Information acquisition, foreign bank entry, and credit allocation

This paper presents a theoretical framework to understand the impact of foreign bank entry on the access to and the price of credit for different types of firms. A major point of departure from the previous literature is that incumbents’ information about firms is endogenous in the model; previous screenings and lending relations of incumbents determine which type(s) of firms they can identify. I show that incumbents’ information is negatively correlated with the quality of borrowers. Moreover, although a priori entrants have a comparative advantage in lending to transparent firms, previous lending relations of incumbents might reverse this relation. In particular, given that transparent firms are the only type screened before the entry and therefore they are the only type distinguishable by incumbents, entrants might have a comparative advantage in lending to opaque firms. The analysis provides new insights into the inconclusive evidence of the literature regarding entrants’ credit allocation

Wages and Human Capital in Finance: International Evidence, 1970–2011

International audienceWe study the allocation and compensation of human capital in the finance industry in a set of developed economies in 1970-2011. Finance relative wages generally increase---but not in all countries, and to varying degrees. Trading-related activities account for 50% of the increases, despite accounting for only 13% of finance employment, on average. Financial deregulation is the most important factor driving up wages in finance; it has a larger effect in environments where informational rents and socially inefficient risk taking are likely to be prevalent. Differential investment in information and communication technology does not have causal explanatory power. High finance wages attract skilled international immigration to finance, raising concerns for "brain drain.

Sovereign to Corporate Risk Spillovers

The first Greek bailout on April 11, 2010 triggered a significant reevaluation of sovereign credit risk across Europe. We exploit this event to examine the transmission of sovereign to corporate credit risk. A 10% increase in sovereign credit risk raises corporate credit risk on average by 1.1% after the bailout. The evidence is suggestive of risk spillovers from sovereign to corporate credit risk through a financial and a fiscal channel, as the effects are more pronounced for firms that are bank or government dependent. We find no support for indirect risk transmission through a deterioration of macroeconomic fundamentals