Impact of ethical behavior on syndicated loan rates

This paper shows that borrowers’ ethical behavior leads lending banks to loosen financing conditions when setting loan rates. We advance the banking literature by stressing that the previous financing loosening is enhanced when there is similarity of lenders and borrowers along their ethical domain given that such similarity brings about familiarity and trust in non-opportunistic behavior between them, thereby contributing to lower information frictions. Unique data composed of 12,545 syndicated loan facilities from 19 countries for the period 2003–2007 indicate a 24.8% reduction in the mean spread associated with an increase of one standard deviation in the degree of borrowers’ ethical behavior from its mean value. Such reduction is enhanced to 37.6% when lenders also behave in an ethical way. Results withstand a battery of robustness tests including the use of alternative databases that capture the effect of the 2008 financial crisis, financing alternatives such as equity financing as well as nonparametric estimations.Universidad de Málaga. Campus de Excelencia Internacional Andalucía Tech

The Effects of Mergers on Prices, Costs, and Capacity Utilization in the U.S. Air Transportation Industry, 1970-84

We analyze the effect of mergers on various aspects of airline performance during the period 1970-84, using a panel data set constructed by Caves et al. Estimates derived from a simple "matched pairs" statistical model indicate that these mergers were associated with reductions in unit cost. The average annual rate of unit cost growth of carriers undergoing merger was 1.1 percentage points lower, during the five-year period centered on the merger, than that of carriers not involved in merger. Almost all of this cost reduction appears to have been passed on to consumers. Part of the cost reduction is attributable to mergerrelated declines in the prices of inputs, particularly labor, but about two-thirds of it is due to increased total factor productivity. One source of the productivity improvement is an increase in capacity utilization (load factor).

"The Effects of Mergers on Prices, Costs, And Capacity Utilization in the U.S. Air Transportation Industry, 1970-84"

We analyze the effect of mergers on various aspects of airline performance during the period 1970-84, using a panel data set constructed by Caves et al. Estimates derived from a simple "matched pairs" statistical model indicate that these mergers were associated with reductions in unit cost. The average annual rate of unit cost growth of carriers undergoing merger was 1.1 percentage points lower, during the five-year period centered on the merger, than that of carriers not involved in merger. Almost all of this cost reduction appears to have been passed on to consumers. Part of the cost reduction is attributable to merger-related declines in the prices of inputs, particularly labor, but about two-thirds of it is due to increased total factor productivity. One source of the productivity improvement is an increase in capacity utilization (load factor).

Estimating Switching Costs and Oligopolistic Behavior

We present an empirical model of firm behavior in the presence of switching costs. Customers' transition probabilities, embedded in firms' value maximization, are used in a multi-period model to derive estimable equations of a first order condition, market-share (demand), and supply equations. The novelty of the model is in its ability to extract information on both the magnitude and significance of switching costs, as well as on customers' transition probabilities, from conventionally available highly aggregated data which do not contain customer-specific information. As a matter of illustration, the model is applied to a panel data of banks, to assess the switching costs in the market for bank loans. The point estimate of the average switching cost is 4.1% which is about one third of the market average interest rate on loans. More than a quarter of the customer's added value is attributed to the lock-in phenomenon generated by these switching costs. About a third of the average bank's market share is due to its established bank-borrower relationship.

The effect of social capital on financial capital

We study the effect of social capital on financial capital. Specifically, we study how similarity (matching) of borrowers’ and lenders’ cohorts along their corporate social responsibility dimension affects the cost of debt financing. The main finding is that borrowers’ ethical posture alone is not enough for obtaining cheapest rates. Favorable loan conditions are obtained when both lenders and borrowers belong to similar cohorts attributing high value for social responsibility aspects. Employing an international database composed of 4,554 syndicated loans involving 175 corporations in 15 different countries for the period 2003-2006 we document a large and significant reduction in lending rates when both borrowers and lenders belong to similar cohort along the social responsibility dimension. These results withstand a battery of robustness tests.Corporate social responsibility, Financing costs, Lenders

What determines banks’ market power? Akerlof versus Herfindahl

We introduce a model analyzing how asymmetric information problems in a bank-loan market may evolve over the age of a borrowing firm. The model predicts a life-cycle pattern for banks’interest rate markup. Young firms pay a low or negative markup, thereafter the markup increases until it falls for old firms. Furthermore, the pattern of the life-cycle depends on the informational advantage of the inside bank and when more dispersed borrower information yields fiercer bank competition. By applying a new measure of the informational advantage of inside banks and a large sample of small Nor-wegian firms, we find empirical support for the predicted markup pattern. We disentangle effects of asymmetric information (Akerlof effect)from effects of a concentrated banking market(Herfindahl effect). Our results indicate that the interest rate markups are not influenced by bank market concentration.Banking, risk-pricing, lock-in

Liquidity risk and collective moral hazard

Banks individually optimize their liquidity risk manage-ment, often neglecting the externalities generated by their choices on the overall risk of the financial system. However, banks may have incentives to optimize their choices not strictly at the individual level, but engaging instead in collective risk-taking strategies. In this paper we look for evidence of such behaviors in the run-up to the global financial crisis. We find strong and robust evidence of peer effects in banks’ liquidity risk management. This suggests that incentives for collective risk-taking play a role in banks’ choices, thus calling for a macroprudential approach to liquidity regulation.info:eu-repo/semantics/publishedVersio

The Large N Limit of the (2,0) Superconformal Field Theory

We discuss the large N limit of the (2,0) field theory in six dimensions. We do this by assuming the validity of Maldacena's conjecture of the correspondence between large N gauge theories and supergravity backgrounds, here $AdS_7\times S^4$. We review the spectrum of the supergravity theory and compute the spectrum of primary operators of the conformal algebra of arbitrary spin.Comment: Minor changes, version to appear in Physics Letters