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In an investigation of banks’ loan pricing policies in the United States over the past two decades, this study finds supporting evidence for the bank risk-taking channel of monetary policy. We show that banks charge lower spreads when they lend to riskier borrowers relative to the spreads they charge on loans to safer borrowers in periods of low short-term rates compared to periods of high short-term rates.
: Financial Institutions; Monetary policy frameworkBanks reliance on short-term funding has increased over time. While an effective source of financing in good times, the 2007 financial crisis has exposed the vulnerability of banks and ultimately firms to such a liability structure.
: Financial InstitutionsThis paper investigates the determinants of corporate risk taking. Shareholders with substantial equity ownership in a single company may advocate conservative investment policies due to greater exposure to firm risk. Using a large cross-country sample, I find a positive relationship between corporate risk taking and equity ownership of the largest shareholder. This result is entirely [...]
: Financial markets; International topicsRecent evidence finds a positive association between the prevalence of loans of inferior quality and the growth in securitized products. Some attribute this development to the lack of incentives for originators to screen and monitor the performance of securitized loans; others stress that certain factors, such as balance-sheet management, also contributed to the problem, making it difficult to pin down the reason for the proliferation of such loans during the period of high securitization growth. The author reviews the conflicts of interest between participants in the securitization process that contributed to the ongoing financial turmoil and highlights the most recent policy measures and potential solutions for ameliorating these agency issues.
: Financial Institutions; Financial marketsThis paper investigates the impact of pyramid ownership structure and multiple controlling shareholders on firm leverage. Pyramids, having at least one controlling shareholder and a subsidiary, rely significantly more on debt financing than non-pyramid firms. Moreover, higher leverage is observed in pyramids where the second controlling shareholders have more voting rights. We also find that [...]
: Financial markets; International topicsAccording to the rent-extraction hypothesis, weak corporate governance allows entrenched CEOs to capture the pay-setting process and benefit from events outside of their control – get paid for luck. In this paper, I find that the independence requirement imposed on boards of directors by the Sarbanes-Oxley Act of 2002 (SOX), together with the governance regulations [...]
: Labour markets