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Journal Article
Global integration in the banking industry
Lowered regulatory barriers and advances in technology have reduced the cost of supplying banking services across borders. At the same time, growth in activity by multinational corporations has increased the demand for international financial services. As a result, many observers believe that global integration is under way in the banking industry, that banks are expanding their reach across borders, and that many banking markets will therefore develop large foreign components. The authors report on a study conducted by them, along with Qinglei Dai and Steven Ongena, that examined the ...
Working Paper
On the sequencing of projects, reputation building, and relationship finance
We study the decision an entrepreneur faces in financing multiple projects and show that relationship financing will arise endogenously in an environment where strategic defaults are likely, even when firms have access to arm's-length financing. Relationship financing allows an entrepreneur to build a private reputation for repayment that reduces the cost of financing. However, in an environment where the risk of strategic default is low, the benefits from reputation building are outweighed by holdup rents extractable by the incumbent lender. Entrepreneurs then choose to finance projects from ...
Working Paper
U.S. international equity investment
U.S. investors are the largest group of international equity investors in the world, but to date conclusive evidence on which types of foreign firms are able to attract U.S. investment is not available. Using a comprehensive dataset of all U.S. investment in foreign equities, we find that the single most important determinant of the amount of U.S. investment a foreign firm receives is whether the firm cross-lists on a U.S. exchange. Correcting for selection biases, cross-listing leads to a doubling (or more) in U.S. investment, an impact greater than all other factors combined. We also show ...
Working Paper
The stability of interest rate processes
This paper presents a careful reexamination of Chan, Karolyi, Longstaff, and Sanders (CKLS 1992). By redefining the possible regime shift period in line with evidence from known policy changes and past empirical research, we find evidence that contradicts the major results in their paper. The widely cited conclusion of their paper is that the elasticity of interest rate volatility is 1.5. CKLS also concluded that there was no structural shift in the interest rate process after October 1979. When the structural shift period is defined to be temporary and coincident with the Federal Reserve ...
Working Paper
Loans to Japanese borrowers
Though the Japanese banking system has been the focus of numerous empirical studies, there is scant empirical evidence on the characteristics of loan contracts between Japanese firms and their banks. This paper incorporates relatively new contract-specific data on bank loans to large borrowers to help fill this gap. Specifically, we examine how loans to Japanese companies compare with loans to similar non-Japanese companies and how loans to Japanese borrowers vary according to the nationality of the bank making the loan. We then gauge the value of bank loans to Japanese borrowers by ...
Working Paper
The impact of bank consolidation on commercial borrower welfare
We estimate the impact of bank merger announcements on borrowers' stock prices for publicly traded Norwegian firms. In addition, we analyze how bank mergers influence borrower relationship termination behavior and relate the propensity to terminate to borrower abnormal returns. We obtain four main results. First, on average borrowers lose about 1 percent in equity value when their bank is announced as a merger target. Small borrowers of target banks are especially hurt in mergers between two large banks, where they lose an average of about 3 percent. Small target borrowers are not harmed, and ...
Conference Paper
Loans to Japanese borrowers
Working Paper
Loans to Japanese borrowers
This paper examines the characteristics of loans to Japanese borrowers using a relatively unexplored, contract-specific data set. I find that Japanese banks charge less on loans to Japanese borrowers than do foreign banks, holding constant many of the risk characteristics of the borrower. Moreover, Japanese banks vary pricing less across these risks than do foreign banks, suggesting that Japanese banks tend not to distinguish good risks from bad. Taken together, the results suggest that problems at Japanese banks stem from the behavior of the banks themselves, not simply from poor economic ...