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Working Paper
Legal Institutions, Credit Markets, and Economic Activity
Heimer, Rawley; Cookson, J Anthony; Brown, James R. (2014-12-08)
This paper provides novel evidence on the causal connections between legal institutions, credit markets, and real economic activity. Our analysis exploits an unexplored within-country setting?Native American reservations?together with quasi-experimental variation in legal contract enforcement wherein the US Congress externally assigned state courts to adjudicate contracts on a subset of reservations. According to area-specific data on small business credit, reservations assigned to state courts, which enforce contracts more predictably than tribal courts, have stronger credit markets. ...
Working Papers (Old Series) , Paper 1434

Working Paper
Relationship Lending: That Ship Has Not Sailed for Community Banks
Holod, Dmytro; Peek, Joe; Torna, Gökhan (2024-04-01)
This study provides direct evidence of the value to banks arising from relationship lending by estimating the market premium placed on banking organizations’ small business loan portfolios. Using data from the small business loan survey contained in the June bank Call Reports, we find that small commercial and industrial (C&I) loans add value to community banks both in absolute terms and relative to the value contributed by larger C&I loans. The value‐enhancing effect of small business loans is observed primarily at small community banks, and it was present during the Great Recession as ...
Working Papers , Paper 24-5

Working Paper
Innovation, investor sentiment, and firm-level experimentation
Aramonte, Sirio (2015-08-12)
Due to frictions like informational externalities, firms invest too little in learning the productivity of newly available technologies through small-scale experimentation. I study the effect of investor sentiment on the relation between technological innovation and future firm-level R&D expenses, which include the resources used for small-scale experimentation. I find that rapidly improving investor sentiment strengthens the effect of technological innovation on one-year-ahead R&D expenses, and that the effect is more pronounced for high-tech firms with tighter financing constraints. The ...
Finance and Economics Discussion Series , Paper 2015-67

Working Paper
High-Yield Debt Covenants and Their Real Effects
Bräuning, Falk; Ivashina, Victoria; Ozdagli, Ali K. (2022-03-01)
High-yield debt, including leveraged loans, is characterized by incurrence financial covenants, or “cov-lite” provisions. Unlike, traditional, maintenance covenants, incurrence covenants preserve equity control rights but trigger pre-specified restrictions on the borrower’s actions once the covenant threshold is crossed. We show that restricted actions impose significant constraints on investments: Similar to the effects of the shift of control rights to creditors in traditional loans, the drop in investment under incurrence covenants is large and sudden. This evidence suggests a new ...
Working Papers , Paper 22-5

Journal Article
Assisting Firms during a Crisis: Benefits and Costs
Wall, Larry D. (2020-08-10)
Public and private efforts to reduce COVID-19 infection levels have led to a sharp drop in economic activity around the world. In an attempt to mitigate the damage to businesses, governments around the world have implemented a variety of financial programs to help firms. These programs have been criticized as interfering with markets, providing bailouts, and creating adverse incentives. In this article, I review both the rationale for government-provided assistance and the costs of providing that assistance from the perspective of how that aid effects the likely level and volatility of ...
Policy Hub , Volume 2020 , Issue 10 , Pages 18

Working Paper
In the Driver's Seat: Pandemic Fiscal Stimulus and Light Vehicles
Tito, Maria D.; Kurz, Christopher J.; Li, Geng; Dunbar, Jack (2024-03-22)
This paper explores the impact of two fiscal programs, the Economic Impact Payments and the Paycheck Protection Program, on vehicle purchases and relates our findings to post-pandemic price pressures. We find that receiving a stimulus check increased the probability of purchasing new vehicles. In addition, the disbursement of funds from the Paycheck Protection Program was associated with a rise in local new car registrations. Our estimates indicate that these two programs account for a boost of 1 3/4 million units -- or 12 percent -- to new car sales in 2020. Furthermore, the induced boost in ...
Finance and Economics Discussion Series , Paper 2024-013

Working Paper
The Fed Information Effect and Firm-Level Investment: Evidence and Theory
Hsu, Alex; Mitra, Indrajit; Xu, Yu; Zeng, Linghang (2024-03)
We present evidence that the Fed's private information about economic conditions revealed through Federal Open Market Committee announcements affect firm investment. We use firm-level investment data and analyst forecasts of firm fundamentals to document three facts. First, the investment rate sensitivity to Fed information is greater for more cyclical firms. Second, revisions in analyst forecasts of firm fundamentals are greater for more cyclical firms. Third, the investment response is consistent with changes in firm profitability following Fed announcements. We propose a HANK model to ...
FRB Atlanta Working Paper , Paper 2023-6a

Journal Article
Risk management, governance, culture, and risk taking in banks
Stulz, Rene M. (2016-08)
This article examines how governance, culture, and risk management affect risk taking in banks. It distinguishes between good risks, which are risks that have an ex ante private reward for the bank on a standalone basis, and bad risks, which do not have such a reward. A well-governed bank takes the amount of risk that maximizes shareholder wealth, subject to constraints imposed by laws and regulators. In general, this involves eliminating or mitigating all bad risks to the extent that it is cost effective to do so. The role of risk management in such a bank is not to reduce the bank?s total ...
Economic Policy Review , Issue Aug , Pages 43-60

Working Paper
Uncertainty, Financial Frictions, and Investment Dynamics
Gilchrist, Simon; Zakrajšek, Egon; Sim, Jae W. (2014-04-01)
Micro- and macro-level evidence indicates that fluctuations in idiosyncratic uncertainty have a large effect on investment; the impact of uncertainty on investment occurs primarily through changes in credit spreads; and innovations in credit spreads have a strong effect on investment, irrespective of the level of uncertainty. These findings raise a question regarding the economic significance of the traditional "wait-and-see" effect of uncertainty shocks and point to financial distortions as the main mechanism through which fluctuations in uncertainty affect macroeconomic outcomes. The ...
Finance and Economics Discussion Series , Paper 2014-69

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