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Information acquisition and financial intermediation
Boyarchenko, Nina (2012)
Informational advantages of specialists relative to households lead to disagreement between the two in an intermediated market. Although households can acquire additional signals to reduce the informational asymmetry, the additional information is costly, making it rational for households to limit the accuracy of the signals they observe. I show that this leads the equity capital constraint to bind more frequently, making the asset prices in the economy more volatile unconditionally. When disagreement between households and specialists is high, however, return volatility decreases. I find ...
Staff Reports , Paper 571

Working Paper
How Private Equity Fuels Non-Bank Lending
Haque, Sharjil M.; Mayer, Simon; Wang, Teng (2024-03-29)
We show how private equity (PE) buyouts fuel loan sales and non-bank participation in the U.S. syndicated loan market. Combining loan-level data from the Shared National Credit register with buyout deals from Pitchbook, we find that PE-backed loans feature lower bank monitoring, lower loan shares retained by the lead bank, and more loan sales to non-bank financial intermediaries. For PE-backed loans, the sponsor's reputation and the strength of its relationship with the lead bank further reduce the lead bank's retained share and monitoring. Our results suggest that PE sponsor engagement ...
Finance and Economics Discussion Series , Paper 2024-015

Working Paper
Blockchain Economics
Abadi, Joseph; Brunnermeier, Markus K. (2022-05-03)
The fundamental problem in digital record-keeping is establishing consensus on an update to a ledger, e.g., a payment. Consensus must be achieved in the presence of faults—situations in which some computers are offline or fail to function appropriately. Traditional centralized record-keeping systems rely on trust in a single entity to achieve consensus. Blockchains decentralize record-keeping, dispensing with the need for trust in a single entity, but some instead build a consensus based on the wasteful expenditure of computational resources (proof-of-work). An ideal method of consensus ...
Working Papers , Paper 22-15

Working Paper
Measuring the Informativeness of Market Statistics
Kim, Kyungmin (2016-09-14)
Market statistics can be viewed as noisy signals for true variables of interest. These signals are used by individual recipients of the statistics to imperfectly infer different variables of interest. This paper presents a framework under which the 'informativeness' of statistics is defined as their efficacy as the basis of such inference, and is quantified as expected distortion, a concept from information theory. The framework can be used to compare the informativeness of a set of statistics with that of another set or its theoretical limits. Also, the proposed informativeness measure can ...
Finance and Economics Discussion Series , Paper 2016-076

Report
On the scale of financial intermediaries
Boyarchenko, Nina; Shin, Hyun Song; Adrian, Tobias (2015-10-01)
This paper studies the economic scale of financial institutions. We show that banks and security broker-dealers actively smooth book equity by adjusting payouts. The smoothing of book equity is associated with procyclical book leverage and procyclical net payouts. In contrast, market leverage largely reflects movements in valuation levels as measured by book-to-market ratios. The 2008 crisis caused a structural break, after which the growth rates of the banking and dealer sectors have been subdued relative to pre-crisis levels. We draw conclusions for theories of financial intermediation and ...
Staff Reports , Paper 743

Working Paper
Failing Just Fine: Assessing Careers of Venture Capital-backed Entrepreneurs via a Non-Wage Measure
Amornsiripanitch, Natee; Gompers, Paul; Hu, George; Abbott, Graham J.; Levinson, Will; Mukharlyamov, Vladimir (2023-08-28)
This paper proposes a non-pecuniary measure of career achievement: seniority. Based on a database of over 130 million resumes, this metric exploits the variation in how long it takes to attain job titles. When non-monetary factors influence career choice, assessing career attainment via non-wage measures, such as seniority, has significant advantages. Accordingly, we use our seniority measure to study labor market outcomes of VC-backed entrepreneurs. Would-be founders experience accelerated career trajectories prior to founding, significantly outperforming graduates from same-tier colleges ...
Working Papers , Paper 23-17

Report
Heterogeneity and stability: bolster the strong, not the weak
Choi, Dong Beom (2013-09-01)
This paper provides a model of systemic panic among financial institutions with heterogeneous fragilities. Concerns about potential spillovers from each other generate strategic interaction among institutions, triggering a preemption game in which one tries to exit the market before the others to avoid spillovers. Although financial contagion originates in weaker institutions, systemic risk depends critically on the financial health of stronger institutions in the contagion chain. This analysis suggests that when concerns about spillovers prevail, then 1) increasing heterogeneity of ...
Staff Reports , Paper 637

Working Paper
Bond Insurance and Public Sector Employment
Amornsiripanitch, Natee (2022-02-07)
This paper uses a unique data set of local governments’ bond issuance, expenditure, and employment to study the impact of the monoline insurance industry’s demise on local governments’ operations. To show causality, I use an instrumental variable approach that exploits persistent insurance relationships and the cross-sectional variation in insurers’ exposure to high-quality residential mortgage-backed securities. Governments associated with ailing insurers issued less debt, cut expenditures, and hired fewer workers. These effects are persistent. Partial equilibrium calculations show ...
Working Papers , Paper 22-03

Working Paper
Pre-LBO Credit Market Conditions and Post-LBO Target Behavior
Kwak, Seung; Press, Charles (2023-12-01)
In the context of leveraged buyouts (LBOs), this paper empirically studies the relation between pre-buyout credit market conditions and the post-buyout behavior of target companies, employing a supervisory dataset to overcome limited data availability for post-buyout target financial information. We propose an LBO-specific measure of (changes of) credit market conditions---the short-term (6-month) change of credit spreads leading up to buyout close. Using this proposed measure, we show that loosening pre-LBO credit market conditions, which are related to higher buyout leverage consistent with ...
Finance and Economics Discussion Series , Paper 2023-077

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