Seller Financing: Contracting Out of the Lemons and Moral Hazard Problems When They May Co-Exist

Quality problems that are known to the seller of an asset, but will become known to the buyer only after the purchase have the potential to frustrate voluntary exchanges. When the problem is subtle or confounded by the extent of buyer inputs, requiring risk-sharing by the contracting parties, both parties would benefit from a mechanism, such as seller financing, which not only credibly signals to the buyer the veracity of the seller’s representations about the asset (s)he is trying to sell, but also offers the seller sufficient protections against the potential that the buyer may engage in post-sale opportunistic behavior about the maintenance of the asset. We analyze one-time-only mortgage contracts in the National Association of Realtors\u27 Home Financing Transaction database for 1984-1996, (data not collected outside this period), and find empirical support for seller financing as an asset quality signal and, separably, as a mechanism for providing credit when conventional credit sources are tight. We also point out the broad, but not well-acknowledged, reach of seller financing, including the sub-prime loan debacle, the earnout mergers or reverse annuity mortgages, which are inherently embedded with both asymmetric information about the quality of the relevant assets and moral hazard about the asset acquirer’s post-purchase maintenance

Banking Geography and Cross-Fertilization in the Productivity Growth of US Commercial Banks

The US banking industry offers a unique, natural and fertile environment to study geography's effects on banks' behavior and performance. The literature on banks' operating performance, while extensive, says little about the influence of spatial interactions on banks' performance. We compute and examine, using a physical distance-based spatio-temporal empirical model, the state-wide total factor productivity growth (TFPG) indices of US commercial banks for each state for the 1971-1995 period. We observe that the productivity growth of commercial banks in state i depends strongly, positively, and contemporaneously on the productivity growth of commercial banks located in state i's contiguous states. Further, “regulatory space” appears to induce frictions and lessen the documented spatial interactions. These findings support our plea that research on commercial banking sector's behavior need to pay a particular attention to the effects of banking geography.Spatial, Commercial Banks, Total Factor Productivity Growth, Kalman Filter

Pricing of IPOs under legally-mandated concentrated ownership and commitment period: Evidence from a natural experiment for REITs in Turkey

Signaling and commitment features, as embedded into the legal requirements for REIT IPOs, and a regime change in macroeconomic conditions, going from decades-long uncertainty to recent and unexpected stability, offer new insights into the pricing of REIT IPOs in Turkey. All REIT IPOs between 1996 and 2014 enter our sample. Increases beyond the legally mandated ownership percentage signal asset quality and lessen underpricing. This result differs from those for the non-REIT firms in Turkey and REITs elsewhere. Further, the regime change from macroeconomic uncertainty to stability generates a reversal from substantial underpricing to negligible underpricing/fair pricing

Seller Financing: Contracting Out of the Lemons and Moral Hazard Problems When They May Co-Exist

Quality problems that are known to the seller of an asset, but will become known to the buyer only after the purchase have the potential to frustrate voluntary exchanges. When the problem is subtle or confounded by the extent of buyer inputs, requiring risk-sharing by the contracting parties, both parties would benefit from a mechanism, such as seller financing, which not only credibly signals to the buyer the veracity of the seller’s representations about the asset (s)he is trying to sell, but also offers the seller sufficient protections against the potential that the buyer may engage in post-sale opportunistic behavior about the maintenance of the asset. We analyze one-time-only mortgage contracts in the National Association of Realtors' Home Financing Transaction database for 1984-1996, (data not collected outside this period), and find empirical support for seller financing as an asset quality signal and, separably, as a mechanism for providing credit when conventional credit sources are tight. We also point out the broad, but not well-acknowledged, reach of seller financing, including the sub-prime loan debacle, the earnout mergers or reverse annuity mortgages, which are inherently embedded with both asymmetric information about the quality of the relevant assets and moral hazard about the asset acquirer’s post-purchase maintenance.  </p

Australia's Economic Response to the Global Financial Crisis and Its Housing Markets

Dogan Tirtirogluhttp://trove.nla.gov.au/work/15214467

Australia's Economic Response to the Global Financial Crisis and Its Housing Markets

This chapter presents a summary of the Australian banking and real-estate markets. It further discusses the policy developments used to fight off the adverse expected consequences of the global financial crisis (GFC). The chapter concludes with a review of the current state of both the markets. Essentially, there is a consensus that Australia's response to the GFC has been a success story so far. As for housing, the policymakers have implemented policies as part of a massive fiscal response package to the GFC, which has aimed to sustain high property values in Australia. Therefore, relatively low mortgage rates have allowed all potential home-owners to maintain a healthy appetite for purchasing houses. In addition, Australian banks have been sourcing their financing needs mainly from the international markets for some time now. Inflationary pressures are a likely outcome of the massive budget deficits around the world, once the world economies pull themselves out of the GFC. Further, the Australian economy has its own homemade concerns for inflation. Thus, increasing borrowing costs, both domestically and internationally, for Australian banks and, consequently, for all Australian mortgage borrowers with a VRM contract, are not unlikely in the near future.</p

Concentrated ownership, no dividend payout requirement and capital structure of REITs: Evidence from Turkey

This paper studies empirically the capital structure of Turkish REITs as they offer unique and so far untested angles. They do not have to pay out dividends, yet enjoy the exemption from paying corporate taxes since their legal foundation in 1998. Several financial meltdowns occurred in the last three decades, keeping investors with a doubt about Turkey’s financial and political stability. The last meltdown in 2001 is part of the sample period. Findings show that Turkish REITs employ little long-term debt in their capital structure. The legal requirement that a leader entrepreneur be present with a minimum equity position of 25% introduces the agency problem between the majority and minority owners. The leader entrepreneurs, as non-taxable institutional investors, appear to dictate Turkish REITs’ dividend and debt policies and deplete REITs’ dividends, causing them to go to the long-term debt market. The financial meltdown of 2001 exerts negative short-term and positive long-term influence on the debt ratios while inflation’s effect is negative. Firm size, REITs’ engagement in development and stock market development influence debt ratios positively; tangibility and a few firm, ownership, and country-specific determinants appear to have either mixed or no influence on Turkish REITs’ debt policies