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Conference Paper
Bankers on boards: monitoring, financing, and lender liability
This paper investigates what factors determine whether a commercial banker joins the board of a non-financial firm and how a banker on the board affects the firm. We consider the trade off between the benefits of bank monitoring to the firm and the costs to the bank of becoming actively involved in firm management. On the one hand, smaller and more volatile firms with few tangible assets might benefit most from close bank ties. On the other, the U.S. legal doctrines "equitable subordination" and "lender liability" could generate high costs for banks which have a representative on the ...
Conference Paper
Board connections, conflicts, and bank lending behavior
Journal Article
Banks with something to lose: the disciplinary role of franchise value
As protectors of the safety and soundness of the banking system, banking supervisors are responsible for keeping banks' risk taking in check. The authors explain that franchise value--the present value of the stream of profits that a firm is expected to earn as a going concern--makes the supervisor's job easier by reducing banks' incentives to take risks. The authors explore the relationship between franchise value and risk taking from 1986 to 1994 using both balance-sheet data and stock returns. They find that banks with high franchise value operate more safely than those with low franchise ...
Journal Article
Historical patterns and recent changes in the relationship between bank holding company size and risk
What is the relationship between a bank holding company's size and the risk it takes? The authors find that although the level of risk at large and small bank holding companies has not differed significantly, important distinctions exist in the nature of that risk. Historically, large companies' diversification advantages were offset by lower capital ratios and the pursuit of risk-enhancing activities. More recently, however, differences between the capital ratios and activities of large and small companies have narrowed. As a result, an inverse relationship between risk and bank holding ...
Journal Article
Liquidity risk and credit in the financial crisis
The 2007?08 financial crisis was the biggest shock to the banking system since the 1930s, raising fundamental questions about liquidity risk. The global financial system experienced urgent demands for cash from various sources, including counterparties, short-term creditors, and, especially, existing borrowers. Credit fell, with banks hit hardest by liquidity pressures cutting back most sharply. Central bank emergency lending programs probably mitigated the decline. Ongoing efforts to regulate bank liquidity may strengthen the financial system and make credit less vulnerable to liquidity ...
Journal Article
Are banks still important for financing large businesses?
As more corporations turn to the securities markets to meet their funding needs, the role of banks as providers of credit to large businesses seems increasingly uncertain. But a look at developments during the financial market turmoil last fall suggests that banks are still a critical source of liquidity at times of economic stress.
Report
Securities class actions, corporate governance and managerial agency problems
This paper provides support for the proposition that securities class actions help solve agency problems. Two key findings support this conclusion. First, firms that are more likely to suffer from agency problems are more likely to face class actions. Risky firms, large firms, young firms, low market-to-book firms and non-dividend paying firms as of the end of 1990 were more likely to face a class action filing during the January 1991 to March 1998 period. Second, the probability of CEO turnover increases dramatically after class action filings. The increase can not be explained by omitted ...