This paper provides direct evidence that managerial style is a key determinant of the firm’s cost of capital, in the context of private debt contracting. Applying the novel empirical method by Abowd, Karmarz, and Margolis (1999) to a large sample that tracks job movement of top managers, we find that managerial style is a critical factor that explains a large part of the variation in loan contr...

With the drafting of new banking regulation via the Basel II capital accord, bank regulatory capital and its adequacy has become the subject of much debate. In our contribution, we strive to construct a stochastic dynamic model to describe the evolution of bank capital that incorporates capital gains and losses. In our paper, such gains and losses are represented by loan loss reserves and the u...

We study empirically the effect of focus (specialization) vs. diversification on the return and the risk of banks using data from 105 Italian banks over the period 1993–1999. Specifically, we analyze the tradeoffs between (loan portfolio) focus and diversification using data that is able to identify loan exposures to different industries, and to different sectors, on a bank-by-bank basis. Our r...

In recent years, considerable research has they take as evidence for a bank lending explored the role played by bank lending in channel. the transmission of monetary shocks. In conWe reexamine KSW's analysis. In contrast trast to the traditional Keynesian transmission to KSW's use of aggregate data, we analyze mechanism that operates strictly through inthe mix of bank and nonbank debt separatel...

This paper empirically investigates whether or not banks charge higher loan spreads for having high capital ratios by using a dataset of all syndicated loans issued by public nonfinancial U.S. borrowers during the 1993 to 2007 period. We find convincing evidence that well-capitalized banks can indeed charge a ’spread premium’. We further investigate whether this result can be explained by banks...

Collateralized loan obligation (CLO) volume has increased significantly over the past two years (see chart, page 2). Third-quarter 1997 issuance hit a record-breaking $25.5 billion, more than doubling the 1996 volume of $11.5 billion. Furthermore, by year end, it is estimated that the total volume for collateralized bond obligations (CBOs) and CLOs will reach $35 billion– $40 billion. With larg...

I investigate the influence of unemployment insurance (UI) benefits on cost bank loans by exploiting changes in state laws as a source variation labor costs. The evidence shows that is significantly lower for firms headquartered states with more generous UI programs. relation between and pronounced face higher unionization rates, are intensive, or have layoff propensity. These results robust to...

To understand better the role of loan officers in the origins of the financial crisis, we study a controlled experiment conducted by a large bank. In the experiment, the incentive structure of a subset of small business loan officers was changed from fixed salary to commission-based compensation. We use a diffin-diff design to show that while the characteristics of loan applications did not cha...