What Drives Discretion in Bank Lending? Some Evidence and a Link to Private Information
Journal of Banking & Finance,
We assess the extent to which discretion, unexplained variations in the terms of a loan contract, has varied across time and lending institutions and show that part of this discretion is due to private information that lenders have on their borrowers. We find that discretion is lower for secured loans and loans granted by a larger group of lenders, and is larger when the lenders are larger and more profitable. Over time, discretion is also lower around recessions although the private information content is higher. The results suggest that bank discretionary and private information acquisition behavior may be important features of the credit cycle.
Secrecy, Information Shocks, and Corporate Investment: Evidence from European Union Countries
Journal of International Financial Markets, Institutions and Money,
This study examines how national culture affects corporate investment. We argue that national culture affects corporate investment efficiency through the level of secrecy that national culture exhibits. Using a sample of firms from eight culturally-diverse European Union countries, we find that the level of secrecy that national culture exhibits is negatively related to corporate investment efficiency after controlling for a number of firm- and country-level factors. We also find that the negative relation between national culture and corporate investment efficiency is mitigated by an exogenous shock to the information asymmetry problem between managers and investors. Our study highlights the importance of the cultural value of secrecy/transparency as a determinant of investment efficiency at the firm-level.
The Forward-looking Disclosures of Corporate Managers: Theory and Evidence
We consider an infinitely repeated game in which a privately informed, long-lived manager raises funds from short-lived investors in order to finance a project. The manager can signal project quality to investors by making a (possibly costly) forward-looking disclosure about her project’s potential for success. We find that if the manager’s disclosures are costly, she will never release forward-looking statements that do not convey information to external investors. Furthermore, managers of firms that are transparent and face significant disclosure-related costs will refrain from forward-looking disclosures. In contrast, managers of opaque and profitable firms will follow a policy of accurate disclosures. To test our findings empirically, we devise an index that captures the quantity of forward-looking disclosures in public firms’ 10-K reports, and relate it to multiple firm characteristics. For opaque firms, our index is positively correlated with a firm’s profitability and financing needs. For transparent firms, there is only a weak relation between our index and firm fundamentals. Furthermore, the overall level of forward-looking disclosures declined significantly between 2001 and 2009, possibly as a result of the 2002 Sarbanes-Oxley Act.
Television Role Models and Fertility: Evidence from a Natural Experiment
SOEPpapers, Nr. 752,
In this paper we study the effect of television exposure on fertility. We exploit a natural experiment that took place in Germany after WWII. For topographical reasons, Western TV programs, which promoted one/no child families, could not be received in certain parts of East Germany. Using an IV approach, we find robust evidence that watching West German TV results in lower fertility. This conclusion is robust to alternative model specifications and data sets. Our results imply that individual fertility decisions are affected by role models or information about other ways of life promoted by media.
Limited Investor Attention and the Mispricing of American Depositary Receipts
I test whether more investor attention leads to a better exploitation of arbitrage opportunities and, in turn, to less mispricing of American Depositary Receipts (ADRs). Using data on 536 stocks I find that more investor attention significantly reduces ADR mispricing.
Asset Tangibility and Capital Allocation within Multinational Corporations
We investigate capital allocation across a firm's divisions that differ with respect to the degree of asset tangibility. We adopt an incomplete contracting approach where the outcome of potential debt renegotiations depends on the liquidation value of assets. However, with diversity in terms of asset tangibility, liquidation proceeds depend on how funds have been allocated across divisions. As diversity can be traced back to institutional differences between countries, we provide a rationale for multidivisional decision- making in an international context. A main finding is that multinationals may be bound to go to certain countries when financiers cannot control the capital allocation.
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