Found 490 article(s) in category 'Financial Services'

Do Founders Control Start-Up Firms that Go Public?

Do Founders Control Start-Up Firms that Go Public? Jesse Fried, May 2018, Paper, “Startup founders, who generally must cede control to obtain VC financing, are widely believed to regain control in the event of an IPO, à la Facebook’s Mark Zuckerberg. Indeed, the premise that founders expect to be able to reacquire control if there is an IPO underlies the leading finance theory for why venture capital cannot thrive without a robust stock market. But little is known about how frequently founders regain control via IPO. Using a sample of over 18,000 VCbacked firms, we show that founders generally do not reacquire control via IPO. In almost 60% of firms that go public, the founder is no longer CEO at IPO.Link

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Pension Policy and the Financial System

Pension Policy and the Financial System. David Scharfstein, May 2018, Paper, “This paper examines the effect of pension policy on the structure of financial systems around the world. In particular, I explore the hypothesis that policies that promote pension savings also promote the development of capital markets. I present a model that endogenizes the extent to which savings are intermediated through banks or capital markets, and derive implications for corporate finance, household finance, banking, and the size of the financial sector. I then present a number of facts that are broadly consistent with the theory and examine a variety of alternative explanations of my findings.Link

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Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings

Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings. Gita Gopinath, Jeremy Stein, May 2018, Paper, “We develop a model that shows how the currency denomination of a country’s imports influences the funding structure of its banking system, and in turn, the currency composition of its central bank’s reserve holdings. The link between the dollar’s role in bank funding and its role as a central bank reserve currency is stronger when the country’s fiscal capacity is limited, and when exchange rates are volatile. In the data, there is a pronounced cross-country relationship between the fraction of imports that are dollar invoiced, and the fraction of central-bank foreign-exchange reserves that are held in dollars.Link

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Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds

Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds. Malcolm Baker, George Serafeim, April 27, 2018, Paper, “Estimates suggest that mitigating and adapting to climate change will cost trillions of dollars. We study the developing market for green bonds, which are bonds whose proceeds are used for environmentally sensitive purposes. After an overview of the U.S. corporate and municipal green bonds market, we study pricing and ownership patterns of municipal green bonds using a framework that incorporates assets with nonpecuniary
sources of utility. The results support the prediction that green bonds are issued at a premium to otherwise similar ordinary bonds—that is, with lower yields—on an after-tax basis.Link

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Issuer Default Risk and Rating Agency Conflicts

Issuer Default Risk and Rating Agency Conflicts. Anywhere Sikochi, April 2018, Paper, “This study examines whether rating agencies assign more stringent and accurate rating adjustments for issuers with higher default risk and whether this leads to adjustments that are more relevant to financial markets. We expect that rating agencies will make more informative subjective adjustments to limit their reputational risk for issuers with a higher likelihood of default—an event that can reveal the quality of assigned ratings. For defaulting issuers, especially those with a higher pre-failure default risk, we find that adjustments grow more stringent and accurate in the months leading up to default and better predict lender default recovery rates.Link

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The boom in Puerto Rican debt has nothing to do with reality

The boom in Puerto Rican debt has nothing to do with reality. Lawrence Summers, April 17, 2018, Opinion, “Desmond Lachman, Brad Setser and Antonio Weiss have written a very strong analysis of the Puerto Rico situation. If ever there was a disconnect between underlying reality and what is happening in financial markets, it is the boom in Puerto Rican debt that has nearly doubled the value of some of its debt securities during the past few months.” Link

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Making Sense of Soft Information: Interpretation Bias and Loan Quality

Making Sense of Soft Information: Interpretation Bias and Loan Quality. Dennis Campbell, April 2018, Paper, “We explore whether behavioral biases impede the effective processing and interpretation of soft information in private lending. Taking advantage of the internal reporting system of a large federal credit union, we delineate three important biases likely to affect the lending process: (1) limited attention (or distraction), (2) task-specific human capital, and (3) common identity. Specifically, we find that using soft information in lending decisions leads to worse loan quality when loan officers are busy or before weekends and around national holidays; when loan officers had earlier sales experience; and when both officers and borrowers are men. Overall, we provide novel evidence of non-agency-related costs in the use of soft information in lending decisions.Link

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A Measure of Risk Appetite for the Macroeconomy

A Measure of Risk Appetite for the Macroeconomy. Emil Siriwardane, Adi Sunderam, March 2018, Paper, “We document a strong and robust positive relationship between the one-year real rate and the contemporaneous valuation of volatile stocks, which we contend measures the economy’s risk appetite. Our novel proxy for risk appetite explains 41% of the variation in the real rate since 1970, while the valuation of the aggregate stock market explains just 1%. In addition, the real rate forecasts returns on volatile stocks, confirming our interpretation that changes in risk appetite drive the real rate. Increases in our measure of risk appetite are followed by a boom in investment and output.Link

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Corporate Bond Liquidity: A Revealed Preference Approach

Corporate Bond Liquidity: A Revealed Preference Approach. Adi Sunderam, March 20, 2018, Paper, “We propose a novel measure of bond market liquidity that does not depend on transaction data. Capturing how the strength of the relation between mutual fund cash holdings and uncertainty about fund flows varies in the cross section, our measure reflects funds’ perceived illiquidity of their portfolio holdings at a given point in time. Speculative grade and smaller bonds are perceived to be significantly less liquid, with the illiquidity of speculative grade bonds in particular deteriorating in the post-crisis period.Link

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