Financial Institutions

From the publisher:: Expanding upon the literature of new institutional economics, the first part of this study stresses the significance of imperfections in information, bankruptcy and banks. The second part examines the policy implications of the new paradigm emphasizing loanable fund demand and supply, and demonstrates its relevance to our understanding of two recent historical episodes - the East Asian financial crisis and the 1991 U.S. recession and subsequent recovery and boom.

From the publisher:From the author of Globalization and Its Discontents comes a history of the boom and bust of the 1990s - how and why it happened, how the seeds of destruction were sown in the midst of apparent prosperity, and how America and the world are still failing to learn the lessons from what went wrong. One reason the invisible hand of market economics may be invisible is that it may not exist. So says former World Bank economist Stiglitz in his analysis of what went wrong with the economic boom and bust of the 1990s.

In this study, we use cross-sectional regressions to estimate the value of the debt tax shield. Recognizing that debt is correlated with the value of operations along nontax dimensions, we estimate reverse regressions in which we regress future profitability on firm value and debt rather than regressing firm value on debt and profitability. Reversing the regressions mitigates bias and facilitates the use of market information to control for differences in risk and expected growth.

We use a matched sample of individual loans, borrowers, and banks to investigate the effect of banks' financial health on the cost of loans, controlling for borrower risk and information costs. Our principal finding is that low-capital banks tend to charge higher loan rates than well-capitalized banks. This effect is primarily associated with firms for which information costs are likely to be important, and, when borrowing from weak banks, these firms tend to hold more cash.

This paper analyzes a social insurance system that integrates unemployment insurance with a pension program, allowing workers to borrow against their future wage income to finance consumption during an unemployment episode and thus improving search incentives while reducing the risks arising from unemployment. This paper identifies the conditions under which integration improves welfare and the factors which determine the optimal degree of integration.

I focus on the valuation of the shares of a firm that has intangible assets. As most firms have some form of intangible asset that is not on the balance sheet, my talk deals with the general principles of vaulation when balance sheets are imperfect.