This paper examines the association between government ownership and bank stability over 1997-2010 across a sample of 103 countries. With a continuous variable to proxy for government ownership, our system GMM estimates indicate that the association between government ownership and bank stability depends on a country’s economic development and regulatory quality. In developed, high income count...

A standard assumption of structural models of default is that firms assets evolve exogenously. In this paper, we document the importance of accounting for investment options in models of credit risk. In the presence of financing and investment frictions, firm-level variables which proxy for asset composition carry explanatory power for credit spreads beyond leverage. As a result, cross-sectiona...

In this note we represent the well known discrete time stochastic volatility (SV) model with a leverage effect and the SV model of Jacquier, Polson and Rossi (JPR) (2002) using Gaussian nonlinear state space forms with uncorrelated measurement and transition errors. With the new representations, we show that the JPR specification does not necessarily lead to a leverage effect and hence is not t...

We examine the dynamic effects of TFP news shocks in context frictions financial markets. document two new facts. First, a shock to future generates significant decline credit spread indicators along with robust improvement supply indicators. Second, we establish tight link between and that explain majority un-forecastable movements A DSGE model enriched sector Gertler-Kiyotaki-Karadi type very...

Risk Tolerance and Entrepreneurship A tradition from Knight (1921) argues that more risk tolerant individuals are more likely to become entrepreneurs, but perform worse. We test these predictions with two risk tolerance proxies: stock market participation and personal leverage. Using investment data for 400,000 individuals, we find that common stock investors are around 50 percent more likely t...

The purpose of this paper is to empirically investigate the interaction between hedging, financing, and investment decisions. This work is relevant in that theoretical predictions are not necessarily identical to those in the case where only two decisions are being made. We argue that the way in which hedging affects the firms’ financing and investing decisions differs for firms with different ...

In this note we represent the well known discrete time stochastic volatility (SV) model with a leverage effect and the SV model of Jacquier, Polson and Rossi (JPR) (2002) using Gaussian nonlinear state space forms with uncorrelated measurement and transition errors. With the new representations, we show that the JPR specification does not necessarily lead to a leverage effect and hence is not t...

Real estate investments are typically characterized by high degrees of leverage and long loan tenures. In perfect capital markets, leverage has no impact on the investment decision apart from tax considerations. However, the mortgage financing market is imperfect in many countries. In the presence of market imperfections, an optimal holding period exists for real property investments. We provid...

This paper studies the behavior of leverage ratios in a dynamic trade-off model with real frictions. Firms underutilize debt when financing investment to retain financial flexibility. Underutilization of debt persists even when firms exercise their last investment options, and it is more (less) severe for more back-loaded (front-loaded) investment opportunities. Thus, leverage dynamics cruciall...

This paper studies bank loans over the business cycles in Iran to determine the role of Iranian banks in stabilizing credit. By estimating the long-run relations using dynamic OLS and fully modified OLS estimators, the findings show that real bank lending is positively related to real GDP in the long-run providing evidences of the pro-cyclicality of bank lending in Iran. Hence, Iranian banking ...