Private Benefits of Control and Bank Loan Contracts
Chih-Yung Lin, Wei-Che Tsai, Iftekhar Hasan, Le Quoc Tuan
Journal of Corporate Finance,
2018
Abstract
This paper investigates whether or not private benefits of control by managers and large shareholders influence the financing cost of firms. Evidence shows that lending banks demand a significantly higher loan spread, higher fees, shorter loan maturity, smaller loan size, stricter covenants, and greater collateral on firms with greater private benefits of control. Results are stronger for firms with weak corporate governance quality, supporting the agency cost viewpoint. Such evidence implies that banks consider higher private benefits of control as a type of agency problem when they make lending decisions.
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04.01.2017 • 2/2017
Worse ratings by U.S. rating agencies for European sovereigns no argument for European rating agency
A new study by the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association shows that the major U.S. rating agencies rated European sovereigns significantly worse than Fitch, which is more “Europe oriented”. Although the findings in part support the claim of some European politicians during the recent debt crisis that there was an “anti-Europe” bias of the U.S. agencies, the study shows that a new European agency would not address this problem. The reason: Market participants would not listen to the new agency.
Reint E. Gropp
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The Investment Strategies of Sovereign Wealth Funds
Shai B. Bernstein, Josh Lerner, Antoinette Schoar
Journal of Economic Perspectives,
No. 2,
2013
Abstract
Sovereign wealth funds have emerged as major investors in corporate and real resources worldwide. After an overview of their magnitude, we consider the institutional arrangements under which many of the sovereign wealth funds operate. We focus on a specific set of agency problems that is of first-order importance for these funds: that is, the direct involvement of political leaders in the management process. We show that sovereign wealth funds with greater involvement of political leaders in fund management are associated with investment strategies that seem to favor short-term economic policy goals in their respective countries at the expense of longer-term maximization of returns. Sovereign wealth funds face several other issues, like how best to cope with demands for transparency, which can allow others to copy their investment strategies, and how to address the problems that arise with sheer size, like the difficulties of scaling up investment strategies that only work with a smaller value of assets under investment. In the conclusion, we discuss how various approaches cultivated by effective institutional investors worldwide -- from investing in the best people to pioneering new asset classes to compartmentalizing investment activities -- may provide clues as to how sovereign wealth funds might address these issues.
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The Dilemma of Delegating Search: Budgeting in Public Employment Services
Martin Altemeyer-Bartscher, J. T. Addison, T. Kuhn
IZA Discussion Papers, No. 5170,
No. 5170,
2010
Abstract
The poor performance often attributed to many public employment services may be explained in part by a delegation problem between the central office and local job centers. In markets characterized by frictions, job centers function as match-makers, linking job seekers with relevant vacancies. Because their search intensity in contacting employers and collecting data is not verifiable by the central authority, a typical moral hazard problem can arise. To overcome the delegation problem and provide high-powered incentives for high levels of search effort on the part of job centers, we propose output-related schemes that assign greater staff capacity to agencies achieving high strike rates.
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The Role of Rating Agencies in Financial Crises: Event Studies from the Asian Flu
Makram El-Shagi
Cambridge Journal of Economics,
2010
Abstract
Based on case studies from countries that have been hit hardest by the Asian financial crisis of 1997, the present paper shows that the accusation that sovereign ratings led to a severe acceleration of the crisis is unconvincing and that the empirical method often used to support accusations against rating agencies is inappropriate for the problem under analysis. Rather, it must be emphasised that ratings were downgraded in most countries very shortly before the end of the crisis. In some countries, the ratings were even further downgraded after the end of the crisis as countries started to recover. This is not in line with the thesis that the crisis was accelerated by rating agencies.
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