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Journal Article
Pricing government credit: a new method for determining government credit risk exposure
A growing debate centers on how best to recognize (and price) government interventions in the capital markets. This study applies a method for estimating and valuing the government?s exposure to credit risk through its loan and guarantee programs. The authors use the mortgage portfolios of Fannie Mae and Freddie Mac as examples of how policymakers could employ this method in pricing the government?s program credit risk. Building on the cost of capital approach, the method captures each program?s possible tail loss over and above its expected value. The authors then use a capital allocation ...
Working Paper
Government Connections and Financial Constraints: Evidence from a Large Representative Sample of Chinese Firms
We examine the role of firms' government connections, defined by government intervention in CEO appointment and the status of state ownership, in determining the severity of financial constraints faced by Chinese firms. We demonstrate that government connections are associated with substantially less severe financial constraints (i.e., less reliance on internal cash flows to fund investment), and that the sensitivity of investment to internal cash flows is higher for firms that report greater obstacles to obtaining external funds. We also find that those large non-state firms with weak ...