Creditor-control Rights and the Nonsynchronicity of Global CDS Markets
Iftekhar Hasan, Miriam Marra, Eliza Wu, Gaiyan Zhang
Review of Corporate Finance Studies,
forthcoming
Abstract
We analyze how creditor rights affect the nonsynchronicity of global corporate credit default swap spreads (CDS-NS). CDS-NS is negatively related to the country-level creditor-control rights, especially to the “restrictions on reorganization” component, where creditor-shareholder conflicts are high. The effect is concentrated in firms with high investment intensity, asset growth, information opacity, and risk. Pro-creditor bankruptcy reforms led to a decline in CDS-NS, indicating lower firm-specific idiosyncratic information being priced in credit markets. A strategic-disclosure incentive among debtors avoiding creditor intervention seems more dominant than the disciplining effect, suggesting how strengthening creditor rights affects power rebalancing between creditors and shareholders.
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Die Zukunft des europäischen Finanzsystems – zwischen Risiken und mangelnder Wettbewerbsfähigkeit?
Thorsten Beck, Hans-Peter Burghof, Markus Demary, Harald Hau, Aurora Li, Melina Ludolph, Michael Peters, Tim-Ole Radach, Dorothea Schäfer, Sascha Steffen, Niklas Taft, Marcel Thum, Lena Tonzer, Karlheinz Walch, Benjamin Weigert
ifo Schnelldienst,
No. 7,
2024
Abstract
In ihrem aktuellen Finanzstabilitätsbericht erklärt die EZB, dass sich die Stabilität im Finanzsystem verbessert habe. Auch die Stellungnahme des Europäischen Ausschusses für Systemrisiken (ESRB) hat die Widerstandsfähigkeit des Bankensystems anerkannt. Die Turbulenzen um die Silicon Valley Bank und die Credit Suisse hatten im vergangenen Sommer noch Bedenken geschürt. Aktuell bleiben erhöhte Risiken – u. a. durch die geopolitische Unsicherheit oder die Entwicklungen auf den Immobilienmärkten. Auf institutioneller Ebene fehlen zudem wichtige Schritte zu einer Bankenunion und einer Stärkung eines europäischen Kapitalmarkts. Wie steht es um die Stabilität und Wettbewerbsfähigkeit des europäischen Bankensektors? Reichen die bisherigen Instrumente zum Abfedern möglicher Risiken aus? Haben die Entwicklungen auf dem Markt der US-Gewerbeimmobilien und die Insolvenz der Signa-Gruppe Auswirkungen auf deutsche und europäische Banken? Wirken sich Klimarisiken auf die Stabilität aus? Und wie stark trägt die Governance der Banken zu ihrer Solidität bei?
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Do Politicians Affect Firm Outcomes? Evidence from Connections to the German Federal Parliament
André Diegmann, Laura Pohlan, Andrea Weber
IWH Discussion Papers,
No. 15,
2024
Abstract
We study how connections to German federal parliamentarians affect firm dynamics by constructing a novel dataset to measure connections between politicians and the universe of firms. To identify the causal effect of access to political power, we exploit (i) new appointments to the company leadership team and (ii) discontinuities around the marginal seat of party election lists. Our results reveal that connections lead to reductions in firm exits, gradual increases in employment growth without improvements in productivity. The economic effects are mediated by better credit ratings while access to subsidies or procurement contracts are documented to be of lower importance.
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Credit Supply Shocks: Financing Real Growth or Takeovers?
Tobias Berg, Daniel Streitz, Michael Wedow
Review of Corporate Finance Studies,
No. 2,
2024
Abstract
How do firms invest when financial constraints are relaxed? We document that firms affected by a large positive credit supply shock predominantly increase borrowing for transaction-based purposes. These treated firms have larger asset and employment growth rates; however, growth entirely stems from the increased takeover activity. Announcement returns indicate a low quality of the credit-supply-induced takeover activity. These results offer the possibility that credit-driven growth can simply reflect redistribution, rather than net gains in assets or employment.
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Climate Stress Tests, Bank Lending, and the Transition to the Carbon-neutral Economy
Larissa Fuchs, Huyen Nguyen, Trang Nguyen, Klaus Schaeck
IWH Discussion Papers,
No. 9,
2024
Abstract
We ask if bank supervisors’ efforts to combat climate change affect banks’ lending and their borrowers’ transition to the carbon-neutral economy. Combining information from the French supervisory agency’s climate pilot exercise with borrowers’ emission data, we first show that banks that participate in the exercise increase lending to high-carbon emitters but simultaneously charge higher interest rates. Second, participating banks collect new information about climate risks, and boost lending for green purposes. Third, receiving credit from a participating bank facilitates borrowers’ efforts to improve environmental performance. Our findings establish a hitherto undocumented link between banking supervision and the transition to net-zero.
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Do Public Bank Guarantees Affect Labor Market Outcomes? Evidence from Individual Employment and Wages
Laura Baessler, Georg Gebhardt, Reint E. Gropp, Andre Guettler, Ahmet Taskin
IWH Discussion Papers,
No. 7,
2024
Abstract
We investigate whether employees in Germany benefit from public bank guarantees in terms of employment probability and wages. To that end, we exploit the removal of public bank guarantees in Germany in 2001 as a quasi-natural experiment. Our results show that bank guarantees lead to higher employment, but lower wage prospects for employees after working in affected establishments. Overall the results suggest that employees do not benefit from bank guarantees.
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Asymmetric Reactions of Abnormal Audit Fees Jump to Credit Rating Changes
June Cao, Mong Shan Ee, Iftekhar Hasan, He Huang
British Accounting Review,
No. 2,
2024
Abstract
Considering the inherent stickiness of abnormal audit fees, our study contributes to the literature by decomposing abnormal audit fees into a jump component and long-run sticky component. We investigate whether and how changes in credit ratings asymmetrically affect the jump component of abnormal audit fees. We document a positive association between rating downgrades and the jump component. We find that heightened bankruptcy risk and misstatement risk are the mechanisms that drive this relationship. Further analysis shows that firms experiencing rating downgrades are more likely to receive a going concern opinion and experience longer audit report lags. Taken together, our findings provide direct evidence that credit ratings are significantly associated with abnormal audit fees, particularly with the jump component. Given the serial correlation of abnormal audit fees, our study sheds light on the importance of disaggregation of the abnormal audit fee residuals into the jump and long-run sticky components.
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Is Risk the Fuel of the Business Cycle? Financial Frictions and Oil Market Disturbances
Christoph Schult
IWH Discussion Papers,
No. 4,
2024
Abstract
I estimate a dynamic stochastic general equilibrium (DSGE) model for the United States that incorporates oil market shocks and risk shocks working through credit market frictions. The findings of this analysis indicate that risk shocks play a crucial role during the Great Recession and the Dot-Com bubble but not during other economic downturns. Credit market frictions do not amplify persistent oil market shocks. This result holds as long as entry and exit rates of entrepreneurs are independent of the business cycle.
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Global Banks and Synthetic Funding: The Benefits of Foreign Relatives
Fernando Eguren-Martin, Matias Ossandon Busch, Dennis Reinhardt
Journal of Money, Credit and Banking,
No. 1,
2024
Abstract
Abstract This paper examines the effect of dislocations in foreign currency (FX) swap markets ("CIP deviations") on bank lending. Using data from UK banks we show that when the cost of obtaining swap-based funds in a particular foreign currency increases, banks reduce the supply of cross-border credit in that currency. This effect is increasing in the degree of banks' reliance on swap-based FX funding. Access to foreign relatives matters as banks employ internal capital markets to shield their cross-border FX lending supply from the described channel. Partial substitution occurs from banks outside the UK not affected by changes in synthetic funding costs.
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Labor Market Polarization and Student Debt
Sanket Korgaonkar, Elena Loutskina, Constantine Yannelis
SSRN Working Paper,
2024
Abstract
This paper uses a new empirical design to explore how labor market polarization affects individuals’ incentive to pursue education funded on the margin by student debt. We argue that the labor market polarization–where automation replaces mid-skill and mid-education-level job–changes the marginal benefits of education and training and sharpens incentives to incur student debt. We advance a new measure of labor market polarizations that allows to capture the heterogeneity of this phenomena across geographies and time. Using this measure, we find that U.S. CBSAs that experience deeper labor market polarization see an increase in student debt balances and in the number of people pursuing student debt. On average, the decline in middle-skill jobs and wages has little effect on individuals’ ability to pay down existing student debt. The effects are most pronounced in ZIP codes with lower average credit scores, lower incomes, and higher share of the minority population.
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