Theory of Privatization in Eastern Europe: Literature Review

This paper discusses the most important theoretical contributions to the literature on privatization, focusing on emerging economies, and gives a summary on recent research concerning the ways privatization might affect the development of securities markets. In addition, the paper provides a number of policy implications, emphasizing the trade-off between privatization and the reduction in social welfare and the possibility that the privatization process itself may have conflicting objectives (creation of incentive mechanisms, fairness, fast privatization).Privatization, Emerging economies, Social welfare

Support and Interference: Venture Financing with Multiple Tasks

The paper focuses on the financing possibilities for capital constrained entrepreneurs when venture financiers perform two tasks, monitoring and advice. We model advice as effort that results in an increase in the probability of success. In turn, we consider monitoring as an activity exerted to control entrepreneurial project choice, which results in an increase in the returns in the less successful state. Thus entrepreneurs favor advice and dislike monitoring. Through the financial claim offered, an entrepreneur can affect the financier’s effort exertion on the two tasks. The primary result is that highly capital constrained entrepreneurs can get financing only with intense monitoring and limited advice. The optimal financial claim resembles to a convertible debt contract. Entrepreneurs endowed with more self-financing can restrain the level of monitoring, thus induce more advice, and can offer an equity contract. The results may shed light on contracting practices observed in the venture capital industry, namely the unusual negative correlation between control and cash-flow rights and the use of a variety of securities.

The role of agency costs in financial conglomeration

This paper focuses on the role of managerial agency costs in financial conglomeration. We model conglomeration as the integration of commercial and investment banking in one organizational unit where bank managers accomplish both activities. We assume that managers differ in their abilities to undertake the individual tasks. The higher is a manager's ability in undertaking one task, the lower is her disutility of effort for that activity and the higher is her disutility of effort for the other task. When there is no managerial moral hazard, it is not optimal for the bank to form a conglomerate. We show that under managerial moral hazard, forming a conglomerate may be in the bank's interest because it may entail lower agency costs and a larger group of borrowers to fund.Financial Conglomerates, Commercial Banking, Investment Banking, Banking Organization, Multi-task, Moral Hazard

Group lending with endogenous group size

This paper focuses on the size of the borrower group in group lending. We show that, when social ties in a community enhance borrowers' incentives to exert effort, a profit-maximizing financier chooses a group of limited size. Borrowers that would be fundable under moral hazard but have insufficient social ties do not receive funding. The result arises because there is a trade-off between raising profits through increased group size and providing incentives for borrowers with less social ties. The result may explain why many micro-lending institutions and rural credit cooperatives lend to groups of small size.Group Lending; Moral Hazard; Social Capital

Advice and Monitoring: Venture Financing with Multiple Tasks

This paper focuses on the conflicting dimensions of the involvement of venture capitalists as advisors and monitors in entrepreneurial projects. It argues that advising is congruent while monitoring dissonant with respect to entrepreneurial preferences. The analysis shows that despite the conflict of incentives between tasks, entrepreneurs with substantial capital needs prefer to contract with a multitask financier rather than with an advisor and a monitor separately. This provides one possible explanation for the existence of venture capital financing in the presence of both consulting firms and banks. The implications of the model coincide with observed features of venture capital firms and contracts: they predict the prevalent use of both equity and convertible securities together with control rights in venture capital contracting.Financial contracting; Venture capital; Multitask moral hazard

In lands of foreign currency credit, bank lending channels run through?

We analyze the differential impact of domestic and foreign monetary policy on the local supply of bank credit in domestic and foreign currencies. We analyze a novel, supervisory dataset from Hungary that records all bank lending to firms including its currency denomination. Accounting for time-varying firm-specific heterogeneity in loan demand, we find that a lower domestic interest rate expands the supply of credit in the domestic but not in the foreign currency. A lower foreign interest rate on the other hand expands lending by lowly versus highly capitalized banks relatively more in the foreign than in the domestic currency

Monetáris politika és a bankok hitelkínálata. Vállalati adatokon alapuló elemzés

Növeli-e az alacsony kamatláb a banki hitelkínálatot? Tanulmányunkban egy magyar, vállalati szintű hiteladatbázis panelstruktúrában történő elemzésével keressük a választ a kérdésre. Kashyap–Stein [2000] identifikációs módszerét vállalati és idő fix hatásokkal kiegészítve teszteljük a feltételezést, hogy a kamatok csökkenése különbözőképpen befolyásolja-e az alacsony és a magas sajáttőke-­hányaddal rendelkező bankok hitelkínálatát. Azt találjuk, hogy a kamatláb csökkenését követően az alacsony tőkehányadú bankok nagyobb valószínűséggel nyújtanak hitelt új felvevőknek, és növelik kihelyezett hitelösszegeiket már meglévő adósaik számára, mint a magas tőkehányadú bankok. Robusztussági becsléseink azt tanúsítják, hogy valóban a bankok sajáttőke-hányada, nem pedig likviditási hányada, teljes eszközértéke vagy tulajdonosi szerkezete korrelál a hitelkínálati reakció erősségével. Megmutatjuk, hogy ezek az eredményeink fennálltak a válság előtti időszakban is, és függetlenek a mintánkban szereplő cégek méretétől. Elemzéseinkből arra következtetünk, hogy Magyarországon a vizsgált időszakban (2005–2011) a kamatláb befolyásolta a hitelkínálat mértékét. Journal of Economic Literature (JEL) Kód: E51, E52, G21

The role of agency costs in financial conglomeration

This paper focuses on the role of managerial agency costs in financial conglomeration. We model conglomeration as the integration of commercial and investment banking in one organizational unit where bank managers accomplish both activities. We assume that managers differ in their abilities to undertake the individual tasks. The higher is a manager's ability in undertaking one task, the lower is her disutility of effort for that activity and the higher is her disutility of effort for the other task. When there is no managerial moral hazard, it is not optimal for the bank to form a conglomerate. We show that under managerial moral hazard, forming a conglomerate may be in the bank's interest because it may entail lower agency costs and a larger group of borrowers to fund

The role of agency costs in financial conglomeration

This paper focuses on the role of managerial agency costs in financial conglomeration. We model conglomeration as the integration of commercial and investment banking in one organizational unit where bank managers accomplish both activities. We assume that managers differ in their abilities to undertake the individual tasks. The higher is a manager's ability in undertaking one task, the lower is her disutility of effort for that activity and the higher is her disutility of effort for the other task. When there is no managerial moral hazard, it is not optimal for the bank to form a conglomerate. We show that under managerial moral hazard, forming a conglomerate may be in the bank's interest because it may entail lower agency costs and a larger group of borrowers to fund