‘‘New Tigers” (including city commercial banks) outperform state-owned commercial banks burdened with non-performing loans from unprofitable state-owned enterprises. We study whether this is solely due to superior corporate governance (multiple shareholders versus total government ownership) or also to the favorable environment (the New Tigers target affluent China, while state-owned commercial...

This paper addresses the impact of dynamic risk management on bank risk taking. We show that when banks earn rents only from deposit insurance and can engage in risk management it is no longer in their interests to maximize risk; instead, they moderate their risk to increase their chances of survival. The paper also shows that the opportunity for risk management may change the impact of capital...

We propose a model in which firms compete to attract better managers by using corporate governance as part of an optimal executive compensation scheme. Higher governance decreases the cost of taking disciplinary actions against managers, but when managerial talent is scarce, competition among firms to attract better managers implies that firms under-invest in governance. The reason is that mana...

Foreign-dominated banking sectors, such as those prevalent in Central and Eastern Europe, are susceptible to two major sources of systemic risk: (i) linkages between local banks and (ii) linkages between a foreign mother bank and its local subsidiary. Using a nonparametric method based on extreme value theory, which accounts for fat-tail shocks, we analyze interdependencies in downward risk in ...

We analyze the impact of capital adequacy regulation on bank insolvency and aggregate investment. We develop a model of the banking system that is characterized by the interaction of many heterogeneous banks with the real sector, interbank credit relations as a consequence of bank liquidity management and an insolvency mechanism. This allows us to study the impact of capital adequacy regulation...

We examine how financial networks influence asset prices and trading performance. Consistent with theoretical studies on the role of communication networks in information dissemination, we posit that global financial institutions, having more extensive and strategic financial networks, can more efficiently acquire and process information pertaining to asset trading due to their better access to...

My results suggest that the primary role of performance pricing in bank debt contracts is to delay costly renegotiation. This effect is concentrated in long-term loans, indicating that the renegotiation reduction benefits of pricing grids are larger for long maturities. For instance, a five-year loan with a pricing grid is refinanced for pricing-related reasons on average a year later than a si...

We examine the tradeoff between having affiliated bankers on board and conservative accounting for mitigating debtholder-shareholder conflicts. We argue that affiliated bankers on board provide lenders with private information and control rights, thereby lowering debtcontracting demand for conservatism in public financial reports. We find that firms with affiliated bankers on board have lower c...

This paper compares parametric and non-parametric estimates of productivity change in European banking between 1994 and 2000. Productivity growth has also been further decomposed into technological change, or change in best practice, and efficiency change. Both the parametric and non-parametric approaches consistently identify those systems that have benefited most (and least) from productivity...

What is the magnitude of credit constraint or credit gap affecting small businesses? This paper provides estimates of credit gap, defined as the difference between the desired and actual levels of debt for credit-constrained small businesses using the data from the National Survey of Small Business Finances. The estimated credit gap is approximately 20 percent – credit constrained small busines...