. (2010), an agent divides his or her wealth among mental accounts that have different goals and optimal portfolios. While the moments of the distribution of asset returns are exogenous in their normative model, they are endogenous in our corresponding positive model. We obtain the following results. First, there are multiple equilibria that we parameterize by the implied risk aversion coefficient of the agent’s aggregate portfolio. Second, equilibrium asset prices and the composition of optimal portfolios within accounts depend on this coefficient. Third, altering the goal of any given account affects the composition of each portfolio.
       
  • Founding family ownership, stock market returns, and agency problems
    • Abstract: Publication date: Available online 27 July 2019Source: Journal of Banking & FinanceAuthor(s): Nicolas Eugster, Dušan Isakov This paper explores the relationship between founding family ownership and stock market returns. Using the entire population of non-financial firms listed on the Swiss stock market for 2003–2013, we find that the stock returns of family firms are significantly higher than those of non-family firms after adjusting the returns for different firm characteristics and risk factors. Family firms generate an annual abnormal return of 2.8% to 7.1%. We also document that family firms potentially having more agency problems earn higher abnormal returns. Our evidence suggests that outside investors receive a premium for holding shares of these firms as they are exposed to the specific agency problems present in family firms.
       
  • Financial Sector Debt Bias
    • Abstract: Publication date: Available online 24 July 2019Source: Journal of Banking & FinanceAuthor(s): Oana Luca, Alexander F. Tieman Most tax systems create a tax bias toward debt finance. Such debt bias increases firm leverage and may negatively affect financial stability. This paper presents novel evidence on debt bias in the “non-traditional” financial sector— i.e., investment banks and non-bank financial intermediaries such as finance and insurance companies. It also shows how debt bias in the financial sector has been affected by the global financial crisis. The paper finds debt bias to be pervasive, explaining as much as 10 percentage points of bank leverage. These effects are more pronounced before than after the global financial crisis, explained by the post-crisis focus on rebuilding buffers. Going forward, as buffers have largely been rebuilt, debt bias is once again gaining prominence as a key driver of leverage decisions of financial firms, underscoring the importance of policy reform at this juncture.
       
  • The Risk-Shifting Value of Payout: Evidence from Bank Enforcement Actions
    • Abstract: Publication date: Available online 19 July 2019Source: Journal of Banking & FinanceAuthor(s): Leonid Pugachev This paper reexamines whether investors value payout and why. I study abnormal stock returns around regulatory enforcement actions that restrict bank dividends and repurchases. Market reactions are significantly worse for enforced banks that pay out than for those that do not. Withstanding alternative explanations and parallel trend concerns, these results present rare, causal evidence of a value to corporate distribution. The cross-section of abnormal returns suggests that risk-shifting, not agency cost-reduction, drives payout. In my sample of distressed banks, especially around financial crises, the ability to shift risk through payout has value.
       
  • Belief Heterogeneity in the Option Markets and the Cross-Section of Stock
           Returns
    • Abstract: Publication date: Available online 13 July 2019Source: Journal of Banking & FinanceAuthor(s): Paul Borochin, Yanhui Zhao Standard deviations of the implied-historical volatility spread, of implied volatility innovations, and of the volatility term structure spread in equity options help explain the cross-section of one-month-ahead underlying stock returns. The explanatory power from standard deviations is robust to the levels of these three variables, volatility of volatility, firm characteristics, and common risk factor models. We find support for interpreting the standard deviations of these option-based measures as forward-looking proxies for heterogeneous beliefs. The negative relationship between our three measures and future underlying returns is consistent with the Miller (1977) overvaluation model which implies that divergence of investor opinions in the presence of short-sale constraints leads to lower expected returns.
       
  • Purchases of Sovereign Debt Securities by Banks During the Crisis: The
           Role of Balance Sheet Conditions
    • Abstract: Publication date: Available online 13 June 2019Source: Journal of Banking & FinanceAuthor(s): Raffaele Santioni, Massimiliano Affinito, Giorgio Albareto The literature exploring the determinants of the increase in sovereign debt securities in banks’ portfolios during the crisis generally adopted a macroeconomic perspective (governments’ moral suasion, redenomination risk, etc.). This study adopts a microeconomic approach and analyzes the main bank-by-bank determinants of the purchases by investigating Italian banks’ balance sheet conditions from 2007 to 2013. The results show that banks’ specific balance sheet characteristics matter, and banks buy government securities to support their financial conditions. The high liquidity of government bonds, high yields, and convenience in terms of capital charges make them well suited to satisfying banks’ needs in periods of intense liquidity demand, declining bank profitability and loan quality, and rising capital constraints.
       
  • U.S. bank M&As in the post-Dodd-Frank Act era: Do they create value'
    • Abstract: Publication date: Available online 11 June 2019Source: Journal of Banking & FinanceAuthor(s): George N. Leledakis, Emmanouil G. Pyrgiotakis We analyze the impact of the Dodd-Frank Act on the shareholder wealth gains using a sample of 640 completed U.S. M&As announced between 1990 and 2014. Our results indicate a positive DFA effect on announcement period abnormal returns in small bank mergers. In fact, mergers with combined firm assets of less than $10 billion create more shareholder value after the DFA, than ever before. This positive announcement effect in small deals appears to be linked with merger-related compliance cost savings and profitability improvements. By examining long-run abnormal returns, we find that the documented DFA effect on small deals announcement abnormal returns does not disappear overtime. Finally, we do not find such effects for non-U.S. bank M&As over the same period.
       
  • Determinants of Household Broker Choices and Their Impacts on Performance
    • Abstract: Publication date: Available online 11 June 2019Source: Journal of Banking & FinanceAuthor(s): Kingsley Fong, Juliane D. Krug, Henry Leung, Joakim P. Westerholm We use Finnish OMX Helsinki data to examine the relationship between demographic variables, individual investors' broker choices and trade informativeness. We find that men prefer to use Full-Service-Retail over Discount-Retail brokers and that a higher level of income leads to a higher likelihood of using Discount-Retail brokers. Women present more heterogenous broker choice behaviors. However, both genders are more likely to carry out larger trades through Discount-Retail brokers. We show that trades executed via Discount-Retail brokers are more informative than those of Full-Service-Retail brokers and that only Discount-Retail brokers show trade informativeness differences across gender after controlling for age. Collectively, women make more informative trades then men, but this result reverses after partitioning by age. We conclude that conditioning on the type of broker reduces unobserved individual investor heterogeneity and that demographic variables are essential to the understanding of broker clientele effect. Furthermore, clientele differences observed across broker types are market specific and dominate the effects of financial advice in determining trade informativeness.
       
  • Risk-Taking Spillovers of U.S. Monetary Policy in the Global Market for
           U.S. Dollar Corporate Loans
    • Abstract: Publication date: Available online 7 June 2019Source: Journal of Banking & FinanceAuthor(s): Seung Jung Lee, Lucy Qian Liu, Viktors Stebunovs We study the effects of U.S. interest rates and other factors on risk-taking in the global market for U.S. dollar syndicated term loans. We find that, before the Global Financial Crisis, both U.S. and non-U.S. lenders originated ex ante riskier loans to non-U.S. borrowers in response to a decline in short-term U.S. interest rates and, after the crisis, in response to a decline in longer-term U.S. interest rates. After the crisis, this behavior was more prominent for shadow banks and less prominent for banks with relatively low capital. Separately, before the crisis, lenders originated less risky loans in response to U.S. dollar appreciation. Across the periods, the responses to risk appetite and economic uncertainty varied. To the extent that the Federal Reserve affects U.S. interest rates, we provide evidence of global risk-taking spillovers of U.S. monetary policy, which are important but not dominant factors for risk-taking in the market.
       
  • International effects of a compression of euro area yield curves
    • Abstract: Publication date: Available online 27 March 2019Source: Journal of Banking & FinanceAuthor(s): Martin Feldkircher, Thomas Gruber, Florian Huber In this paper, we use a Bayesian global vector autoregressive model to analyze the macroeconomic effects of a flattening of euro area yield curves. Our findings indicate positive effects on real activity and prices, both within the euro area as well as in neighboring economies. Spillovers transmit through an exchange rate channel and a broad financial channel. We complement our analysis by conducting a portfolio optimization exercise. Our results show that multi-step-ahead forecasts conditional on the euro area yield curve shock improve Sharpe ratios relative to other investment strategies.
       
  • Does banks’ systemic importance affect their capital structure and
           balance sheet adjustment processes'
    • Abstract: Publication date: Available online 7 March 2019Source: Journal of Banking & FinanceAuthor(s): Yassine Bakkar, Olivier De Jonghe, Amine Tarazi Frictions prevent banks to immediately adjust their capital ratio towards their desired and/or imposed level. This paper analyzes (i) whether or not these frictions are larger for regulatory capital ratios vis-à-vis a plain leverage ratio; (ii) which adjustment channels banks use to adjust their capital ratio; and (iii) how the speed of adjustment and adjustment channels differ between large, systemic and complex banks versus small banks. Our results, obtained using a sample of listed banks across OECD countries for the 2001-2012 period, bear critical policy implications for the implementation of new (systemic risk-based) capital requirements and their impact on banks’ balance sheets, specifically lending, and hence the real economy.
       
  • Risk Taking and Low Longer-term Interest Rates: Evidence from the U.S.
           Syndicated Term Loan Market
    • Abstract: Publication date: Available online 22 February 2019Source: Journal of Banking & FinanceAuthor(s): Sirio Aramonte, Seung Jung Lee, Viktors Stebunovs We use supervisory data to investigate the ex-ante credit risk taken by different types of lenders in the U.S. syndicated term loan market during the LSAPs period. We find that nonbank lenders, mutual funds and structured-finance vehicles, take higher risk when longer-term interest rates decrease. The results are stronger for mutual funds that charge higher fees. Banks accommodate other lenders’ investment choices by originating riskier loans and selling them off. These results are consistent with “search for yield” by nonbanks and with a risk-taking channel of monetary policy. Over the sample we study, lower longer-term interest rates appear to have only a minimal effect on loan spreads.
       
  • The Distributional Effects of Conventional Monetary Policy and
           Quantitative Easing: Evidence from an Estimated DSGE model
    • Abstract: Publication date: Available online 8 January 2019Source: Journal of Banking & FinanceAuthor(s): Stefan Hohberger, Romanos Priftis, Lukas Vogel This paper compares the distributional effects of conventional monetary policy and quantitative easing (QE) within an estimated open-economy DSGE model of the euro area. The model includes two groups of households: (i) wealthier households, who own financial assets and are able to smooth consumption over time, and (ii) poorer households, who only receive labor and transfer income and live 'hand to mouth'. We use the model to compare the impact of policy shocks on constructed measures of income and wealth inequality (net disposable income, net asset position, and relative per-capita income). Except for the short term, expansionary conventional policy and QE shocks tend to mitigate income and wealth inequality between the two population groups. In light of the coarse dichotomy of households that abstracts from richer income and wealth dynamics at the individual level, the analysis emphasizes the functional distribution of income.
       
  • Does CDS trading affect risk-taking incentives in managerial
           compensation'
    • Abstract: Publication date: Available online 7 January 2019Source: Journal of Banking & FinanceAuthor(s): Jie Chen, Woon Sau Leung, Wei Song, Davide AvinoABSTRACTWe find that managers receive more risk-taking incentives in their compensation packages once their firms are referenced by credit default swap (CDS) trading, particularly when institutional ownership is high and when firms are in financial distress. These findings provide suggestive evidence that boards offer pay packages that encourage greater risk taking to take advantage of the reduced creditor monitoring after CDS introduction. Further, we show that the onset of CDS trading attenuates the effect of vega on leverage, consistent with the threat of exacting creditors restraining managerial risk appetite.
       
 
 
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