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The Effect Of Bank Monitoring As An Alternative Of Corporate Governance Mechanism On The Borrowers Firm Value
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Book Synopsis The Effect of Bank Monitoring as an Alternative of Corporate Governance Mechanism on the Borrowers' Firm Value by : Ancella Anitawati Hermawan
Download or read book The Effect of Bank Monitoring as an Alternative of Corporate Governance Mechanism on the Borrowers' Firm Value written by Ancella Anitawati Hermawan and published by . This book was released on 2014 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this research is to examine the effect of bank monitoring as an alternative of corporate governance mechanisms on the borrowers' firm value. The strengths of bank monitoring on the borrowers are measured based on the magnitude of the bank loan, the size of the loan from banks with high monitoring quality, the length of a bank loan outstanding period, and the number of lenders. The research hypotheses were tested using multiple regression model with a sample of 230 companies listed in Indonesia Stock Exchange during 2009. The empirical results show that only the size of the loan from banks with high monitoring quality and the number of lenders significantly influences the borrowers' firm value. These findings imply that only banks with high monitoring quality could play an important role in the corporate governance and therefore increasing the firm value by their monitoring function. Furthermore, bank monitoring is less effective if a company borrows from many banks, and therefore decreasing the firm value.
Book Synopsis What Else Matters for Corporate Governance? by : Joanna Shepherd
Download or read book What Else Matters for Corporate Governance? written by Joanna Shepherd and published by . This book was released on 2012 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We address a crucial but underappreciated question: what else besides corporate law matters for corporate governance? We take the novel view that corporate governance must involve more than corporate law. Corporate scholars focus almost exclusively on corporate law mechanisms for controlling managerial agency costs. We contend, however, that contracting parties also attempt to control agency costs in their contracts with the firm. In particular, we hypothesize that banks, by monitoring firms in connection with their loans, enhance firm value for the benefit of shareholders.We examine over one-thousand public firms for the period 1990-2004 to test the value of bank monitoring. Our approach builds on existing empirical scholarship on corporate governance, to which we add data on the presence of bank loans and their interactions with free cash flow, governance indices, and individual corporate governance provisions. We find evidence consistent with our hypothesis that bank monitoring improves firm value, especially where agency costs are high. Bank monitoring may provide an additional mechanism for corporate governance.Our findings have important implications for both regulatory design and corporate governance. Bank monitoring may offer positive spillovers not previously considered in the crafting of regulation affecting bank lending, creditor rights, and the operation of loan and credit derivatives markets. Legal rules affecting bank lending or monitoring may indirectly and inadvertently affect firm value, a nontrivial consideration given the pervasiveness of bank debt among public companies. We identify a number of regulatory areas that may deserve new attention. Similarly, future empirical corporate governance research should account for the effects of bank governance, as well as investigate further its potential for improving firm value.
Book Synopsis Research Handbook on the Economics of Corporate Law by : Claire A. Hill
Download or read book Research Handbook on the Economics of Corporate Law written by Claire A. Hill and published by Edward Elgar Publishing. This book was released on 2012-04-01 with total page 497 pages. Available in PDF, EPUB and Kindle. Book excerpt: Comprising essays specially commissioned for the volume, leading scholars who have shaped the field of corporate law and governance explore and critique developments in this vibrant and expanding area and offer possible directions for future research. This important addition to the Research Handbooks in Law and Economics series provides insights into subjects such as the role of directors, shareholders, creditors and employees; empirical studies of litigation and shareholder activism; executive compensation; corporate gatekeepers; comparative law; and behavioral approaches to law and finance. Topics are organized within five sections: corporate constituencies, insider governance, gatekeepers, jurisdiction, and new theory. Taken as a whole, the volume serves as an introduction for those new to the field and as a reference for those unfamiliar with some of the topics discussed. Authoritative and accessible, the Research Handbook on the Economics of Corporate Law will be a valuable resource for students, scholars, and practitioners of corporate law and economics.
Book Synopsis Bank Supervision and Corporate Finance by : Thorsten Beck
Download or read book Bank Supervision and Corporate Finance written by Thorsten Beck and published by World Bank Publications. This book was released on 2003 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of bank supervision on the financing obstacles faced by almost 5,000 corporations across 49 countries. We find that firms in countries with strong official supervisory agencies that directly monitor banks tend to face greater financing obstacles. Moreover, powerful official supervision tends to increase firm reliance on special connections and corruption in raising external finance, which is consistent with political/regulatory capture theories. Creating a supervisory agency that is independent of the government and banks mitigates the adverse consequences of powerful supervision. Finally, we find that bank supervisory agencies that force accurate information disclosure by banks and enhance private monitoring tend to ease the financing obstacles faced by firms.
Book Synopsis Bovernance and Bank Valuation by : Gerard Caprio
Download or read book Bovernance and Bank Valuation written by Gerard Caprio and published by World Bank Publications. This book was released on 2003 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Which public policies and ownership structures enhance the governance of banks? This paper constructs a new database on the ownership of banks internationally and then assesses the ramifications of ownership, shareholder protection laws, and supervisory/regulatory policies on bank valuations. Except in a few countries with very strong shareholder protection laws, banks are not widely held, but rather families or the State tend to control banks. We find that (i) larger cash flow rights by the controlling owner boosts valuations, (ii) stronger shareholder protection laws increase valuations, and (iii) greater cash flow rights mitigate the adverse effects of weak shareholder protection laws on bank valuations. These results are consistent with the views that expropriation of minority shareholders is important internationally, that laws can restrain this expropriation, and concentrated cash flow rights represent an important mechanism for governing banks. Finally, the evidence does not support the view that empowering official supervisory and regulatory agencies will increase the market valuation of banks"--NBER website
Book Synopsis Securitization and Credit Quality by : David Marques-Ibanez
Download or read book Securitization and Credit Quality written by David Marques-Ibanez and published by International Monetary Fund. This book was released on 2016-11-15 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Banks are usually better informed on the loans they originate than other financial intermediaries. As a result, securitized loans might be of lower credit quality than otherwise similar nonsecuritized loans. We assess the effect of securitization activity on loans’ relative credit quality employing a uniquely detailed dataset from the euro-denominated syndicated loan market. We find that, at issuance, banks do not seem to select and securitize loans of lower credit quality. Following securitization, however, the credit quality of borrowers whose loans are securitized deteriorates by more than those in the control group. We find tentative evidence suggesting that poorer performance by securitized loans might be linked to banks’ reduced monitoring incentives.
Book Synopsis The Dark Side of Bank-Firm Relationships by : Massimo Massa
Download or read book The Dark Side of Bank-Firm Relationships written by Massimo Massa and published by . This book was released on 2015 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the trade-off between liquidity and monitoring implicit in the bank-firm relationship. By virtue of their lending activity, banks have privileged access to inside information about the companies and their monitoring role helps them mitigate the managers' risk-taking behavior. However, banks can also act as an quot;insiderquot; and exploit this privileged information in the financial markets. We show that a more exclusive and geographically closer relationship with the lender increases the illiquidity of the stock of the borrowing firm and reduces both, its trading volume as well as its aggregate volatility. We explain the reduction in volatility in terms of lower incentives for the mangers to take on risk. The fact that firms borrowing from closer banks reward their mangers with less options- or equity-based compensation (as opposed to fixed compensation) supports our claim about reduced risk-taking. Simultaneously, however, a more exclusive relationship with the banks leads to a higher options- and equity-based compensation. Next, focusing on the effect upon firm value, we show that the extent of information asymmetry inherent in the lending relationship - captured here by the proximity to the banks - negatively affects firm value. On the other hand, the power of the bank derived from its role as a monitor - captured in our case by the exclusivity of the lending relationship - positively affects firm value. Overall, we illustrate a new quot;corporate governancequot; channel and our findings provide a fresh perspective on how lending relationships affect the firm.
Book Synopsis International Convergence of Capital Measurement and Capital Standards by :
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Monitoring Characteristics of the Main Bank System by : Masahiko Aoki
Download or read book Monitoring Characteristics of the Main Bank System written by Masahiko Aoki and published by . This book was released on 1994 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Bank Monitoring and CEO Risk-Taking Incentives by : Anthony Saunders
Download or read book Bank Monitoring and CEO Risk-Taking Incentives written by Anthony Saunders and published by . This book was released on 2017 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates whether monitoring by bank lenders affects CEO incentives of borrowing firms. We find that an increase in bank monitoring incentives significantly reduce the sensitivity of CEO wealth to stock return volatility (Vega). The results are more profound when bank lenders are more powerful and reputable and have a prior lending relationship with the borrowing firms. Additionally, Vega decreases after financial covenant violations and increases when bank lenders have offsetting equity stakes in borrowing firms. These results together suggest banks have a unique role in monitoring and shaping CEO incentives to mitigate the risk-shifting incentives of firm managers.
Book Synopsis Handbook on Ethics in Finance by : Leire San-Jose
Download or read book Handbook on Ethics in Finance written by Leire San-Jose and published by . This book was released on 2019 with total page 600 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis BANK HOLDING COMPANY GOVERNANCE, OPACITY AND RISK by : Gang Bai
Download or read book BANK HOLDING COMPANY GOVERNANCE, OPACITY AND RISK written by Gang Bai and published by . This book was released on 2013 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: As financial intermediaries, banks are "special" because they play an important role in transferring funds from surplus spending units to deficit spending units and serve as a channel of monetary policy. Therefore, the safety and soundness of banks is essential to the financial stability and economic development. This study investigates how bank governance mechanisms, namely, executive compensation and board of directors, affect bank safety. Given the unique nature that bank assets are opaque, bank governance is expected to be different from corporate governance of industrial firms. This study also investigates how the opaqueness nature of bank assets affects the compensation design of bank executives. Chapter 1 investigates the association between asset opacity and CEO pay-performance sensitivity of bank holding companies (BHCs). Contrary to the monitoring cost hypothesis according to which when information asymmetry is high firms rely more heavily on equity-based compensation, I find that when the share of opaque assets in total assets increases, pay-performance sensitivity in BHCs declines. This finding supports the view that when the share of opaque assets increases, managers can pursue risky projects to a greater extent in the interests of shareholders but at the expenses of bondholders, and, hence, the optimal compensation structure in BHCs with larger share of opaque assets has a lower pay-performance sensitivity to restrain managerial risk-taking incentives, reducing the conflicts of interests between shareholders and bondholders. The negative effect of asset opacity on pay-performance sensitivity is robust after accounting for the endogeneity of asset opacity and using various compensation measures. In addition, I find that higher pay-performance sensitivity generally leads to a greater share of opaque assets in total assets. The results of this study suggest that asset opacity is an important determinant of compensation structure in the banking industry. BHCs should use caution when using stocks and options to promote prudent risk taking under bank asset opacity conditions because opaque bank assets make risk-shifting behaviors induced by equity-based compensation difficult to monitor, threatening the bank stability. Regulators should also account for this opacity effect. Chapter 2 investigates the relationship between insolvency risk and executive compensation for BHCs over the 1992-2008 period. I employ CEO compensation sensitivity to risk (vega) and pay-share inequality between the CEO and other executives as measures of compensation and employ a simultaneous equation model to account for the endogeneity problem between vega and risk. Five main results are obtained. First, CEO compensations in BHCs have risen in response to deregulation to resemble those of the industrial firms. Second, higher vegas lead to greater bank instability. Third, the association between bank stability and managerial compensation is bi-directional; higher vegas induce greater risk and vice versa. Fourth, BHCs in the next to the largest-size group increase CEO vegas the most and have the strongest potential to create instability in the financial industry, such as the one witnessed in 2007-2009. Fifth, increased pay-share inequality has effects opposite to those of the increase in vega; greater pay-share inequality is associated with greater bank stability. Implications of executive compensation effects on instability for depositors, deposit insurers and regulators are drawn. Chapter 3 investigates the association between the structure of board of directors and risk taking of bank holding companies. I use the number of directors on the risk committee and the frequency of its meetings to measure the strength of risk management exercised by bank boards. Several interesting findings are obtained. First, banks with stronger risk committees, namely risk committees with a greater number of directors and more frequent meetings, are associated with more diversified loan portfolios, greater amounts of safer loans, less mortgage-backed securities, and lower market risk. These results continue to hold even after controlling for the possible endogeneity problem using the dynamic panel GMM estimator. Overall, these results suggest that stronger risk management by bank boards has a positive and significant impact on banks' safety and soundness. Second, the percentage of banks having a risk committee has been increasing steadily since 1999, suggesting bank boards have gradually taken a greater role in risk management and their fiduciary duties have expanded beyond shareholders to include depositors. However, less than half of bank boards have a risk committee before 2007, suggesting weak risk management at the top level and the possibility that bank boards may have failed to control the excessive risk-taking in the banking industry leading to the recent financial crisis. Finally, the percentage of banks with a risk committee is still less than 60% after the crisis, suggesting that depositors and bank supervisors could enhance the stability of banks by further improving the effectiveness of internal risk control at bank boards.
Book Synopsis Bankers on Boards by : Randall Kroszner
Download or read book Bankers on Boards written by Randall Kroszner and published by . This book was released on 2010 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates what factors determine whether a commercial banker is on the board of a non-financial firm. We consider the tradeoff between the benefits of direct bank monitoring to the firm and the costs of active bank involvement in firm management. Given the different payoff structures to debt and equity, lenders and shareholders may have conflicting interests in running the firm. In addition, the U.S. legal doctrines of 'equitable subordination' and 'lender liability' could generate high costs for banks which have a representative on the board of a client firm that experiences financial distress. Consistent with high potential costs of active bank involvement, we find that bankers tend to be represented on the boards of large stable firms with high proportions of tangible ('collateralizable') assets and low reliance on short-term financing. The protection of shareholder versus creditor rights under the U.S. bankruptcy doctrines may reduce the role that banks play in corporate governance and the management of financial distress, in contrast to Germany and Japan. We conclude with implications for the current bank regulatory reform debate, such as whether to permit banks to own equity in non-financial firms that, in turn, could allow them to mitigate the conflict.
Book Synopsis Microeconomics of Banking, third edition by : Xavier Freixas
Download or read book Microeconomics of Banking, third edition written by Xavier Freixas and published by MIT Press. This book was released on 2023-08-22 with total page 229 pages. Available in PDF, EPUB and Kindle. Book excerpt: The third edition of a leading text on the microeconomic foundations of banking, comprehensively updated with new coverage of the 2008 Global Financial Crisis, fintech, and the latest research in banking theory. The banking industry has undergone seismic change in the twenty-first century, from the overhaul of regulation in the wake of the 2008 Global Financial Crisis to the digitalization of the economy and the disruption of traditional business models by ascendant tech giants. Now in a comprehensively updated third edition, this essential graduate-level text on the microeconomic foundations of banking provides the rigorous theoretical approach required to understand these new structures and norms, functioning as a user’s guide to recent academic literature. Microeconomics of Banking offers a comprehensive view of the evolution of banking theory and the rapidly changing realm of financial intermediation, examining the central issues and offering the necessary tools for understanding how they have been modeled. New edition highlights: Up-to-date coverage of the latest research in banking theory as well as the events of the global financial crisis and resultant Basel III regulatory framework New chapters on liquidity and systemic risk New material throughout on cryptocurrencies, fintech, and other facets of a digitalized economy
Book Synopsis Bankers on Boards by : Randall Kroszner
Download or read book Bankers on Boards written by Randall Kroszner and published by . This book was released on 1999 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates what factors determine whether a commercial banker is on the board of a non-financial firm. We consider the tradeoff between the benefits of direct bank monitoring to the firm and the costs of active bank involvement in firm management. Given the different payoff structures to debt and equity, lenders and shareholders may have conflicting interests in running the firm. In addition, the U.S. legal doctrines of ?equitable subordination? and ?lender liability? could generate high costs for banks which have a representative on the board of a client firm that experiences financial distress. Consistent with high potential costs of active bank involvement, we find that bankers tend to be represented on the boards of large stable firms with high proportions of tangible (?collateralizable?) assets and low reliance on short-term financing. U.S. bank regulation and bankruptcy doctrines may reduce the role that banks play in corporate governance and the management of financial distress, in contrast to Germany and Japan. We conclude with implications for the current bank regulatory reform debate, such as whether to permit banks to own equity in non-financial firms that, in turn, could allow them to mitigate the conflict.
Book Synopsis Does Bank Monitoring Matter to Bondholders? by : Joel F. Houston
Download or read book Does Bank Monitoring Matter to Bondholders? written by Joel F. Houston and published by . This book was released on 2014 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we examine the existence of a cross-monitoring effect between bank debt and public debt by exploring the effects that loan defaults have on the lead arranger's perceived reputation in the public debt markets. Generating a sample of major loan defaults among U.S. firms between 2002 and 2010, we empirically test the effects that these loans had on the bond returns of publicly traded firms that had existing loans made by the same lead lender as the defaulting firm. We show that the abnormal returns of these “affected firms” are negative and statistically significant. Moreover, these abnormal returns are economically significant - with a mean about -1% when measured over an eleven day window surrounding the announcement of the defaulting loan. Interestingly, we find that these results are even stronger if the defaulting firm had a strong and/or long-standing relationship with its lead lender. We also find that the negative bond market effect is particularly strong if the defaulting loan is an important deal to the lender, if it is a recently originated loan, and if the borrower has better governance, higher profitability and higher firm value in the loan origination year. In contrast, the negative bond market effect is weakened if the affected firms have more intensive analyst coverage and higher firm values. These results confirm that lenders suffer a loss to their reputations when their borrowers default, and these effects are particularly pronounced in those cases where they presumably had strong incentives to monitor the defaulting firm.
Book Synopsis The Role of Banks in Monitoring Firms by :
Download or read book The Role of Banks in Monitoring Firms written by and published by . This book was released on 1999 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt:
