The Effect of Bank Organizational Risk-management on the Price of Non-deposit Debt
Iftekhar Hasan, Emma Peng, Maya Waisman, Meng Yan
Journal of Financial Services Research,
April
2024
Abstract
We test whether organizational risk management matters to bondholders of U.S. bank holding companies (BHCs), and find that debt financing costs increase when the BHC has lower-quality risk management. Consistent with bailouts giving rise to moral hazard among bank creditors, we find that bondholders put less emphasis on risk management in large institutions for which bailouts are expected ex-ante. BHCs that maintained strong risk management before the financial crisis had lower debt costs during and after the crisis, compared to other banks. Overall, quality risk management can curtail risk exposures at BHCs and result in lower debt costs.
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Media Response
Media Response April 2025 Reint Gropp: Wie sich Maximilian Krah das Deutschland von morgen vorstellt in: DIE WELT, 04.04.2025 IWH: Donald Trump schadet Dax-Konzernen mit seinen…
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People
People Doctoral Students PhD Representatives Alumni Supervisors Lecturers Coordinators Doctoral Students Afroza Alam (Supervisor: Reint Gropp ) Julian Andres Diaz Acosta…
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German Economy Ailing – Reform of the Debt Brake Is No Panacea
Timm Bönke, Oliver Holtemöller, Stefan Kooths, Torsten Schmidt, Timo Wollmershäuser
Wirtschaftsdienst,
No. 4,
2024
Abstract
Eine zähe Konjunkturschwäche, schwindende Wachstumskräfte und ein stark erhöhter Krankenstand führen zur Unterauslastung der Produktionskapazitäten. Außen- wie binnenwirtschaftlich gibt es mehr Gegen- als Rückenwind. Hoffnung geben die Wirksamkeit der höheren Lohnabschlüsse 2024 und 2025, die für einen Anstieg des privaten Konsums sorgen können und gesamtdeutsche Rekordwerte für die Einnahmenquote der öffentlichen Hand. Eine Reform der Schuldenbremse durch stufenweises regelgebundenes Aktivieren nach einer Notlage und ein Hebesatz auf die Einkommensteuer könnten die Konjunkturabhängigkeit der Bundes- und Länderfinanzen verringern. Die Inflation dürfte 2024 auf 2,6 % zurückgehen.
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Economic Outlook
IWH Spring Forecast 2025 A Turning Point for the German Economy? March 13, 2025 The international political environment has fundamentally changed with looming trade wars and a…
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Homepage
A turning point for the German economy? The international political environment has fundamentally changed with looming trade wars and a deteriorating security situation in Europe.…
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IWH Construction Survey
IWH Construction Survey From 1993 until the first quarter of 2017, the IWH conducted regular surveys among companies. The results of these surveys could be used to promptly…
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Centre for Evidence-based Policy Advice
Centre for Evidence-based Policy Advice (IWH-CEP) The Centre for Evidence-based Policy Advice (IWH-CEP) of the IWH was founded in 2014. It is a platform that bundles and…
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OVERHANG: Debt overhang and green investments
OVERHANG: Debt overhang and green investments - the role of banks in climate-friendly management of emission-intensive fixed assets Subproject 1: Policy Changes, Lending and…
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Poison Bonds
Rex Wang Renjie, Shuo Xia
IWH Discussion Papers,
No. 3,
2024
Abstract
This paper documents the rise of “poison bonds”, which are corporate bonds that allow bondholders to demand immediate repayment in a change-of-control event. The share of poison bonds among new issues has grown substantially in recent years, from below 20% in the 90s to over 60% since mid-2000s. This increase is predominantly driven by investment-grade issues. We provide causal evidence that the pressure to eliminate poison pills has led firms to issue poison bonds as an alternative. Our analysis suggests that this practice entrenches incumbent managers and destroys shareholder value. Holding a portfolio of firms that remove poison pills but promptly issue poison bonds results in negative abnormal returns of −7.3% per year. Our findings have important implications for the agency theory of debt: (i) more debt may not discipline the management; and (ii) even without financial distress, managerial entrenchment can lead to agency conflicts between shareholders and creditors.
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