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We review the recent academic and policy literature on bank loan loss provisioning (LLP) to identify several advances in the literature, to highlight some challenges in LLP research and suggest possible directions for future research with some concluding remarks. Among other things, we observe...
Persistent link: https://www.econbiz.de/10012964664
This paper analyses the effects associated with using the magnitude of realised loan losses as a basis for performance measurement and compensation to credit risk team in banks. Paying and rewarding credit risk professionals on the basis of reporting fewer provisions or lower loan losses...
Persistent link: https://www.econbiz.de/10012902590
We model the joint effects of debt maturity and cash holdings on default risk. When firms have short-term debt outstanding, negative cash flow shocks lead to a drop in liquid reserves and may cause firms to suffer losses when rolling over their debt, due to weaker fundamentals. This mechanism...
Persistent link: https://www.econbiz.de/10011516024
We analyze the impact of the Volcker Rule on a bank's earnings and default probability by using a stochastic control model where the bank maximizes its value by selecting an optimal dividend, recapitalization, and investment strategy. We calibrate the model to a sample of U.S. banks. Since the...
Persistent link: https://www.econbiz.de/10012857175
This paper shows that the effect of inflation on asset prices and real aggregates depends on the financial intermediation sector. When firms finance using nominal long-term debt issued by financial intermediaries, unexpected changes in inflation lead to a wealth transfer across sectors. Higher...
Persistent link: https://www.econbiz.de/10012595351
This study extends the Grullon, Michaely and Swaminathan (2002) analysis by incorporating default risk. Using data for firms that either increased or initiated cash dividend payments during the 23-year period 1986-2008, we find reduction in default risk. This reduction is shown to be a priced...
Persistent link: https://www.econbiz.de/10014192535
management, signaling, and loan loss provision. The difference in the results is thought to be caused by bank capitalization …. Therefore, this study aims to investigate the role of bank capitalization on the effect of earnings management and signaling on … effect on loan loss provision. In contrast, signaling has a positive and significant effect. Although bank capitalization is …
Persistent link: https://www.econbiz.de/10013220444
This research aims to model the relationship between the credit risk signals in the credit default swap (CDS) market and agency credit ratings, and determines the factors that help explain the variation in such signals. A comprehensive analysis of the differences in the relative credit risk...
Persistent link: https://www.econbiz.de/10014095955
Persistent link: https://www.econbiz.de/10012650160
This paper investigates whether overleverage identifies companies' strategic default incentives. The results show that overlevered firms have lower equity beta than their counterparts. The strategic default option becomes more valuable when the firms are overlevered. Firms are more likely to be...
Persistent link: https://www.econbiz.de/10012966571