We develop a dynamic model of banking to assess the effects of liquidity and leverage requirements on banks' insolvency risk. In this model, banks face taxation, flotation costs of securities, and default costs and maximize shareholder value by making their financing, liquid asset holdings, and...

In this study, we examine how banks' stock price crash risk is affected by recourse uncertainty embedded in securitizations. By recourse uncertainty, we mean the difficulty for equity market participants to assess the true extent of risk transfer between securitizing banks and investors in...

Banks face two different kinds of moral hazard problems: asset substitution by shareholders (e.g., making risky, negative net present value loans) and managerial rent seeking (e.g., investing in inefficient “pet” projects and consuming perquisites that yield private benefits). The privately...

The structural approach views firm's equity as a call option on the value of its assets, which motivates stockholders to increase risk. However, since bank assets are risky debt claims, bank equity resembles a subordinated debt. Using this assumption, and considering the strategic interaction...

The proposed of this paper is to determine the informative content of the cash flows related to the earnings of the process of explaining the firm's risk. The risk proxies used are Mark-to-Book, Market Beta, financial leverage and insolvency risk. The models are solved by the ordinary least...

I investigate whether information quality affects the cost of equity capital through liquidity risk. Liquidity risk is the sensitivity of stock returns to unexpected changes in market liquidity; recent asset pricing literature has emphasized the importance of this systematic risk. I find that...

The paper investigates the role of CEO risk incentives in increasing the riskiness of securitization transactions in the financial industry. Using a sample of US financial institutions, and a system model to account for the endogeneity problem between risk incentives and securitization, we...

In this paper, I discuss financial reporting under economic policy uncertainty. This paper is one of the first papers to relate economic policy uncertainty to financial reporting behaviour. It identifies the link between economic policy uncertainty and financial reporting in terms of earnings...