One of the enduring principles of federal securities regulation is the mantra that bonds are securities, while commercial loans are not. Yet the corporate bond and loan markets in the U.S. are rapidly converging, putting significant pressure on the disparity in their regulatory treatment. As...

In this paper, we use credit rating data from two large Swedish banks to elicit evidence on banks' loan monitoring ability. For these banks, our tests reveal that banks' internal credit ratings indeed include valuable private information from monitoring, as theory suggests. Banks' private...

This study analyzes the relationship between an M&A advisor's holdings of call options on M&A targets before announcements and the abnormal returns of such targets. Financial institutions with regular exposure to advisory business hold call options on selected targets, for which the announcement...

The utility of Potential Future Exposure (PFE) for counterparty trading limits is being challenged by new market developments, notably widespread regulatory Initial Margin (using 99% 10-day exposure), and netting of trade and collateral flows. However PFE has pre-existing challenges w.r.t....

I derive a firm's optimal public disclosure policy aimed at minimizing its cost of raising capital from the equity market. Following the public disclosure, the institutional investors offer incentive contracts to their buy-side analysts to acquire independent private information. Due to the...

Efforts to control bank risk address the wrong problem in the wrong way. They presume that the financial crisis was caused by CEOs who failed to supervise risk-taking employees. The responses focus on executive pay, believing that executives will bring non-executives into line — using...

Both Islamic and classical venture contracts suffer from information asymmetry and incentive problems. Venture capitalist and Entrepreneur have an agency relationship because of the insufficient information about the funded project and/or the entrepreneur type. Referring to the literature, this...

This paper presents a theory for Islamic venture capital namely ‘Mudharabah' contract under adverse selection problem. In order to avoid selecting a low type entrepreneur for a given good project, the framework defines the profit sharing ratio (PSR) as a screening device. We then develop a...

This paper models the strategic interaction between a rating agency, a bank and a bank regulator who lacks information about bank asset risk. The regulator can either (1) make bank capital requirements contingent on credit ratings; or (2) set rating-independent capital requirements. Truthful...