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Working Paper
Alligators in the swamp: the impact of derivatives on the financial performance of depository institutions
It has been argued that underpriced federal deposit insurance provides incentive for insured institutions to increase the value of shareholder equity by expanding into activities that shift risk onto the deposit insurer. Derivative instruments have been used by firms to change their risk exposure. Permitting firms with substantial moral hazard incentives to utilize interest-rate derivative instruments could lead to higher rather than lower exposure to risk. This article, using a sample of savings and loan associations (S&Ls), examines the proposition that involvement with interest-rate ...
Working Paper
The security issue decision: evidence from small business investment companies
Using a unique transactions-level dataset, this paper examines the investment choices of small business investment companies (SBICs), which are private venture capital firms licensed and regulated by the U.S. Small Business Administration (SBA). SBICs make debt and equity investments in small businesses, and we seek to explain their security choices. We focus on factors suggested by asymmetric information and contracting theories of security choice. Overall, our results are consistent with the predictions of contracting theory, although certain aspects of our results also support asymmetric ...
Conference Paper
Should merger policy be changed? An antitrust perspective
Working Paper
A Trojan horse or the golden fleece? small business investment companies and government guarantees
Profitability is a central concern when governments provide guarantees to increase the flow of funds to disadvantaged groups. We examine the profitability of small business investment companies (SBICs) that are chartered and regulated by the U.S. Small Business Administration (SBA) to finance the activities of small firms. We document, over the 1986-91 period, dismal performance by SBICs. Because SBICs have access to government-guaranteed funds, financial distress among SBICs can expose the SBA, and hence taxpayers, to losses. Using two alternative sample selection models, we examine the ...
Journal Article
Business failures in New England
During the 1980s, the New England economy prospered relative to the nation as a whole, with lower unemployment rates, more rapidly rising real estate prices, and lower rates of business failures. As the economic tide turned against New England at the end of the decade, the rate of business failures soared, in absolute terms as well as relative to nationwide statistics. This recent wave of business failures appears to have been far in excess of that attributable to the decline in New England economic activity. Moreoever, it has undesirable implications for the regional economy and can be ...