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Interbank Market Integration, Loan Rates, and Firm Leverage

Financial integration is widely perceived to stimulate investment-based growth through a reduction in the cost of equity, bond, and bank financing. Little is known, however, about the effect the integration of interbank markets has on small fi rm finance. How does the degree and speed of interbank market integration affect the availability and cost of bank loans? And does rapid integration simply lead to cheaper firm financing, or also to excessive leverage?

Foreign Participation in Local-Currency Bond Markets

The analysis of local currency bond market development is of particular interest to both policymakers and investors. Countries that have less developed local currency bond markets and rely heavily on foreign currency bonds are more likely to suffer from a currency mismatch and are hence more susceptible to currency crises [Krugman (1999), Jeanne and Zettelmeyer (2002), Schneider and Tornell (2004), Aghion, Bacchetta and Banerjee (2004), Goldstein and Turner (2004)].

How Important Is Option-Implied Volatility for Pricing Credit Default Swaps?

Credit default swaps (CDS) are a class of credit derivatives that provide a pay off equal to the loss-given-default on bonds or loans of a reference entity, triggered by credit events such as default, bankruptcy, failure to pay, or restructuring. The buyer pays a premium as a percentage of the notional value of the bonds or loans each quarter, denoted as an annualized spread in basis points (bp), and receives the pay off from the seller should a credit event occur prior to the expiration of the contract.

Credit Spread Arbitrage in Emerging Eurobond Markets

The prices of fixed income assets depend on three components (Litterman and Iben [1988]): the risk free term structure of interest rates, embedded options values and credit risk. Optimally allocating portfolios in fixed income markets demands a detailed analysis of each of these components.

Covenant Protection, Credit Spread Dynamics and Managerial Incentives

Corporate governance is concerned with mechanisms by which capital suppliers exercise control over corporate insiders and management to protect their investment. Since the work of Jensen and Meckling (1976) and Smith and Warner (1979), the economics of the conflicts between bondholders and shareholders are well understood. These conflicts arise when the firm unexpectedly increases cash flow distributions as dividends or repurchases, when the issuer redistributes assets after debt issuance, or via debt refinancing at a similar or higher priority, among other sources.

Liquidity, Moral Hazard and Inter-Bank Market Collapse

The financial market turmoil that has been under way since the Summer of 2007 hit the core of the global financial system, the inter-bank market for liquidity. This has manifested itself through episodes of widening spreads on inter-bank interest rates (vs. policy rates), together with evidence of plummeting volumes in inter-bank lending transactions. As turmoil turned into a full blown crisis in the Fall of 2008, inter-bank transactions were widely reported as frozen, as bid-offer spreads widened dramatically, and interest rates peaked on term borrowing beyond overnight transactions.

Determinants of Corporate Diversification: Evidence from the Property-Liability Insurance Industry

The US property-liability (P/L) insurance industry consists of over two thousand active firms that differ substantially across several characteristics, including size, group affiliation, ownership structure, distribution system, geographic scope, and product diversification. The extant literature provides explanations for the coexistence of firms differing across the majority of these characteristics.

Firm-Specific Variation and Capital Openness

The extent to which individual stock prices move independently varies both across countries and over time. Morck et al. (2000) show that individual stock prices rise and fall concurrently more than in lower income economies in the mid 1990s. Campbell et al. (2001) and Morck et al. (2000) find a long-term rise in firm-specific variation in US stock returns, and a consequent decline in stock price comovement in that country.

A Dietitian’s Guide to Obesity

Obesity is spreading – and eating away at America‘s economy and health. Obesity has risen at an epidemic rate during the past 30 years. The rapid rise in the prevalence of overweight and obesity among all segments of the U.S. population is of grave concern as the health and quality of life of those afflicted plummets and health care costs and societal burdens continue to increase. Obesity is a serious condition that affects people of all ages and socioeconomic groups.

The Treatment of Obesity by Acupuncture

Obesity could well become the most common health problem of the 21st century (Palou et al., 2000). Obesity is a disease resulting from the over storage of fat in the body. It is a problem concerning the balance of energy. An imbalance between energy input and energy consumption causes an increase in the body fat rate (Palou et al., 2000). It is known that the prevalence of obesity in adults and children has been increasing significantly around the world (Weinstock et al., 1998). In this century, obesity has been seen especially in industrial countries (Leonhardt et al., 1999). The over-consumption of delicious, high-calorie food and decrease in physical activity play major roles in increasing the prevalence of obesity in industrial countries (Campfield et al., 1996; Hill & Peters, 1998). The cost of treatment of obesity and obesity-related diseases is significant in general health expenditures in the United States (Bray, 1998).

Gender, Obesity, and Education

Obesity is a health condition, but its consequences extend far beyond the realm of health. To illuminate an important route by which the experience of obesity can filter into the status attainment process, this study drew on nationally representative data from the National Longitudinal Study of Adolescent Health to test a social psychological model of the gendered link between obesity and education.

Hunger and Malnutrition

While episodes of severe hunger such as famines receive considerable press coverage and attract much public attention, chronic hunger and malnutrition is considerably more prevalent in developing countries. It is estimated that at least 12 million low-birth-weight births occur per year and that around 162 million pre-school children and almost a billion people of all ages are malnourished.

Trade Credit, Bank Lending and Monetary Policy Transmission

Recent research has ensured that market imperfections have a central place in the transmission of monetary policy through the credit channel. When there is imperfect information, alternative types of credit cannot be regarded as perfect substitutes and hence the choice of external finance on the part of the firm, and the availability and price of external funds offered by financial intermediaries will depend on factors such as the strength of firms’ balance sheets.

Banks, their Balance Sheets and Optimal Monetary Policy

A number of empirical studies have identified an important role of banks for real economic activity. Samolyk (1994) examines the relationship between banking conditions and economic performance at the U.S. state level and shows how regional banking conditions can affect local economic activity by impacting on a region's ability to fund local investments. Peek and Rosengren (2000) focus on real estate lending of Japanese banks in U.S. states following the Japanese banking crisis.

An Equilibrium Model of Lumpy Housing Investment

In this paper, we formulate and solve a dynamic general equilibrium model of housing investment in which housing investment is lumpy at the household level. The model feature that contributes to making housing investment lumpy are non-convex transaction costs for housing adjustment. In all other respects, our economy is a simple extension of an otherwise standard heterogeneous-agents, incomplete markets, real business cycle model with aggregate and idiosyncratic shocks in the tradition of papers like Krusell and Smith (1998), Chang and Kim (2007), and Silos (2007).

Credit Constraints and Firm Dynamics

The growth accounting literature attribute to differences in aggregate total factor productivity (TFP) as the main source of the large variation on income across countries. There is a growing literature that emphasizes the importance of factor reallocation for TFP and output growth (see-Olley and Pakes (1996), Foster et al. (2006),Griliches and Regev (2006), Bartelsman et al. (2004), Aghion and Howitt (2006)).

Vitamin K Deficiency Disease

Vitamin K deficiency bleeding (VKDB) previously known as hemorrhagic disease of the newborn has been classified as Early (0-24hrs), Classic (2-7 days) and Late (1-6 months). Child birth following the maternal ingestion of anti-epileptic drugs such as Phenytoin, is liable to result in early VKDB as well as bone changes in the fetus. Other maternal risk factors for VKDB include medications such as warfarin and antibiotics.

Vitamin D Deficiency

Most people are familiar with vitamin D’s role in preventing rickets in children and in helping the body absorb calcium from the diet. Recently, research has shown that vitamin D is important in protecting the body from a wide range of diseases. Disorders linked with vitamin D deficiency include stroke, cardiovascular disease, osteoporosis, several forms of cancer, some autoimmune diseases such as multiple sclerosis, rheumatoid arthritis and diabetes, depression and schizophrenia.

How Do Insurers Manage Credit Risk Exposure of Corporate Bond Portfolios? An Analysis Based on Background Risk

Financial institutions often hold large investment portfolios in addition to running their main business in various segments of the financial market. For example, insurers’ main line of business is to underwrite life or property policies, collect premiums, and manage claim payouts. In the meantime, they typically hold large fixed-income portfolios. Investment banks’ main business is to advice corporate clients on securities issuance, restructuring, and M&A activities, but they often have proprietary trading desks that bet large amount of firm capital. At some financial institutions, investment activities generate a large proportion of profit as well as a large amount of risk.

Solvency regulation and credit risk transfer

In the latest years larger banks are steadily increasing their market share in credit risk transfer activities credit derivatives and loan sales as extensively documented by ECB (2004), BIS (2005), Minton et al. (2007) and Duffie (2007), among others. When transferring credit risk for risk management purposes, banks reduce their stake in the return from lending, impairing their incentives to monitor loans. If monitoring is important for bank credit, then credit risk transfer (CRT, hereafter) may reduce the value of intermediation and increase bank instability.

Credit Constraints, Cyclical Fiscal Policy and Industry Growth

Standard macroeconomic textbooks generally present macroeconomics in two separate bodies: in the long term an economy's performance is essentially influenced by structural characteristics, such as education, R&D, openness to trade, competition or fnancial development. In the short term however, the economy is essentially influenced by the shocks it undergoes and stabilization policies undertaken (fiscal and monetary policy). These two approaches have been considered for long as separate and distinct bodies of research. Stabilization policies for instance are considered to have no signi?ficant impact on the long run performance of an economy.

Optimal Central Bank Lending

The recent financial crisis has led the US Federal Reserve to set the policy rate close to its zero lower bound. It further introduced several lending facilities and direct asset purchases, which eased access to reserves in a way that led to a doubling of its balance sheet after September 2008. These policies demonstrate that there are more instruments available for central banks than the pre-crisis view on monetary policy has suggested by its focus on pure interest rate policy. In contrast to the latter view, central banks usually do not accommodate money demand in an unrestricted way.

Firms as Financial Intermediaries: Evidence from Trade Credit Data

A key question in development economics is the relation between a country’s financial system and its economic development. The empirical literature addressing this question has focused on the role of banks and stock markets in providing the financing to the commercial sector. This approach is motivated by the fact that in a perfectly functioning financial market the financing should be from financial intermediaries and markets that specialize in the supply of external finance.

Business Failures, Macroeconomic Risk and the Effect of Recessions on Long-Run Growth: a Panel Cointegration Approach

In addition to idiosyncratic factors, the likelihood of firms to survive or to fail in a competitive environment is largely governed by macroeconomic risks, with estimates of their impact on the variation of business activities ranging from 25% (Sharpe, 1981) to 75% (Schankerman, 2002). In this paper we use data on 20 administrative regions over the period 1985-2002 to empirically assess the nature and properties of the nexus between business failures and macroeconomic shocks in Italy.

Modeling the Effect of Macroeconomic Factors on Corporate Default and Credit Rating Transitions

Models of corporate default fall into two broad categories, structural models and reduced form models. Structural models consider the evolution of the value of the firm, with default assumed to occur if firm value should fall below some insolvency threshold. Structural models have the practical advantage of being able to make use of the firm's current stock price.

The Relation Between Hedge Fund Size and Risk

Prior research provides conflicting results about whether performance (e.g., absolute returns, alpha, and Sharpe ratio) decreases as hedge fund size increases. Amman and Moerth (2005, 2008) find that performance decreases as hedge fund size increases; Edwards and Caglayan (2001), among others, find the opposite result; and Gregoriou and Rouah (2003), among others, find no relationship between hedge fund performance and fund size.

Debt, Financial Fragility and Economic Growth: A Post-Keynesian Macromodel

The paper develops a post-keynesian macromodel of capacity utilization and growth in which the supply of credit money is endogenous and firms’ debt position and thus the financial fragility of the economy à la Minsky – is explicitly modeled. Both the influence of interest rate and indebtedness on capacity utilization and the rates of profit and growth, on the one hand, and the effect of the parameters of the saving and investment functions on financial fragility, on the other hand, are carefully analyzed.

Optimal Reserve Management and Sovereign Debt

There is a renewed interest in policy and academic circles about the optimal level of foreign reserves sovereign countries should hold. This recent interest follows the rapid rise in international reserves held by developing countries. In 2005, for example, reserve accumulation amounted to 20% of GDP in lowand middle income countries; whereas this number was close to 5% in high-income countries. This practice has raised interesting questions in the literature regarding the cost and benefits of reserve accumulation.

Sovereign Default Risk and Bank Fragility in Financially Integrated Economies

This paper considers government debt management, sovereign default risk, and the implications of sovereign debt crises for the banking sector in financially integrated economies. The recent literature on sovereign debt has generally abstracted from the link between a sovereign debt crisis in a country and contagion to other countries through an integrated banking system.

Ebook Financing large debt: syndicated loans versus corporate bonds

Debt is a major source of external financing for large European firms. In 2007, corporate bonds and syndicated loans made up 94% of all public funds raised in the European capital markets, while public equity issuance accounted for only 6%. In recent years, developments in the corporate bond market have attracted considerable attention, particularly in the light of the market’s spectacular development in the aftermath of the introduction of the euro.