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Author: Lantian Liang Publisher: ISBN: Category : Chief executive officers Languages : en Pages :
Book Description
This dissertation consists of two essays that study the issues related to financial intermediaries. In the first essay, I examine the effects of institutional common ownership on the use of peer benchmarking for CEO pay. By compensating managers based on their co-owned peers' performance as well as their own performance, blockholders can incentivize managers to avoid head-to-head competition with their co-owned peers while maximizing group performance. I find that CEOs' total compensation is positively sensitive to the stock performance of industry peers that share common blockholders. Furthermore, I document that firms sharing common blockholders tend to have more differentiated products, greater joint market share, and greater geographical overlap in business operations. In the second essay, my coauthors and I examine the impact of the disclosure regulation under Regulation AB, which is the disclosure rule that requires all material risk factors applicable to the transaction or to the nature of the security to be disclosed. Specifically, we look at the responses of financial intermediaries to the regulatory changes on disclosure in the asset-back securities market. We find an immediate jump in the percentage of deals with origination stakes just below the disclosure threshold following the implementation of Regulation AB. We also provide evidence that MBS underwriters deliberately keep lower quality loans below the disclosure threshold in order to evade disclosure.
Author: Lantian Liang Publisher: ISBN: Category : Chief executive officers Languages : en Pages :
Book Description
This dissertation consists of two essays that study the issues related to financial intermediaries. In the first essay, I examine the effects of institutional common ownership on the use of peer benchmarking for CEO pay. By compensating managers based on their co-owned peers' performance as well as their own performance, blockholders can incentivize managers to avoid head-to-head competition with their co-owned peers while maximizing group performance. I find that CEOs' total compensation is positively sensitive to the stock performance of industry peers that share common blockholders. Furthermore, I document that firms sharing common blockholders tend to have more differentiated products, greater joint market share, and greater geographical overlap in business operations. In the second essay, my coauthors and I examine the impact of the disclosure regulation under Regulation AB, which is the disclosure rule that requires all material risk factors applicable to the transaction or to the nature of the security to be disclosed. Specifically, we look at the responses of financial intermediaries to the regulatory changes on disclosure in the asset-back securities market. We find an immediate jump in the percentage of deals with origination stakes just below the disclosure threshold following the implementation of Regulation AB. We also provide evidence that MBS underwriters deliberately keep lower quality loans below the disclosure threshold in order to evade disclosure.
Author: Abolfazl Setayesh Valipour Publisher: ISBN: Category : Intermediation (Finance) Languages : en Pages : 0
Book Description
My research revolves around financial institutions. In this essay, I aim to further our understandings of the internal workings of financial intermediaries, how they interact in financial networks, and how they affect monetary policy and the macroeconomy. In the first chapter, James Peck and I study a bank run model where the depositors can choose how much to deposit. In the many years and many published articles following the bank runs paper of Diamond and Dybvig (1983), only a few papers have modeled the decision of whether to deposit, much less the decision of how much to deposit. The questions we address here are, how does the opportunity for consumers to invest outside the banking system- in investments that do not provide liquidity insurance- (1) affect the nature of the final allocation, (2) affect the nature of the optimal deposit contract, and (3) affect the fragility of the banking system? We extend the Diamond and Dybvig (1983) model so to incorporate sequential service constraint and the opportunity of outside investments and show that under certain conditions the equilibrium entails partial deposits, thus arguing for the optimality of limited banking. One might think that when depositors are allowed to invest a fraction of their endowments outside the banking system, they would be hedging against the risk of a run occurring, but losing out on some of the services provided by banks. Thus, one might think that this would improve the stability of the financial system at the expense of lost efficiency. However, we show that the opposite could be true, with reduced stability (runs more likely) but higher efficiency! In the second chapter, I study the strategic behavior of heterogeneous banks in a network and its implications on the stability of the financial system. I construct a model alas Allen and Gale (2000) wherein banks differ in whether they are hit by an uninsurable excess liquidity demand. I show that in such a framework banks that are already facing a high liquidity demand are more likely to incur the burden of excess liquidity shocks even when that shock has not directly hit them, i.e. relatively healthier banks strategically pass liquidation costs to relatively less healthy banks. I also show that private bailouts arise endogenously in this framework. If the strategic behavior of a bank results in the other bank's failure, the first bank may choose to incur the burden of the liquidity shock by itself to let the other bank survive and, thus, to control the indirect costs of failure feeding back to its portfolio. I also show that for some economies the financial network becomes more stable as the level of cross-deposits is increased from the minimum level that fully insures banks against liquidity demand uncertainty up to a threshold level. In the third chapter, I study the role of financial intermediaries in the transmission of monetary policy in low interest rate environments. The global financial crisis not only proved our understanding of intermediaries were inaccurate and in many ways misleading but also provided an unprecedented opportunity to investigate the questions in ways that were not possible before. Among those, was the behavior of economic players in ultra-low and even negative market rates. I study the internal workings of intermediaries by exploiting geographical variation in market concentration and provide the first explanation for the gradual deterioration of monetary policy power in low market rates that does not rely on bank-specific characteristics and similarly applies to non-bank intermediaries. I show that- in stark contrast to the textbook view but consistent with my mechanism- in low market rates more concentrated banks respond to market rate falls by reducing their deposit supply as well as their loan supply by more than those of less concentrated banks. I argue this behavior is the response of banks to loan and deposit demand becoming less elastic to market rate changes in low market rates which itself is due to the shift of household assets from the ones that are fully responsive to market rate changes (e.g. money market funds) to those less responsive (e.g. deposits) or irresponsive (e.g. cash) in low market rates. As the market rate falls, The downward pressure of the increased market power and the upward pressure of the traditional channels, cause the non-monotonic response of banks to market rate changes. The results help explain the puzzling slow recovery of the economy as well as stable inflation after the global financial crisis. I also show that local house prices become less responsive to market rate changes in low market rates in the counties that are exposed to high-market-power banks.
Author: Igor Salitskiy Publisher: ISBN: Category : Languages : en Pages :
Book Description
This dissertation consists of three studies. In the first study I This paper extends the costly state verification model from Townsend (1979) to a dynamic and hierarchical setting with an investor, a financial intermediary, and an entrepreneur. Such a hierarchy is natural in a setting where the intermediary has special monitoring skills. This setting yields a theory of seniority and dynamic control: it explains why investors are usually given the highest priority on projects' assets, financial intermediaries have middle priority and entrepreneurs have the lowest priority; it also explains why more cash flow and control rights are allocated to financial intermediaries if a project's performance is bad and to entrepreneurs if it is good. I show that the optimal contracts can be replicated with debt and equity. If the project requires a series of investments until it can be sold to outsiders, the entrepreneur sells preferred stock (a combination of debt and equity) each time additional financing is needed. If the project generates a series of positive payoffs, the entrepreneur sells a combination of short-term and long-term debt. In the second study I I study optimal government interventions during asset fire sales by banks. Fire sales happen when a large portion of banks receive liquidity shocks. This depletes bank balance sheets directly and indirectly because these assets are used as collateral. The government can respond by buying distressed assets or buying stock from banks. Stock purchases do not deprive banks of collateral, but may have a lower effect on asset prices. The optimal policy depends on the elasticity of asset prices to asset supply and the amount of assets held by banks. Calibration to the recent financial crisis is provided. In the third study conducted with Attila Ambrus and Eric Chaney we use ransom prices and time to ransom for over 10,000 captives rescued from two Barbary strongholds to investigate the empirical relevance of dynamic bargaining models with one-sided asymmetric information in ransoming settings. We observe both multiple negotiations that were ex ante similar from the uninformed party's (seller's) point of view, and information that only the buyer knew. Through reduced-form analysis, we test some common qualitative predictions of dynamic bargaining models. We also structurally estimate the model in Cramton (1991) to compare negotiations in different Barbary strongholds. Our estimates suggest that the historical bargaining institutions were remarkably efficient, despite the presence of substantial asymmetric information.
Author: Ronaldo Carpio Publisher: ISBN: 9781267967695 Category : Languages : en Pages :
Book Description
The financial crisis of 2007-2009 demonstrated that financial intermediaries play a critical, if not yet well-understood, role in the economy. However, our theoretical understanding of what intermediaries do is currently incomplete. The papers in this dissertation seek to improve our theoretical knowledge by introducing models that explicitly capture the activities of a financial intermediary in a dynamic setting. The first paper tackles two fundamental theoretical questions about banks. The first question seems simple but is still unresolved: how should we model a banking firm? We develop a dynamic model of a banking firm based on the notion of banking as the inventory management of cash. A bank that makes loans and takes deposits is a dynamic, stochastic inventory management problem. The second question is an old issue that has again become relevant in the wake of the financial crisis: why do banks engage in maturity mismatch, the process of "borrowing short and lending long". We show how profit-maximizing behavior in an inventory management model can result in maturity mismatch. We present the dynamic model, solve it numerically, and use simulation to predict the bank's behavior in different environments. A limitation of this model is that interest rates and the supply of deposits are taken as exogenous. The second paper endogenizes these quantities for a simple model of an inventory-theoretic financial firm, a Ponzi scheme. As with an ordinary monopolistic firm, the "bank" faces a demand schedule and chooses the price it offers; here, the price is the interest rate, and demand is generated by an OLG population that chooses to borrow or lend using standard models of savings and portfolio choice. In this way we seek to endogenize interest rates, quantities of credit, and financial risk. An issue that arises in dynamic optimization models such as the ones above is that analytic solutions are rare and we must resort to numerical computation, Standard methods of solving dynamic programming problems are computationally expensive; the third paper presents two promising approaches that can potentially provide dramatic speedups in speed. The first method is based on pre-computing the inverse gradient and Lagrange multipliers of a known utility function; subsequent calls can simply look up the pre-computed maximizers, instead of having to call a numeric root-finding routine each time. The second method exploits the duality between concave functions and their Legendre-Fenchel transforms. The Bellman operator in primal space is isomorphic to a tractable scaling and addition operation in dual space. In special cases, we can obtain the value function of the solution in closed form; even when we cannot obtain a closed form solution, we can gain theoretical insight into the properties of the solution.
Author: Stephen Donald Williamson Publisher: Ann Arbor, Mich. : University Microfilms International ISBN: Category : Financial institutions Languages : en Pages : 346
Author: Lantian Liang
Author: Lantian Liang
Author: Abolfazl Setayesh Valipour
Author: Igor Salitskiy
Author: Miguel Cantillo Simon
Author: Ronaldo Carpio
Author: Bert Scholtens
Author: Weiling Liu
Author: George W. Fenn
Author: Stephen Donald Williamson
Author: Yasin Mimir