The Creation and Evolution of Entrepreneurial Public Markets
Shai B. Bernstein, Abhishek Dev, Josh Lerner
Journal of Financial Economics,
Nr. 2,
2020
Abstract
This paper explores the creation and evolution of new stock exchanges around the world geared toward entrepreneurial companies, known as second-tier exchanges. Using hand-collected novel data, we show the proliferation of these exchanges in many countries, their significant volume of Initial Public Offerings (IPOs), and lower listing requirements. Shareholder protection strongly predicted exchange success, even in countries with high levels of venture capital activity, patenting, and financial market development. Better shareholder protection allowed younger, less-profitable, but faster-growing, companies to raise more capital. These results highlight the importance of institutions in enabling the provision of entrepreneurial capital to young companies.
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Comparing Financial Transparency between For-profit and Nonprofit Suppliers of Public Goods: Evidence from Microfinance
John W. Goodell, Abhinav Goyal, Iftekhar Hasan
Journal of International Financial Markets, Institutions and Money,
January
2020
Abstract
Previous research finds market financing is favored over relationship financing in environments of better governance, since the transaction costs to investors of vetting asymmetric information are thereby reduced. For industries supplying public goods, for-profits rely on market financing, while nonprofits rely on relationships with donors. This suggests that for-profits will be more inclined than nonprofits to improve financial transparency. We examine the impact of for-profit versus nonprofit status on the financial transparency of firms engaged with supplying public goods. There are relatively few industries that have large number of both for-profit and nonprofit firms across countries. However, the microfinance industry provides the opportunity of a large number of both for-profit and nonprofit firms in relatively equal numbers, across a wide array of countries. Consistent with our prediction, we find that financial transparency is positively associated with a for-profit status. Results will be of broad interest both to scholars interested in the roles of transparency and transaction costs on market versus relational financing; as well as to policy makers interested in the impact of for-profit on the supply of public goods, and on the microfinance industry in particular.
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What Drives the Commodity-Sovereign-Risk-Dependence in Emerging Market Economies?
Hannes Böhm, Stefan Eichler, Stefan Gießler
Abstract
Using daily data for 34 emerging markets in the period 1994-2016, we find robust evidence that higher export commodity prices are associated with higher sovereign bond returns (indicating lower sovereign risk). The economic effect is especially pronounced for heavy commodity exporters. Examining the drivers, we find, first, that commodity-dependence is higher for countries that export large volumes of volatile commodities and that the effect increases in times of recessions, high inflation, and expansionary U.S. monetary policy. Second, the importance of raw material prices for sovereign financing can likely be mitigated if a country improves institutions and tax systems, attracts FDI inflows, invests in manufacturing, machinery and infrastructure, builds up reserve assets and opens capital and trade accounts. Third, the concentration of commodities within a country’s portfolio, its government indebtedness or amount of received development assistance appear to be only of secondary importance for commodity-dependence.
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What Drives Discretion in Bank Lending? Some Evidence and a Link to Private Information
Gene Ambrocio, Iftekhar Hasan
Journal of Banking and Finance,
2019
Abstract
We assess the extent to which discretion, unexplained variations in the terms of a loan contract, has varied across time and lending institutions and show that part of this discretion is due to private information that lenders have on their borrowers. We find that discretion is lower for secured loans and loans granted by a larger group of lenders, and is larger when the lenders are larger and more profitable. Over time, discretion is also lower around recessions although the private information content is higher. The results suggest that bank discretionary and private information acquisition behavior may be important features of the credit cycle.
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Corporate Misconduct and the Cost of Private Debt: Evidence from China
Xian Gu, Iftekhar Hasan, Haitian Lu
Comparative Economic Studies,
Nr. 3,
2019
Abstract
Using a comprehensive dataset of corporate lawsuits in China, we investigate the implications of corporate misconduct on the cost of private debt. Evidence reveals that firms involved in litigations obtain subsequent loans with stricter pricing terms, 15.1 percent higher loan spreads, than non-litigated borrowers. Strong political connection and repeated relationship help to flatten the sensitivity of loan pricing to litigation. Nonbank financial institutions react in stronger manner to corporate misconduct than traditional banks in pricing loans. Overall, we show that private debt holders care about borrowers’ wrongdoing in the past.
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How Forecast Accuracy Depends on Conditioning Assumptions
Carola Engelke, Katja Heinisch, Christoph Schult
IWH Discussion Papers,
Nr. 18,
2019
Abstract
This paper examines the extent to which errors in economic forecasts are driven by initial assumptions that prove to be incorrect ex post. Therefore, we construct a new data set comprising an unbalanced panel of annual forecasts from different institutions forecasting German GDP and the underlying assumptions. We explicitly control for different forecast horizons to proxy the information available at the release date. Over 75% of squared errors of the GDP forecast comove with the squared errors in their underlying assumptions. The root mean squared forecast error for GDP in our regression sample of 1.52% could be reduced to 1.13% by setting all assumption errors to zero. This implies that the accuracy of the assumptions is of great importance and that forecasters should reveal the framework of their assumptions in order to obtain useful policy recommendations based on economic forecasts.
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What Does Peer-to-Peer Lending Evidence Say About the Risk-taking Channel of Monetary Policy?
Yiping Huang, Xiang Li, Chu Wang
Abstract
This paper uses loan application-level data from a Chinese peer-to-peer lending platform to study the risk-taking channel of monetary policy. By employing a direct ex-ante measure of risk-taking and estimating the simultaneous equations of loan approval and loan amount, we are the first to provide quantitative evidence of the impact of monetary policy on the risk-taking of nonbank financial institution. We find that the search-for-yield is the main workhorse of the risk-taking effect, while we do not observe consistent findings of risk-shifting from the liquidity change. Monetary policy easing is associated with a higher probability of granting loans to risky borrowers and a greater riskiness of credit allocation, but these changes do not necessarily relate to a larger loan amount on average.
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What Does Peer-to-Peer Lending Evidence Say About the Risk-taking Channel of Monetary Policy?
Yiping Huang, Xiang Li, Chu Wang
Abstract
This paper uses loan application-level data from a peer-to-peer lending platform to study the risk-taking channel of monetary policy. By employing a direct ex-ante measure of risk-taking and estimating the simultaneous equations of loan approval and loan amount, we are the first to provide quantitative evidence of the impact of monetary policy on the risk-taking of nonbank financial institution. We find that the search-for-yield is the main workhorse of the risk-taking effect, while we do not observe consistent findings of risk-shifting from the liquidity change. Monetary policy easing is associated with a higher probability of granting loans to risky borrowers and a greater riskiness of credit allocation, but these changes do not necessarily relate to a larger loan amount on average.
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25.02.2019 • 5/2019
Presseeinladung zur Konferenz „Vereintes Land – drei Jahrzehnte nach dem Mauerfall“ am 6. März 2019 in Halle (Saale)
30 Jahre nach dem Fall der Berliner Mauer unterscheiden sich die Lebensverhältnisse innerhalb Deutschlands teils stark. Auf einer Konferenz des Leibniz-Instituts für Wirtschaftsforschung Halle (IWH) diskutieren Fachleute über das Gefälle bei Produktivität und Löhnen, über Mittelstand und Globalisierung. Den Eröffnungsvortrag hält Sachsen-Anhalts Ministerpräsident Dr. Reiner Haseloff.
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Too Connected to Fail? Inferring Network Ties from Price Co-movements
Jakob Bosma, Michael Koetter, Michael Wedow
Journal of Business and Economic Statistics,
Nr. 1,
2019
Abstract
We use extreme value theory methods to infer conventionally unobservable connections between financial institutions from joint extreme movements in credit default swap spreads and equity returns. Estimated pairwise co-crash probabilities identify significant connections among up to 186 financial institutions prior to the crisis of 2007/2008. Financial institutions that were very central prior to the crisis were more likely to be bailed out during the crisis or receive the status of systemically important institutions. This result remains intact also after controlling for indicators of too-big-to-fail concerns, systemic, systematic, and idiosyncratic risks. Both credit default swap (CDS)-based and equity-based connections are significant predictors of bailouts. Supplementary materials for this article are available online.
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