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Report
The Myth of the Lead Arranger’s Share
Hillenbrand, Sebastian; Fleckenstein, Quirin; Saunders, Anthony; Blickle, Kristian S. (2020-05-01)
We challenge theories that lead arrangers retain shares of syndicated loans to overcome information asymmetries. Lead arrangers frequently sell their entire loan stake—in over 50 percent of term and 70 percent of institutional loans. These selloffs usually occur days after origination, with lead arrangers retaining no other borrower exposure in 37 percent of selloff cases. Counter to theories, sold loans perform better than retained loans. Our results imply that information asymmetries could be lower than commonly assumed or mitigated by alternative mechanisms such as underwriting risk. We ...
Staff Reports , Paper 922

Working Paper
Branching Networks and Geographic Contagion of Commodity Price Shocks
Wang, Teng (2020-05-01)
This paper studies the role of banks' branching networks in propagating the oil shocks. Banks that were exposed to the oil shocks through their operations in oil-concentrated counties experienced a liquidity drainage in the form of a declining amount of demand deposit inflow as well as an increasing percentage of troubled loans. Banks were forced to sell liquid assets, and contracted lending to small businesses and mortgage borrowers in counties that were not directly affected by the oil shocks. The effect is magnified when banks do not have strong community ties, but is mitigated if banks' ...
Finance and Economics Discussion Series , Paper 2020-034

Report
Bank Liquidity Provision across the Firm Size Distribution
Luck, Stephan; Chodorow-Reich, Gabriel; Darmouni, Olivier M.; Plosser, Matthew (2020-10-01)
Using loan-level data covering two-thirds of all corporate loans from U.S. banks, we document that SMEs (i) obtain much shorter maturity credit lines than large ﬁrms; (ii) have less active maturity management and therefore frequently have expiring credit; (iii) post more collateral on both credit lines and term loans; (iv) have higher utilization rates in normal times; and (v) pay higher spreads, even conditional on other ﬁrm characteristics. We present a theory of loan terms that rationalizes these facts as the equilibrium outcome of a trade-off between commitment and discretion. We test ...
Staff Reports , Paper 942

Working Paper
Contracting with Feedback
Lin, Tse-chun; Liu, Qi; Sun, Bo (2015-08-13)
We study the effect of financial market conditions on managerial compensation structure. First, we analyze the optimal pay-for-performance in a model in which corporate decisions and firm value are both endogenous to trading due to feedback from information contained in stock prices. In a less frictional financial market, the improved information content of stock prices helps guide managerial decisions, and this information substitutes out part of the direct incentive provision from compensation contracts. Thus, the optimal pay-for-performance is lowered in response to reductions in market ...
International Finance Discussion Papers , Paper 1143

Working Paper
Bank Capital Pressures, Loan Substitutability, and Nonfinancial Employment
Lee, Seung Jung; Stebunovs, Viktors (2016-04)
We exploit the cross-state, cross-time variation in bank tangible capital ratios-brought about by bank branch deregulation on a state-by-state basis-to identify the effects of bank capital pressures on employment and firm dynamics during two waves of changes in bank capital regulation. We show that stronger capital pressures temporarily slowed down growth in employment in industries that depend on external finance, retarding growth in the average size of firms rather than in the number of firms. Such effects were particularly strong for smaller firms that may not have had access to national ...
International Finance Discussion Papers , Paper 1161

Journal Article
What Determines Debt Maturity?
Manuelli, Rodolfo E. (2019)
What determines the maturity structure of debt? In this article, I develop a simple model to explore how the optimal maturity of debt issued by a firm (or a country) depends both on the firm?s cyclical state and other features of the economic environment in which it operates. I find that firms with better current earnings and better growth prospects issue debt with longer maturity, while firms operating in more-volatile environments issue debt with shorter maturity. Yield to maturity is a poor indicator of the risk of debt issued by a firm. The reason is simple: Yield to maturity captures ...
Review , Volume 101 , Issue 3 , Pages 155-176

Report
Firms’ Cash Holdings and Monetary Policy Transmission
Bräuning, Falk; Fillat, José; Joaquim, Gustavo (2023-10-12)
Liquidity, particularly cash holdings, may serve as an important cushion for firms to absorb macroeconomic shocks such as interest rate increases so that these shocks have only minimal effects on their operations, at least in the short term. For example, to finance their investments, firms with high levels of cash may not have to tap so deep into debt financing, the cost of which relates closely to interest rates. Understanding the role of corporate cash holdings is therefore paramount to formulating appropriate monetary policy in the current environment. This brief informs the ongoing policy ...
Current Policy Perspectives

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