Spillover Effects in Empirical Corporate Finance
Journal of Financial Economics,
Despite their importance, the discussion of spillover effects in empirical research often misses the rigor dedicated to endogeneity concerns. We analyze a broad set of workhorse models of firm interactions and show that spillovers naturally arise in many corporate finance settings. This has important implications for the estimation of treatment effects: i) even with random treatment, spillovers lead to a complicated bias, ii) fixed effects can exacerbate the spillover-induced bias. We propose simple diagnostic tools for empirical researchers and illustrate our guidance in an application.
Local Banks as Difficult-to-replace SME Lenders: Evidence from Bank Corrective Programs
Journal of Banking and Finance,
In this study, we assess capabilities of different types of banks to cater to the financial needs of small and medium-sized enterprises (SMEs). Using a comprehensive dataset from an emerging economy, including the information on local banks’ corrective programs, we find that local banks remain difficult-to-replace lenders for SMEs. We show that presence of healthy local banks in an SME's vicinity immunizes the SME against the deterioration of access to bank financing linked to other local banks’ corrective programs. In contrast, large banks are unable to replace the lost lending from local competitors under corrective programs.
How Effective are Bank Levies in Reducing Leverage Given the Debt Bias of Corporate Income Taxation?
SUERF Policy Brief,
To finance resolution funds, the regulatory toolkit has been expanded in many countries by bank levies. In addition, these levies are often designed to reduce incentives for banks to rely excessively on wholesale funding resulting in high leverage ratios. At the same time, corporate income taxation biases banks’ capital structure towards debt financing in light of the deductibility of interest on debt. A recent paper published in the Journal of Banking and Finance shows that the implementation of bank levies can significantly reduce leverage ratios, however, only in case corporate income taxes are not too high. The result demonstrates that the effectiveness of regulatory tools can depend upon non-regulatory measures such as corporate taxes, which differ at the country level.
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Credit Allocation when Borrowers are Economically Linked: An Empirical Analysis of Bank Loans to Corporate Customers
Journal of Corporate Finance,
Using detailed loan level data, we examine bank lending to corporate customers relying on principal suppliers. Customers experience larger loan spreads, higher intensity of covenants and greater likelihood of requiring collateral when they depend more on the principal supplier for inputs. The positive association between the customer’s loan spread and its dependence on the principal supplier is less pronounced when the bank has a prior loan outstanding with the principal supplier, and when the bank has higher market share in the industry. Longer relationships between the customer and its principal supplier, and between the bank and the principal supplier, mitigate lending constraints. The evidence is consistent with corporate suppliers serving as an informational bridge between the lender and the customer.
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