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Working Paper
Who's minding the store? motivating and monitoring hired managers at small, closely held firms: the case of commercial banks
We test whether the gains from hiring an outside manager exceed the principal-agent costs of owner-manager separation at 266 small, closely held U.S. commercial banks. Our results suggest that hiring an outside manager can improve a bank's profit efficiency, but that these gains depend on aligning the hired managers with owners via managerial shareholdings. We find that over-utilizing this control mechanism results in entrenchment, while under-utilization is costly in terms of foregone profits. This study provides a relatively unfettered test of mitigating principal-agent costs, because these ...
Journal Article
Bank mergers do not guarantee major cost savings
Working Paper
Merger-related cost savings in the production of bank services
This paper utilizes a new flow measure of the true output of bank services to analyze the impact of mergers on the cost and productivity of Bank Holding Companies (BHCs) over the period 1987-1999. It shows that there are conceptual problems in the output measures used in previous studies, which may be the reason for their paradoxical findings: Bank mergers are estimated to lead to significant increases in profit, without cost savings or increases in market power. This paper also points out the problematic understanding of diversification in previous studies. To remedy these problems, this ...
Working Paper
The costs and benefits of moral suasion: evidence from the rescue of Long-Term Capital Management
This study examines the level of unsecured borrowing done by the firms that would ultimately rescue Long-Term Capital Management in the days leading up to the hedge fund's rescue. Although there is some evidence that these banks borrowed less at the height of the crisis, further examination reveals that this reduction in borrowing was demand-driven and did not result from rationing on the part of the market. This suggests that the market believed that the troubles at LTCM would not have solvency-threatening repercussions for the fund's major creditors. Further, it is shown that large banks ...
Working Paper
Do banks propagate debt market shocks?
Over the years, U.S. banks have increasingly relied on the bond market to finance their business. This created the potential for a link between the bond market and the corporate sector whereby borrowers, including those that do not rely on bond funding, became exposed to the conditions in the bond market. We investigate the importance of this link. Our results show that when the cost to access the bond market goes up, banks that rely on bond financing charge higher interest rates on their loans. Banks that rely exclusively on deposit funding follow bond financing banks and increase the ...
Journal Article
Commentary on \\"Disclosure, volatility and transparency: an empirical investigation into the value of bank disclosure.\\"
This paper was part of the conference "Beyond Pillar 3 in International Banking Regulation: Disclosure and Market Discipline of Financial Firms," cosponsored by the Federal Reserve Bank of New York and the Jerome A. Chazen Institute of International Business at Columbia Business School, October 2-3, 2003.
Working Paper
Scope economies: fixed costs, complementarity, and functional form
Bank scope economies have been derived from either the standard or generalized (Box-Cox) multiproduct translog (or other logarithmic) functional form. Reported results have ranged from strong economies to diseconomies and are far from conclusive. The problem is functional form. An alternative composite form is shown to yield stable SCOPE results both at the usual point of evaluation and for points associated with quasi-specialized production (QSCOPE). Unstable results are obtained for the other forms. Scope economies are shown to exist for large U.S. banks in 1988 and to depend on the number ...