1,720,992 research outputs found
CEO compensation, regulation, and risk in banks: Theory and evidence from the financial crisis
No full textThis paper studies the relation between CEOs' monetary incentives, financial regulation and risk in banks. We develop a model where banks lend to opaque entrepreneurial projects to be monitored by bank managers. Bank managers are remunerated according to a pay-for-performance scheme and their effort is not observable to depositors and bank shareholders. Within a prudential regulatory framework that imposes a minimum capital ratio and a deposit insurance scheme, we study the effect of increasing the variable component of managerial compensation on bank risk in equilibrium. We test the model's predictions on a sample of large banks around the world, gauging how the monetary incentives for CEOs in 2006 affected their banks' stock price and volatility during the 2007-2008 financial crisis. Our international sample allows us to study the interaction between monetary incentives and financial regulation. We find that greater sensitivity of CEOs' equity portfolios to
stock prices and volatility is associated with poorer performance and greater risk at the banks where shareholder control is weaker and in countries with explicit deposit insurance
Product market competition and access to credit
No full textIn this paper, we unveil a disregarded benefit of product market competition for firms. We introduce the probability of bankruptcy in a simple model where firms compete à la Cournot and apply for collateralized bank loans to undertake productive investments. We show that the number of competitors and the existence of outsiders willing to acquire the productive assets of distressed incumbents affect the equilibrium share of investment financed by bank credit. Using a sample of Italian manufacturing firms, mostly small- and medium-sized enterprises (SMEs), we found evidence showing that the degree of product market competition is positively correlated with the share of investment financed by bank credit only when outsiders are absent
Impact of Mergers on the Degree of Competition: Application to the Banking Industry
No full textThis paper analyses the relation between competition and concentration in a monopolistic competition model where banks compete in branching and interest rates and market structure is endogenous. The model is applied on individual bank data in Italy and France using a maximum likelihood approach to derive a measure of the degree of competition in each local market. We propose an empirical test to evaluate ex-ante the impact of horizontal mergers on this measure. Depending on the pre-merger market structure and geographic distribution of branches, we find either cases where the merger is pro-competitive or anti-competitive. It proves its relevance as a tool for competition policy analysis. In addition, thanks to its theoretical foundation, it encompasses more information than traditional measures of competition while it is parsimonious in terms of data requirements
The impact of mergers on the degree of competition in the banking industry
Full text linkThis paper analyses the relation between competition and concentration in the banking sector. The empirical answer is given by testing a monopolistic competition model of bank branching behaviour on individual bank data at county level (départements and provinces) in France and Italy. We propose a measure of the degree of competiveness in each local market that is function also of market structure indicators. We then use the econometric model to evaluate the impact of horizontal mergers among incumbent banks on competition and discuss when, depending on the pre-merger structure of the market and geographic distribution of branches, the merger is anti-competitive. The paper has implications for competition policy as it suggests an applied tool to evaluate the potential anti-competitive impact of mergers
Do rivals enhance your credit conditions?
Full text linkIn a model where rms rely on bank nancing to build capacity, put up specialized productive assets as collateral, and then compete a la Cournot, we introduce a probability of default. We investigate how the number of competitors affects the equilibrium amount of bank credit and derive conditions under which an inverted U-shaped relationship occurs. On one hand, more competitors enhance the resale value of collateralized productive assets. On the other hand, more competitors shrink rms' prots and the resulting income that can be pledged to banks. We then extend the analysis to rms outside the Cournot industry that are willing to buy productive assets in liquidation and show that the equilibrium bank credit becomes monotonically decreasing in the number of competitors
A test of the impact of mergers on bank competition
Full text linkWe propose a new test to evaluate the impact of horizontal mergers on competition in the banking industry. The test is designed to be applied ex ante to potential mergers while being parsimonious in terms of data, as it only uses
information on branches in local markets. The test is a counterfactual exercise based on a two-stage model where banks compete in branching and interest rates and requires comparing the estimated degree of competition in the status quo, where branching networks by banks are those actually observed, with a counterfactual scenario, where the branching network of the new entity is the sum of the branches of the banks involved in the horizontal merger. The statistical difference between the two estimated measures of competition quantifies the impact of the merger.We apply our test to French and Italian mergers
Going Beyond Counting First Authors in Author Co-citation Analysis
Full text linkThe present study examines one of the fundamental aspects of author co-citation analysis (ACA) - the way co-citation
counts are defined. Co-citation counting provides the data on which all subsequent statistical analyses and mappings
are based, and we compare ACA results based on two different types of co-citation counting - the traditional type that
only counts the first one among a cited work's authors on the one hand and a non-traditional type that takes into
account the first 5 authors of a cited work on the other hand. Results indicate that the picture produced through this non-traditional author co-citation counting contains more coherent author groups and is therefore considerably clearer. However, this picture represents fewer specialties in the research field being studied than that produced through the traditional first-author co-citation counting when the same number of top-ranked authors is selected and analyzed. Reasons for these effects are discussed
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