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Published / Preprint: Corporate Governance and Capital Structure Dynamics

May 21, 2012 by MoneyScience   Comments (0)

ABSTRACTWe develop a dynamic tradeoff model to examine the importance of manager–shareholder conflicts in capital structure choice. In the model, firms face taxation, refinancing costs, and liquidation costs. Managers own a fraction of the firms’ equity, capture part of the free cash flow to equity as private benefits, and have control over financing decisions. Using data on leverage choices and the model’s predictions for different statistical moments of leverage, we find that agency...

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Published / Preprint: The Case for Intervening in Bankersâ Pay

May 21, 2012 by MoneyScience   Comments (0)

ABSTRACTThis paper studies the default risk of banks generated by investment and remuneration pressures. Competing banks prefer to pay their banking staff in bonuses and not in fixed wages as risk sharing on the remuneration bill is valuable. Competition for bankers generates a negative externality, driving up market levels of banker remuneration and hence rival banks’ default risk. Optimal financial regulation involves an appropriately structured limit on the proportion of the balance sheet...

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Published / Preprint: The International Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market

May 21, 2012 by MoneyScience   Comments (0)

ABSTRACTI exploit the 1998 Russian default as a negative liquidity shock to international banks and analyze its transmission to Peru. I find that after the shock international banks reduce bank‐to‐bank lending to Peruvian banks and Peruvian banks reduce lending to Peruvian firms. The effect is strongest for domestically owned banks that borrow internationally, intermediate for foreign‐owned banks, and weakest for locally funded banks. I control for credit demand by examining firms that...

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Published / Preprint: The Real Effects of Financial Markets: The Impact of Prices on Takeovers

May 21, 2012 by MoneyScience   Comments (0)

ABSTRACTUsing mutual fund redemptions as an instrument for price changes, we identify a strong effect of market prices on takeover activity (the “trigger effect”). An interquartile decrease in valuation leads to a seven percentage point increase in acquisition likelihood, relative to a 6% unconditional takeover probability. Instrumentation addresses the fact that prices are endogenous and increase in anticipation of a takeover (the “anticipation effect”). Our results overturn prior...

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