We study how the introduction of a central bank-issued digital currency affects interest rates, the level of economic activity, and welfare in a model where both central bank money and private bank deposits are used in exchange. Banks in our model are financially constrained and the liquidity premium on bank deposits affects the level of aggregate investment. We study the optimal design of a di...

When a company goes public it is standard practice that more shares are allocated than issued. The resulting short position that the offering syndicate holds is commonly filled either by aftermarket trading or by the execution of the so-called overallotment option, a standard feature of IPO arrangements. We propose a simple theoretical model to study the implications of this combination of shor...

In addition to corporate executives, venture capitalists (VCs) have been receiving hot IPO shares from investment banks. The cozy relationship between VCs and investment banks calls in question of the well-documented certification role of VCs in IPO market. Using IPO data from 1988 through 1999, we document strong empirical evidence against the certification role of VCs. Instead, we find that V...

Traditionally, policymakers, communities, and industry have regarded the Community Reinvestment Act (“CRA”) as a positive mandate for banks and thrifts to do good by increasing investment in lowand moderate-income (“LMI”) neighborhoods. The specific purpose of CRA is to encourage federally insured depository institutions “to help meet the credit needs of the local communities in which they are ...

This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm‟s assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, w...

The purpose of this paper is to empirically examine the nature of bond underwriting syndicates organized by commercial banks. I use a unique data set from Japan during a prewar period when banks were permitted to underwrite corporate bonds. The paper shows that risk aversion led to a greater tendency for investment houses to form a syndicate than commercial banks. The evidence is consistent wit...

Modern trade theory emphasizes firm-level productivity differentials to explain the cross-border activities of non-financial firms. This study tests whether a productivity pecking order also determines international banking activities. Using a novel dataset that contains all German banks’ international activities, we estimate the ordered probability of a presence abroad (extensive margin) and t...

Evidence suggests that banks, like firms, face financial frictions when raising funds. The authors develop a quantitative, monetary business cycle model in which agency problems affect both the relationship between banks and firms and the relationship between banks and their depositors. As a result, bank capital and entrepreneurial net worth jointly determine aggregate investment, and are impor...

This paper incorporates the observation that in banking industries, debts are usually affected by current return and cannot be predetermined before competition. In a portfolio choice model, we have analyzed how two banks sequentially decide their capital structures through choosing equity levels, and then the levels of risky investment which is subject to the rival’s competition. Taking equity ...

We address two puzzles of the IPO literature: (1) Why do investment banks earn positive profits in a competitive market? And (2) Why do banks receive lower gross spreads in VC backed IPOs? We model the IPO procedure as a two-stage signaling game. In the second stage banks set offer prices given their private information and the level of the spread. Issuers anticipate the bank’s pricing decision...