Do Affiliated Bankers on Board Enhance Corporate Social Responsibility? US Evidence
Iftekhar Hasan, Hui Li, Haizhi Wang, Yun Zhu
Sustainability,
Nr. 6,
2021
Abstract
In this study, we examine whether and to what extent affiliated bankers on board may affect firms’ corporate social performance. Using a propensity score-matched sample from 2002 to 2016, we find that board directors from affiliated banks exert significantly positive influence on firms’ corporate social performance. Furthermore, board of directors from affiliated banks are negatively associated with firm investments in corporate social responsibility (CSR) activities when firms experience financial distress. Finally, we find that the effect of affiliated bankers on board on firms’ CSR performance depends on the affiliated banks’ CSR orientation, as affiliated banker directors from banks with higher CSR orientation have a stronger influence on firms’ investments in CSR activities. The results suggest that improving firm’s CSR performance is consistent with the affiliated banks’ interests.
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A Note of Caution on Quantifying Banks' Recapitalization Effects
Felix Noth, Kirsten Schmidt, Lena Tonzer
Abstract
Unconventional monetary policy measures like asset purchase programs aim to reduce certain securities' yield and alter financial institutions' investment behavior. These measures increase the institutions' market value of securities and add to their equity positions. We show that the extent of this recapitalization effect crucially depends on the securities' accounting and valuation methods, country-level regulation, and maturity structure. We argue that future research needs to consider these factors when quantifying banks' recapitalization effects and consequent changes in banks' lending decisions to the real sector.
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Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring
Stefano Colonnello, Michael Koetter, Moritz Stieglitz
Economic Inquiry,
Nr. 1,
2021
Abstract
Theoretically, bank's loan monitoring activity hinges critically on its capitalization. To proxy for monitoring intensity, we use changes in borrowers' investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank‐firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalized banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands‐off approach is associated with improved borrowers' performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks.
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The Real Impact of Ratings-based Capital Rules on the Finance-Growth Nexus
Iftekhar Hasan, Gazi Hassan, Suk-Joong Kim, Eliza Wu
International Review of Financial Analysis,
January
2021
Abstract
We investigate whether ratings-based capital regulation has affected the finance-growth nexus via a foreign credit channel. Using quarterly data on short to medium term real GDP growth and cross-border bank lending flows from G-10 countries to 67 recipient countries, we find that since the implementation of Basel 2 capital rules, risk weight reductions mapped to sovereign credit rating upgrades have stimulated short-term economic growth in investment grade recipients but hampered growth in non-investment grade recipients. The impact of these rating upgrades is strongest in the first year and then reverses from the third year and onwards. On the other hand, there is a consistent and lasting negative impact of risk weight increases due to rating downgrades across all recipient countries. The adverse effects of ratings-based capital regulation on foreign bank credit supply and economic growth are compounded in countries with more corruption and less competitive banking sectors and are attenuated with greater political stability.
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Marginal Returns to Talent for Material Risk Takers in Banking
Moritz Stieglitz, Konstantin Wagner
IWH Discussion Papers,
Nr. 20,
2020
Abstract
Economies of scale can explain compensation differentials over time, across firms of different size, different hierarchy-levels, and different industries. Consequently, the most talented individuals tend to match with the largest firms in industries where marginal returns to their talent are greatest. We explore a new dimension of this size-pay nexus by showing that marginal returns also differ across activities within firms and industries. Using hand-collected data on managers in European banks well below the level of executive directors, we find that the size-pay nexus is strongest for investment banking business units and for banks with a market-based business model. Thus, managerial compensation is most sensitive to size increases for activities that can easily be scaled up.
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Role of the Community Reinvestment Act in Mortgage Supply and the U.S. Housing Boom
Vahid Saadi
Review of Financial Studies,
Nr. 11,
2020
Abstract
This paper studies the role of the Community Reinvestment Act (CRA) in the U.S. housing boom-bust cycle. I find that enhanced CRA enforcement in 1998 increased the growth rate of mortgage lending by CRA-regulated banks to CRA-eligible census tracts. I show that during the boom period house price growth was higher in the eligible census tracts because of the shift in mortgage supply of regulated banks. Consequently, these census tracts experienced a worse housing bust. I find that CRA-induced mortgages were awarded to borrowers with lower FICO scores and were more frequently delinquent.
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A Capital Structure Channel of Monetary Policy
Benjamin Grosse-Rueschkamp, Sascha Steffen, Daniel Streitz
Journal of Financial Economics,
Nr. 2,
2019
Abstract
We study the transmission channels from central banks’ quantitative easing programs via the banking sector when central banks start purchasing corporate bonds. We find evidence consistent with a “capital structure channel” of monetary policy. The announcement of central bank purchases reduces the bond yields of firms whose bonds are eligible for central bank purchases. These firms substitute bank term loans with bond debt, thereby relaxing banks’ lending constraints: banks with low tier-1 ratios and high nonperforming loans increase lending to private (and profitable) firms, which experience a growth in investment. The credit reallocation increases banks’ risk-taking in corporate credit.
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Langfristige Konsequenzen der Finanzkrise 2008/2009: Nachsichtige Regulierung schadet, flexible Löhne helfen
Reint E. Gropp, Carlo Wix
Wirtschaft im Wandel,
Nr. 2,
2019
Abstract
Die globale Bankenkrise der Jahre 2008/2009 hatte weltweit signifikant negative Auswirkungen auf die Realwirtschaft, und in vielen Ländern fiel die folgende wirtschaftliche Erholung deutlich langsamer aus als in vorherigen Rezessionen. In den Monaten nach der Insolvenz der amerikanischen Investmentbank Lehman Brothers reduzierten Banken ihre Kreditvergabe an Unternehmen, was zu einem Anstieg der Arbeitslosigkeit, einem Rückgang an Investitionen und einer Verringerung der Produktivität führte. Während diese kurzfristigen Effekte in der bisherigen Forschung gut dokumentiert sind, sind die langfristigen Auswirkungen von Bankenkrisen bisher weit weniger gut verstanden. Zwei aktuelle Studien unter IWH-Beteiligung zeigen, dass Bankenkrisen generell negative langfristige Effekte auf das Wachstum von Firmen haben, dass die Rettung von schwachen Banken während der Krise mit Produktivitätsverlusten in späteren Jahren einhergeht, und dass diese negativen langfristigen Effekte durch die Existenz inflexibler Löhne verstärkt werden.
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Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring?
Stefano Colonnello, Michael Koetter, Moritz Stieglitz
Abstract
Theoretically, bank‘s loan monitoring activity hinges critically on its capitalisation. To proxy for monitoring intensity, we use changes in borrowers‘ investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank-firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalised banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands-off approach is associated with improved borrowers‘ performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks.
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Banks Response to Higher Capital Requirements: Evidence from a Quasi-natural Experiment
Reint E. Gropp, Thomas Mosk, Steven Ongena, Carlo Wix
Review of Financial Studies,
Nr. 1,
2019
Abstract
We study the impact of higher capital requirements on banks’ balance sheets and their transmission to the real economy. The 2011 EBA capital exercise is an almost ideal quasi-natural experiment to identify this impact with a difference-in-differences matching estimator. We find that treated banks increase their capital ratios by reducing their risk-weighted assets, not by raising their levels of equity, consistent with debt overhang. Banks reduce lending to corporate and retail customers, resulting in lower asset, investment, and sales growth for firms obtaining a larger share of their bank credit from the treated banks.
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