Search Results

Showing results 1 to 6 of approximately 6.

(refine search)
SORT BY: PREVIOUS / NEXT
Author:Huang, Rocco 

Journal Article
Because I'm worth it? CEO pay and corporate governance
Recently, there has been strong public outrage against current pay practices for corporate CEOs. To deal with this issue, the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama on July 21, 2010 will allow shareholders to vote on executive pay packages and federal regulators to oversee executive compensation at financial firms. Are there problems with CEO pay? According to a recent survey, 98 percent of respondents from major financial institutions ?believe that compensation structures were a factor underlying the crisis.? In ?Because I?m Worth It? CEO Pay and Corporate Governance,? Rocco Huang outlines what we know about how CEOs are paid, how the pay is set, how CEO compensation affects CEOs? incentives and actions and their firms? performance, and how government regulations affect CEO pay.
AUTHORS: Huang, Rocco
DATE: 2010

Working Paper
Creditor control of free cash flow
With free cash flows, borrowers can accumulate cash or voluntarily pay down debts. However, sometimes creditors impose a mandatory repayment covenant called "excess cash flow sweep" in loan contracts to force borrowers to repay debts ahead of schedule. About 17 percent of borrowers in the authors' sample (1995-2006) have this covenant attached to at least one of their loans. The author finds that the sweep covenant is more likely to be imposed on borrowers with higher leverage (i.e., where risk shifting by equity holders is more likely). The results are robust to including borrower fixed effects or using industry median leverage as a proxy. The covenant is more common also in borrowers where equity holders appear to have firmer control, e.g., when more shares are controlled by institutional block holders, when firms are incorporated in states with laws more favorable to hostile takeovers, or when equity holders place higher valuation on excess cash holdings. These determinants suggest that the sweep covenant may be motivated by creditor-shareholder conflicts. Finally, the author shows that the covenant has real effects: borrowers affected by the sweep covenant indeed repay more debts using excess cash flows, and they spend less in capital investment and pay out fewer dividends to shareholders.
AUTHORS: Huang, Rocco
DATE: 2009

Working Paper
Internal capital markets and corporate politics in a banking group
This study looks inside a large retail-banking group to understand how influence within the group affects internal capital allocations and lending behavior at the member bank level. The group consists of 181 member banks that jointly own a headquarters. Influence is measured by the divergence from one-share-one-vote. The authors find that more influential member banks are allocated more capital from headquarters. They are less likely to decrease lending after negative deposit growth or to increase lending following positive deposit growth. These effects are stronger in situations in which information asymmetry between banks and the headquarters seems greater. The evidence suggests that influence can be useful in overcoming information asymmetry.
AUTHORS: Sautner, Zacharias; Cremers, Martijn; Huang, Rocco
DATE: 2009

Working Paper
How committed are bank lines of credit? Experiences in the subprime mortgage crisis
Using the subprime mortgage crisis as a shock, this paper shows that commercial borrowers served by more distressed banks (as measured by recent bank stock returns or the nonperforming loan ratio) took down fewer funds from precommitted, formal lines of credit. The credit constraints affected mainly smaller, riskier (by internal loan ratings), and shorter-relationship borrowers, and depended also on the lenders' size, liquidity condition, capitalization position, and core deposit funding. The evidence suggests that credit lines provided only contingent and partial insurance during the crisis since bank conditions appeared to influence credit line utilization in the short term. It provides a new explanation as to why credit lines are not perfect substitutes for cash holdings for some (e.g. small) firms. Finally, loan level analyses show that more distressed banks charged higher credit spreads on newly negotiated loans but not on funds disbursed from precommitted, formal credit lines. The author's analyses are based on commercial loan flow data from the confidential Survey of Terms of Business Lending (STBL).
AUTHORS: Huang, Rocco
DATE: 2010

Working Paper
The effect of monetary tightening on local banks
This study shows that during Paul Volcker?s drastic monetary tightening in the early 1980s, local banks operating in only one county reduced loan supply much more sharply than local subsidiaries of multi-county bank holding companies in similar markets, after controlling for bank (and holding company) size, liquidity, capital conditions, and, most important, local credit demand. The study allows cleaner identification by examining 18 U.S. ?county-banking states? where a bank?s local lending volume at the county level was observable because no one was allowed to branch across county borders. The local nature of lending allows us to approximate and control for the exogenous component of local loan demand using the prediction that counties with a higher share of manufacturing employment exhibit weaker loan demand during tightening (which is consistent with the interest rate channel and the balance-sheet channel of monetary policy transmission).The study sheds light on the working of the bank lending channel of monetary policy transmission.
AUTHORS: Huang, Rocco
DATE: 2008

Working Paper
The dark side of bank wholesale funding
Commercial banks increasingly use short-term wholesale funds to supplement traditional retail deposits. Existing literature mainly points to the "bright side" of wholesale funding: sophisticated financiers can monitor banks, disciplining bad ones but refinancing solvent ones. This paper models a "dark side" of wholesale funding. In an environment with a costless but imperfect signal on bank project quality (e.g., credit ratings, performance of peers), short-term wholesale financiers have lower incentives to conduct costly information acquisition, and instead may withdraw based on negative but noisy public signals, triggering inefficient liquidations. We show that the "dark side" of wholesale funding dominates the "bright side" when bank assets are more arm's length and tradable (leading to more relevant public signals and lower liquidation costs): precisely the attributes of a banking sector with securitizations and risk transfers. The results shed light on the recent financial turmoil, explaining why some wholesale financiers did not provide market discipline ex-ante and exacerbated liquidity risks ex-post.
AUTHORS: Huang, Rocco; Ratnovski, Lev
DATE: 2009

FILTER BY year

FILTER BY Series

FILTER BY Content Type

FILTER BY Author

FILTER BY Keywords

PREVIOUS / NEXT