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Conference Paper
Measuring the efficiency of capital allocation in commercial banking
Working Paper
Measuring the efficiency of capital allocation in commercial banking
Commercial banks leverage their equity capital with demandable debt that participates in the economy's payments system. The distinctive nature of this debt generates an unusual degree of liquidity risk that can, at times, threaten the payments system. To reduce this threat, insurance protects deposits; and to reduce the moral hazard problems of the debt contract and deposit insurance, bank regulation constrains risk-taking and defines standards of capital adequacy. The inherent liquidity risk of demandable debt as well as potential regulatory penalties for poor financial performance creates ...
Working Paper
Do bankers sacrifice value to build empires? managerial incentives, industry consolidation, and financial performance
Bank consolidation is a global phenomenon that may enhance stakeholders? value if managers do not sacrifice value to build empires. We find strong evidence of managerial entrenchment at U.S. bank holding companies that have higher levels of managerial ownership, better growth opportunities, poorer financial performance, and smaller asset size. At banks without entrenched management, both asset acquisitions and sales are associated with improved performance. At banks with entrenched management, sales are related to smaller improvements while acquisitions are associated with worse performance. ...
Conference Paper
Recovering banking technologies when managers are not risk-neutral.
Conference Paper
Efficient banking under interstate branching
Conference Paper
Evidence on the objective of bank regulators
Working Paper
Recovering risky technologies using the almost ideal demand system: an application to U.S. banking
The authors argue for a shift in the focus of modeling production from the traditional assumptions of profit maximization and cost minimization to a more general assumption of managerial utility maximization that can incorporate risk incentives into the analysis of production and recover value-maximizing technologies. The authors show how this shift can be implemented using the Almost Ideal Demand System. In addition, the authors suggest a more general way of measuring efficiency that can incorporate a concern for the market value of firms' assets and equity and identify value-maximizing ...
Conference Paper
Estimating managers' utility-maximizing demand for agency goods
An empirical model of managers? demand for agency goods is derived and estimated using the Almost Ideal Demand System of Deaton and Muellbauer (AER 1980). As in Jensen and Meckling (JFE 1976), we derive managers? demand for agency goods by maximizing a managerial utility function where managers allocate the potential value of their firm?s assets to the consumption of agency goods and the production of market value (which, given their ownership stake, determines their wealth). The utility function is defined over wealth and the value of agency goods and is conditioned on managers? holdings of ...
Working Paper
Recovering risky technologies using the almost ideal demand system: an application to U.S. banking
Using modern duality theory to recover technologies from data can be complicated by the risk characteristics of production. In many industries, risk influences cost and revenue and can create the potential for costly episodes of financial distress. When risk is an important consideration in production, the standard cost and profit functions may not adequately describe the firm's technology and choice of production plan. In general, standard models fail to account for risk and its endogeneity. The authors distinguish between exogenous risk, which varies over the firm's choice sets, and ...