This paper argues that banks have a unique ability to hedge against systematic liquidity shocks. Deposit inflows provide a natural hedge for loan demand shocks that follow declines in market liquidity. Consequently, one dimension of bank “specialness” is that banks can insure firms against...

This paper proposes a two-factor hazard-rate model, in closed-form, to price risky debt. The likelihood of default is captured by the firm's non-interest sensitive assets and default-free interest rates. The distinguishing features of the model are threefold. First, impact of capital structure...

This study addresses the following questions: (1) can organizations learn how to manage infrequent and heterogeneous tasks ? (2) If they can, then what are the mechanisms that might explain learning under these circumstances ?, and (3) what are the limitations under which these mechanisms...

Real estate cycles and banking cycles may occur independently but they are correlated in a remarkable number of instances ranging over a wide variety of institutional arrangements, in both advanced industrial nations and emerging economies. During the recent Asian financial crisis, the most...

In standard asset pricing theory, investors are assumed to invest directly in financial markets. The role of financial institutions is ignored. The focus in corporate finance is on agency problems. How do you ensure that managers act in shareholders' interests? There is an inconsistency in...

Investments to increase the level of explicit coordination with outside agents have generally resulted in increased risk to the firm; firms have traditionally avoided this increased risk by becoming vertically integrated or by underinvesting in coordination. This paper argues that information...

Using a dataset comprising almost all equity and bond funds in existence in 1996, we find that fund providers shift advertising and distribution expenses via so-called 12b-1 fees onto fund shareholders. It is further shown that bonds funds with 12b-1 fees are more risky, while having similar...

Bank managers are said to shift risks when the downside of the profit opportunities that the bank pursues is absorbed in nontransparent fashion by the bank's creditors and guarantors. Risk shifting is facilitated by information asymmetries that tempt government officials to show creditors and...

Over the last decade interest in the role of finance in economic growth has revived. Building from the pioneering work of Goldsmith (1965) and the insights of Shaw (1973) and McKinnon (1973), the more recent work examines the role of financial institutions and financial markets in corporate...

What distinguished financial institutions from other firms is the relatively small share of real assets on their balance sheets. Thus, the direct impact of financial institutions on the real economy is relatively minor. The indirect impact of financial markets and institutions on economic...