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Working Paper
Equity underwriting risk
Working Paper
Good news and bad news about share repurchases
We estimate the cross-sectional relationship between open market repurchases and accounting data for a large sample of dividend- paying and non-dividend paying firms over a twelve year period (1984-95). Consistent with the hypothesis that firms use open market repurchases to reduce the agency costs of free cash flow, we find that repurchases are positively related to proxies for free cash flow and negatively related to proxies for marginal financing costs. We also examine the extent to which management stock options influence the choice between open market repurchases and dividend payments. ...
Working Paper
The evolution of a financial crisis: panic in the asset-backed commercial paper market
The $350 billion contraction in the asset-backed commercial paper (ABCP) market in the last five months of 2007 played a central role in transforming concerns about the credit quality of mortgage-related assets into a global financial crisis. This paper attempts to better understand why the substantial contraction in ABCP occurred by measuring and analyzing runs on ABCP programs over the period from August 2007 through December 2007. While it has been suggested that commercial paper programs, like commercial banks, may be prone to runs, we are the first to conduct a comprehensive empirical ...
Working Paper
New Financial Stability Governance Structures and Central Banks
We evaluate the institutional frameworks developed to implement time-varying macroprudential policies in 58 countries. We focus on new financial stability committees (FSCs) that have grown dramatically in number since the global financial crisis, and their interaction with central banks, and infer countries? revealed preferences for effectiveness versus political economy considerations. Using cluster analysis, we find that only one-quarter of FSCs have both good processes and good tools to implement macroprudential actions, and that instead most FSCs have been designed to improve ...
Working Paper
Do Creditor Rights Increase Employment Risk? Evidence from Loan Covenants
Using a regression discontinuity design, we provide evidence that incentive conflicts between firms and their creditors have a large impact on employees. There are sharp and substantial employment cuts following loan covenant violations, when creditors exercise their ex post control rights. The negative impact of violations on employment is stronger for firms that face more severe agency and financing frictions and those whose employees have weaker bargaining power. Employment cuts following violations are much larger during industry and macroeconomic downturns, when employees have fewer ...
Working Paper
Who benefits from a bull market? an analysis of employee stock option grants and stock prices
Stock option grants to top executives and to employees below the top executive ranks have risen rapidly with stock prices in recent years. This paper examines the growth in stock option grants at S&P 1500 companies between 1996 and 1999, and estimates the pay-for-performance sensitivities of the value of new option grants for top executives and, separately, for employees below the top executive levels. In our framework, options are a reward for past performance, leading to a positive relationship between firms' stock prices and the value of new option grants. We find substantial sensitivities ...
Working Paper
Designing loan modifications to address the mortgage crisis and the making home affordable program
Delinquencies on residential mortgages and home foreclosures have risen dramatically in the past couple of years. The mortgage losses triggered a broad-based financial crisis and severe recession, which, in turn, exacerbated the initial financial distress faced by homeowners. Although servicers increased their loss mitigation efforts as defaults began to mount, foreclosures continued to occur in cases where both the borrower and investor would be better off if such an outcome were avoided. The U.S. government has engaged in a number of initiatives to reduce such foreclosures. This paper ...