In this paper we argue that risk-adjustment matters for the valuation of financial distress costs, since financial distress is more likely to happen in bad times. Systematic distress risk implies that the risk-adjusted probability of financial distress is larger than the historical probability....

Current practice largely follows restrictive approaches to market risk measurement, such as historical simulation or RiskMetrics. In contrast, we propose flexible methods that exploit recent developments in financial econometrics and are likely to produce more accurate risk assessments, treating...

I provide a quantitative interpretation of financial intermediation in the U.S. over the past 130 years. Measuring separately the cost of intermediation and the production of financial services, I find that: (i) the quantity of intermediation varies a lot over time; (ii) intermediation is...

A firm's termination leads to bankruptcy costs. This may create an incentive for outside stakeholders or the firm's debtholders to bail out the firm as bankruptcy looms. Because of this implicit guarantee, firm shareholders have an incentive to increase volatility in order to exploit the...

We analyze the advice contained in a sample of 237 investment letters over the 1980-1992 period. Each newsletter recommends a mix of equity and cash. We construct portfolios based on these recommendations and find that only a small number of the newsletters appear to have higher average returns...

We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that institutions with higher net worth hedge more, controlling for risk exposures, both across institutions and within institutions over time. For...

Theories of customer supplier relationships hold that the private information of suppliers about buyers explains the use of trade credit even when there is a competitive banking sector. If suppliers possess private information about their buyers, then the buyer's order size and ability to pay on...

A growing body of rigorous research shows that financial services innovations can have important positive impacts on wellbeing, but also that many do not. We first describe the latest evidence on what works in financial inclusion. Second, we summarize research on key financial market failures...

We investigate how banking relationships that combine lending and underwriting services affect the terms of lending, through both loan supply- and loan demand-side effects, and the underwriting costs of debt and equity issues. We capture and control for firm characteristics, including...