We examine the effect of direct mail (commonly referred to as junk mail) advertising on individual financial decisions by studying consumer choice of home equity debt contracts. Consistent with the theoretical predictions, we find that financial variables underlying the relative pricing of debt contracts are the leading factors explaining consumers’ home equity debt choice. Furthermore, we also...

This paper investigates the relation between investment analyst recommendations and merger completion. Unlike the new issues market, we argue analysts’ incentives are skewed to issue recommendations that ensure merger completion rather than maximize the overall deal value. Using a comprehensive sample of completed and withdrawn mergers, we observe the direction and affiliation of recommendation...

The study examines the economic consequences of regulated disclosure in the banking sector, focusing on its impacts on the stability of banking systems. In a cross-country study of banking systems across 49 countries in the 90s, I find that banking crises are less likely in countries with greater regulated disclosure and transparency. Specifically, banking systems are less vulnerable to crisis ...

This paper extends Nolan and Thoenissen (2009), hence NT, model with an explicit financial intermediary that transfer funds from households to entrepreneurs subject to a well defined loan production function. The loan productivity shock is treated as the supply side financial disturbance. Together with NT’s net worth shock that resembles the credit demand perturbation, both of the two-sided sho...

Cooperative banks are an important, and growing, part of many financial systems. The paper analyzes empirically the role of cooperative banks in financial stability. Contrary to some suggestions in the literature, we find that cooperative banks are more stable than commercial banks. This finding is due to much lower volatility of the cooperative banks’ returns, which more than offsets their low...

Credit Risk Analysis and Security Design* This Paper considers the potential cost of subjective judgement and discretion in credit decisions. We show that subjectivity and discretion in the evaluation of borrowers create an incentive problem on the part of the lender. The lender’s incentives to accept or reject a borrower depend only on the value of their own claims, not on the total value of t...

This paper models loan rate-setting behavior, taking into account the product pricing and performance of the borrowing firm, and also calculates the bank’s loan-risk sensitive equity values. The lending function creates the need to model bank equity as a capped call option, which captures the credit risk directly related to management of a firm’s operations. When the product price set by the bo...

Article history: Received 4 October 2007 Received in revised form 11 August 2008 Accepted 11 November 2008 Available online 24 November 2008 This paper develops a count data model for credit scoring which allows the estimation of default probabilities using incomplete contracts data. The main advantage of the proposed approach is that it permits a more efficient use of the data, including that ...

This study considers the impact of trustworthiness on financial markets at the individual transaction level. We employ a natural experiment using the peer-to-peer lending site, Prosper.com. We find that borrowers who are perceived as less trustworthy are economically and significantly less likely to have their loan requests filled, even controlling for physical attractiveness, detailed demograp...

We examine the relationship between the number of bank relationships and firms’ performance, evaluating possible differential effects related to firms’ size. Our sample of firms from Italy includes many small firms, 99 percent of which are not listed and for which bank debt is a major source of financing. In the sample, 4 percent of the firms have a single bank relationship, and 66 percent of t...