A Theoretical Framework for Evaluating Debtor-in-Possession Financing

This excellent Article by business school professors Sandeep Dahiya and Korok Ray provides a mathematical framework as an analytical tool to assist bankruptcy judges when confronting a Debtor-in-Possession financing situation. The U.S. Bankruptcy Code provides enhanced priority and security features to debtor-in-possession (DIP) loans which can be obtained from a lender with whom the borrower may have no past lending relationship. The enhanced priority of DIP financing, and the choice of a DIP lender, significantly affect the investment decisions made by the firm. This Article shows that DIP loans from an existing lender leads to a higher level of investment. The authors also show that a higher priority of DIP financing also leads to higher investment by the firm. A bankruptcy judge should take these incentives into account when approving the DIP loan. The authors conclude with extensive mathematical models to assist judges and firms in evaluating DIP loan decisions

Executive Compensation and Systemic Risk: The Role of Non-Interest Income and Wholesale Funding

This paper analyzes whether the excessive overreliance on non-interest income and wholesale funding, which occurred in the banking industry during the last two decades and led to increases in systemic risk, could arise from the desire of bank managers to increase their variable compensation. Using a sample of U.S. bank holding companies during 1995 to 2010, our results show that non-interest income is positively associated to a larger proportion of variable compensation. Also, while exercised options are more sensitive to income trading activities, bonuses tend to be related to the revenues originated from investment banking and venture capital activities. Similarly, a greater reliance on short-term wholesale funding positively associates with higher levels of variable compensation and bonuses. After the financial crisis, variable compensation and bonuses increased with non-interest income, but decreased with the use of short-term wholesale funding

Choosing and Implementing Optimal Immigration Policies with Korok Ray

Korok Ray present his research, co-conducted with Edward P. Lazear, over choosing and implementing optimal immigration policies.Salem Cente

A Theoretical Framework for Evaluating Debtor-in-Possession Financing

This excellent Article by business school professors Sandeep Dahiya and Korok Ray provides a mathematical framework as an analytical tool to assist bankruptcy judges when confronting a Debtor-in-Possession financing situation. The U.S. Bankruptcy Code provides enhanced priority and security features to debtor-in-possession (DIP) loans which can be obtained from a lender with whom the borrower may have no past lending relationship. The enhanced priority of DIP financing, and the choice of a DIP lender, significantly affect the investment decisions made by the firm. This Article shows that DIP loans from an existing lender leads to a higher level of investment. The authors also show that a higher priority of DIP financing also leads to higher investment by the firm. A bankruptcy judge should take these incentives into account when approving the DIP loan. The authors conclude with extensive mathematical models to assist judges and firms in evaluating DIP loan decisions

Executive Compensation and Systemic Risk: The Role of Non-Interest Income and Wholesale Funding

This paper analyzes whether the excessive overreliance on non-interest income and wholesale funding, which occurred in the banking industry during the last two decades and led to increases in systemic risk, could arise from the desire of bank managers to increase their variable compensation. Using a sample of U.S. bank holding companies during 1995 to 2010, our results show that non-interest income is positively associated to a larger proportion of variable compensation. Also, while exercised options are more sensitive to income trading activities, bonuses tend to be related to the revenues originated from investment banking and venture capital activities. Similarly, a greater reliance on short-term wholesale funding positively associates with higher levels of variable compensation and bonuses. After the financial crisis, variable compensation and bonuses increased with non-interest income, but decreased with the use of short-term wholesale funding.

Executive Compensation and Systemic Risk: The Role of Non-Interest Income and Wholesale Funding

This paper analyzes whether the excessive overreliance on non-interest income and wholesale funding, which occurred in the banking industry during the last two decades and led to increases in systemic risk, could arise from the desire of bank managers to increase their variable compensation. Using a sample of U.S. bank holding companies during 1995 to 2010, our results show that non-interest income is positively associated to a larger proportion of variable compensation. Also, while exercised options are more sensitive to income trading activities, bonuses tend to be related to the revenues originated from investment banking and venture capital activities. Similarly, a greater reliance on short-term wholesale funding positively associates with higher levels of variable compensation and bonuses. After the financial crisis, variable compensation and bonuses increased with non-interest income, but decreased with the use of short-term wholesale funding