Research Interests

Corporate Finance, Financial Intermediation, Organizational Economics


Bank Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment (with Reint Gropp, Steven Ongena, and Carlo Wix), Review of Financial Studies, 2019, Volume 32(1), 266–299.

Press: HLS

Working papers

Financial regulation: What the finance industry wants and how it gets it (with Renée Adams)

We examine whether and how campaign contributions by the finance sector influence the legislative process. We derive measures of policy positions of the finance industry using a text-based analysis of finance trade association letters pertaining to 927 bills scheduled for consideration in Congress between 1999 and 2018. Our data suggests that the interests of the finance industry extend beyond financial regulation. Fifty percent of positions by finance trade associations concern other policy areas. Our results suggest that the influence of the industry extends over the entire legislative process, from the initial sponsoring of a bill through the amendment process to the passage of the bill after a vote. Using a variety of fixed effect estimators, we isolate an effect of money that is separate from Congress-member and party preferences. Using outcomes of close elections, we isolate an effect of money that is separate from constituent preferences. Congress members who act in line with the policy preferences of the finance industry receive a higher share of finance industry campaign contributions in the next election cycle. Our results suggest that focusing on financial regulation and congressional voting alone is not sufficient for quantifying the influence of the finance sector on policy outcomes. More generally, public expressions of policy preferences appear to play an important role in linking campaign contributions to legislative rulemaking.

Arbitraging Regulatory Bank Capital: Evidence from a Quasi-Natural Experiment (with Reint Gropp, Steven Ongena, Ines Simac, Carlo Wix)

We study banks’ incentives to engage in regulatory arbitrage to increase their capital ratios. To calculate their regulatory capital, banks have to apply various \regulatory adjustments” to their book equity. Using the sudden increase in capital requirements during the 2011 EBA capital exercise as a quasi-natural experiment, we nd that treated banks put the rules governing these adjustments “to good use”, thereby increasing their regulatory capital without a commensurate increase in their book equity. We provide evidence that this form of regulatory arbitrage is more pronounced in countries where national supervisors have more discretion to engage in regulatory forbearance.

Bargaining with a Bank

This paper examines bargaining as a mechanism to resolve information problems. To guide the analysis, I develop a parsimonious model of a credit negotiation between a bank and firms with varying impatience. In equilibrium, impatient firms accept the bank’s offer immediately, while patient firms wait and negotiate price adjustments. I test the empirical predictions using a hand-collected dataset on credit line negotiations. Firms signing the bank’s offer right away draw down their credit line after origination and default more than late signers. Late signers negotiate price adjustments more frequently, and, consistent with the model, these adjustments predict better ex post performance.

Strategic Use of Information and the Allocation of Authority

This paper investigates how agents use their information strategically to affect the allocation of decision-making authority. The empirical analysis uses a unique data set on credit applications of a large commercial bank. Loan officers could use multiple scoring trials to adjust the credit application and game the rules that determine the hierarchical distance between the loan officer and the loan approving officer. By exploiting rule changes which increased the hierarchical distance for a subset of the credit applications, the paper shows that loan officers use their information to alter the allocation of authority in the opposite direction of the imposed rule changes. In addition, the paper shows that loan officer have fewer incentives to game the rules after they lost the authority to approve high quality credit applications. The results show that (re)allocating authority in organizations may be difficult if information collecting agents could use their information strategically to affect the allocation of authority.

Is Loan Officer Discretion Adviced When Viewing Soft Information? (with Hans Degryse, Jose Liberti and Steven Ongena)

We show that the collection of soft information on the activities of small and medium sized enterprises and the exercising of loan officer discretion helps in monitoring these borrowers. We measure loan officer discretion as the deviations in granted loan amounts from the amounts stemming from the bank’s own credit scoring model. Soft information guides discretion, and helps in predicting loan default even when controlling for all available public and private information. Loan officers use soft information when deciding on the loan amount that is being granted: A one standard deviation of more favourable soft information results in the granting of a 16 percent higher loan amount. Beyond using soft information, loan officer discretion per se neither improves nor deteriorates loan outcomes.

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