1,720,977 research outputs found
Bank financing and credit ratings
Full text linkBy looking at a sample of firms rated by S&P, we study the extent to which the mix between bank financing and other sources of debt affects corporate credit ratings. We find that S&P penalizes firms of high credit quality that use relatively more bank debt compared to market debt. Instead, debt composition does not seem to matter when rating risky firms. We conclude that managers of firms of high credit quality should have relatively low (high) recourse of bank financing (public debt) from a credit ratings perspective
The Mitigating Effect of Bank Financing on Shareholder Value and Firm Policies following Rating Downgrades
Full text linkWe document that shareholders of high-yield firms are less sensitive to credit rating downgrades the higher the proportion of bank financing in the firm. This positive effect is linked to firm behavior. In the year after the downgrade, high-yield firms with large bank debt ratios i) need to reduce their leverage less, and ii) display higher capital expenditures, compared to peers that rely relatively more on other sources of debt. Bank financing thus helps alleviate the adverse effects of rating downgrades on shareholders and firms in the high-yield segment. As such, one may view our findings as new evidence of the “specialness” and flexibility of bank debt
Credit Risk Transfer in U.S. Commercial Banks: What Changed During the 2007–2009 Crisis?
No full textFollowing the debate on the role played by credit risk transfer (CRT) in exacerbating the 2007-2009 crisis, this paper investigates usage and effects of loan sales, securitization and credit derivatives in U.S. commercial banks over the last decade, with a special emphasis on the financial crisis. We find that, in
times of severe funding constraints, the need to raise financial resources becomes the principal incentive behind CRT. On the positive side, we document some beneficial effects of CRT on the economy, as the funds released throughCRT are subsequently invested by banks to sustain credit supply, also in recession.
On the negative side, we report higher overall riskiness in banks who engage intensively in loans sales and securitization, which translates into higher default rates during the crisis. Interestingly, benefits and drawbacks of CRT are much stronger for loan sales and securitization than for credit derivatives
Incentivizing organ donation through a nonmonetary posthumous award
No full textSince 2013, The Order of St John Award for Organ Donation has been offered to the families of deceased solid organ donors in the United Kingdom to honor the donors and inspire others to donate. We evaluate the effects of this award using a difference‐in‐differences approach that builds on the fact that solid organ donors are eligible for the award, whereas cornea‐only donors are not. We find that the introduction of the award led to an increase in the number of deceased solid organ donors
A Parsimonious Continuous Time Model of Equity Returns (Inferred from High Frequency Data)
No full textIn this paper we propose a parsimonious continuous time model capable of describing the dynamics of futures equity returns at different time frequencies. Unlike several related works in the literature, we avoid specifying a model a priori and we attempt, instead, to infer our model from the analysis of a data set of 5-minute returns on the S&P500 futures contract. Throughout the entire paper we try to keep the modelling assumptions to a minimum (and to test them step by step), while retaining an adequate level of structure. We start with a very general specification for our model for futures equity returns. First we model the seasonal pattern in intraday volatility, which turns out to be deterministic and stationary through time. Once we correct for this component, we aggregate intraday data into a daily volatility measure to reduce the amount of noise in the data and its distorting impact on the results. We then employ this much less noisy daily measure to infer the structure of the stochastic volatility model and of the leverage component, as well as to obtain insights on the shape of the distribution of conditional returns. Our model is then refined at a high frequency level by means of a simple non-linear filtering technique which provides an intraday update of volatility and return density estimates on the basis of observed 5-minute returns. This method allows to capture all the information embedded in the intraday data which was lost in the daily aggregation. The results from a Monte Carlo experiment indicate that a sample of returns simulated according to our model well replicates the main features observed in market returns
The Slope of the Term Structure of Credit Spreads: An Empirical Investigation
No full textIn this paper we analyze the slope of the term structure of credit spreads. We investigate the
explanatory role of interest rate, market and idiosyncratic equity variables, that recent empirical
literature has highlighted as important determinants of credit spread levels. This study extends
the analysis further and assesses their impact on credit slopes. We find that these factors impact
credit spreads at short and long maturities in a significantly different way
The effect of cultural origin on COVID-19 infection rates
Full text linkWe examine whether a community’s cultural origin affects COVID-19 infection rates by exploiting cultural differences in the bilingual province of South Tyrol in Northern Italy. We find lower infection rates in municipalities with a relatively higher proportion of German speakers, even after controlling for widely used measures of social and civic capital. Our findings can be explained by a more future-oriented behaviour of German speakers in comparison with Italian speakers
Cultural Preferences and Firm Financing Choices
Full text linkWe document significant differences in the financing structure of small firms with managers of diverse cultural backgrounds. To isolate the effect of culture, we exploit cultural heterogeneity within a geographical area with shared regulations, institutions, and macroeconomic cycles. Our findings suggest significant cultural differences in the preference toward debt funding and in the use of formal and informal sources of financing (bank loans and trade credit). Our results are robust to alternative explanations based on potential differences in credit constraints and in the distribution of cultural origins across industries, trading partners, and headquarters location
Market and Model Credit Default Swap Spreads: Mind the Gap!
No full textStructural models of default establish a relation across the fair values of various asset classes (equity, bonds, credit derivatives) referring to the same company. In most circumstances such relation is verified in practice, as different financial assets tend to move in the same direction at similar speed. However, occasional deviations from the theoretical fair values occur, especially in times of financial turmoil. Understanding how the dynamics of the theoretical fair values of various assets compares to that of their market values is crucial to a number of market participants. This paper investigates whether a popular structural model, the CreditGrades approach proposed by Finger (2002), Stamicar and Finger (2005), succeeds in explaining the dynamic relation between equity / option variables and Credit Default Swap (CDS) premia at individual company level
Distressed Debt Restructuring in the Presence of Credit Default Swaps
Full text linkThe availability of credit insurance via credit default swaps (CDSs) has been closely associated with the emergence of empty creditors. We empirically investigate this issue by looking at the debt restructurings (distressed exchanges and bankruptcy filings) of rated, non-financial U.S. companies over the period Jan 2007- Jun 2011
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