This theoretical paper explores the effects of costly and non-costly collateral on moral hazard, when collateral value may fluctuate. Given that all collateral is costly, stochastic collateral will entail the same positive incentive effects as nonstochastic collateral, provided the variation in...

We show how banks' excessive risk-taking, stemming from informational asymmetries in loan markets, can lead to an excessive output loss when a recession starts. Risk-based capital requirements can alleviate the output loss by reducing excessive risk-taking in ‘normal' times. Model simulations...

This paper demonstrates that subordinated debt (‘subdebt' thereafter) regulation can be an effective mechanism for disciplining banks. Under our proposal, investors buy the subdebt of a bank only if they receive favourable information about the bank, and the bank is subject to a regulatory...

We study the effects on credit allocation and bank stability of introducing a leverage ratio requirement (LRR) on top of risk-based capital requirements, as in Basel III. For the current 3% LRR, both low-risk and high-risk loan rates and volumes remain essentially unchanged, because banks...

The financial liberalization in the four Nordic countries (Denmark, Finland, Norway, and Sweden) that took place mostly in the 1980s led to a major financial crisis in three of those countries. The crises in Finland, Norway, and Sweden are among the deepest financial crises in advanced market...

Using a sample of U.S. mergers and acquisitions, this study evaluates how banking relationships influence acquirers' choice of financial advisors. Specifically, it examines: i) acquirers' previous relationships with advisors in various financial activities: M&A advisories, equity issuings and...

This paper provides cross-country evidence that variations in bank regulatory policies result in differences in income distribution. In particular, the overall liberalization of banking systems decreases the Gini coefficient and the Theil index significantly. However, this effect fades away for...

​We aim to assess how accurately accounting and stock market indicators predict rating changes for Asian banks. We conduct a stepwise process to determine the optimal set of early indicators by tracing upgrades and downgrades from rating agencies, as well as other relevant factors. Our results...

We extend the theoretical basis of the empirical literature on the effects of R&D subsidies by providing an estimable model of strategic interaction among subsidy applicants, and public and private sector R&D financiers. Our model incorporates fixed R&D costs and a cost of external finance. We...

Economic interest in innovation policy largely arises from the fundamental importance of innovation to social welfare and from inefficiencies in innovation in a competitive market environment. As a result, a wide variety of public innovation policies are used in practice. This study reviews the...