Bo Becker‎ > ‎

Research

Papers at SSRN: http://ssrn.com/author=35100


NBER working papers: http://www.nber.org/authors_papers/bo_becker


    Corporate credit markets and distress

Georgaphical Segmentation of US capital markets, Journal of Financial Economics, 2007. 
Areas with a higher share of seniors have more deposits. Using this as an instrument, I show that more bank funding is associated with stronger lending, more capital-intensive economic activity locally. Effect has faded with the geographical integration of US commercial banking.

How did increased competition affect credit ratings?, Journal of Financial Economics, 2011, with Todd Milbourn. 
The rise of a third big rating agency, Fitch, provides an opportunity to examine the benefits or costs of competition in a reputation-based market. We find that a higher market share of Fitch is associated with higher and less informative ratings from the two incumbents, Moody's and S&P. This suggests that competition can aggravate conflicts of interest between users of ratings and rating agencies which are paid by issuers.

Fiduciary Duties and Equity-Debtholder Conflicts, Review of Financial Studies, 2012, with Per Strömberg. 
A 1991 legal ruling introduced fiduciary duty toward creditors for corporate officers in Delaware-incorporated firms. We trace the effect on distressed firms which were affected: they became more conservative, in line with a stronger regard for creditors' interests. In response, non-distressed firms incorporated in Delaware could increase leverage and have fewer covenants.

Cyclicality of Credit Supply: Firm Level Evidence, Journal of Monetary Economics, 2014, with Victoria Ivashina. 
When bank loan supply is low, large firms tend to issue bonds instead. We use this observation to infer the time series of the aggregate corporate loan supply. This measure is free from demand effects (bank loans and bonds being close substitutes for large firms) and to compositional shifts in debt issuance (since we track individual firms). We show that loan supply is low at times of slow growth, low bank stock prices, and tight monetary policy. A simpler account, with an application to Europe, at The European Financial Review. DATA.

Reaching for Yield in the Bond Market, forthcoming, Journal of Financewith Victoria Ivashina. 
Many fixed income investors have an incentive to buy higher yielding assets within a category whose assets are treated as identical by investors, principals or regulators. We show such reaching-for-yield among US insurers. Summary at VoxEURichmond Federal Reserve article about reaching for yield.

When formal bankruptcy procedures work poorly (as Djankov Hart Shleifer 2008 document for most countries), restructuring is handled out of court. This favors informed, concentrated creditors (banks) over uninformed, dispersed creditors (bondholders). We develop a model which shows that this leads high risk firms to avoid the bond market completely when bankruptcy is poor (low risk firms, for which distress is unlikely can issue bonds in any country). We document this exact pattern in the data, using cross-country evidence as well as changes around bankruptcy reforms.

Financial Repression in the European Sovereign Debt Crisis, working paper, with Victoria Ivashina
European corporate loan markets have been exceptionally depressed during the European financial crisis, as evidenced by an unusually high share of bond issues in new credit (holding issuer identity fixed). We show that the depth of the contraction in the loan supply is correlated with holdings of sovereign debt on bank balance sheets. In particular, home country sovereign debt appears to use up bank financial resources: financial repression appears likely to share the blame.

    Governance

Wealth and Executive Compensation, Journal of Finance, 2006.
Wealthy CEOs receive stronger incentives. Evidence suggests wealth proxies for risk aversion, not power or skill. 

Local Dividend Clienteles, Journal of Finance, 2011, with Zorkan Ivkovic and Scott Weisbenner. 
Firms with more senior owners pay more dividends, consistent with policies being set to agree with owners' preferences. We use location to instrument for seniors, ruling out reverse causality. The effect is absent for very large firms.

Estimating the Effects of Large Shareholders Using a Geographic Instrument, Journal of Financial and Quantitative Analysis, 2011, with Henrik Cronqvist and Rudiger Fahlenbrach.
We use a geographical instrument (the density of very high net worth individuals) based on tax data to instrument for the likelihood of local firms having non-institutional blockholders. We find that having a block generates lower investment, cash holdings and executive pay, but higher dividends and profitability. The public shares of firms with blockholders become less liquid.

Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable Challenge, Journal of Law and Economics, 2013, with Dan Bergstresser and Guhan Subramanian.
We use an unexpected ruling to examine the value of proxy access, which would have facilitated board representation for non-controlling owners of public firms. The results suggest that the stock market put positive value on such access. This is consistent with agency conflicts between owners and managers and a beneficial governance role of owner representation on corporate boards. Opinion piece in the Huffington Post.

Improving Director Elections, Harvard Business Law Review, 2013, with Guhan Subramanian.
Corporate boards in the U.S. do not reflect shareholder democracy, typically consisting of incumbents nominating themselves to uncontested elections. We document the lack of competition and contest for the last ten years, and show that none of the many recent reforms (e.g., majority voting, eProxy, etc.) have been impactful in this regard.

    Other Corporate Finance

The Effect of Financial Development on the Investment-Cash Flow Relationship: Cross-Country Evidence from Europe, The B.E. Journal of Economic Analysis & Policy, 2010, with Jagadeesh Sivadasan. 
Financial development, across Europe, predicts higher investment for constrained firms. The effect is absent for subsidiaries with access to internal capital markets, suggesting this is not due to variation in investment opportunities.

Payout taxes and the allocation of investment, Journal of Financial Economics, 2013, with Marcus Jacob and Martin Jacob. 
Taxes on corporate payout are predicted to raise the cost of equity for firms that fund investment with outside equity, but not for those that can fund investment from profits. Consistent with this, we document that countries and periods with high taxes on dividends and repurchases see investment distorted toward firms with internal cash flow. Summary in the NBER Digest. 

Financial Development, Fixed Costs and International Trade, Review of Corporate Finance Studies, 2013, with Jinzhu Chen and David Greenberg. 
Better financial development helps exports by facilitating firm-level intangible investments. Exports become more responsive to exchange rates with better finance. Crisis in 2008-2010 serves as example.

Regulatory reform and risk-taking, working paper, with Marcus Opp.
Capital requirements for the US insurance industry's holdings off mortgage-backed securities (MBS) were no longer based on ratings, strating in 2009 (RMBS) and 2010 (CMBS). We examine the first few years of the new system, which relies on a proprietary risk measure, purchased from PIMCO and Blackrock. We show that (a) capital requirements were massively reduced (e.g. by around 80% in 2012) and (b) across securities, the new capital requirements are less related to default risk than ratings are. We conclude that the regulatory change most likely reflect forbearance/macroprudential concerns, but at the cost of a permanent reduction of capital requirements. (A previous version was entitled "Replacing Ratings").


    Accessible pieces, blog posts, and selected media coverage [relevant paper(s)]

Harvard Law School Blog about fiduciary duties (2010) [Becker Stromberg 2012]
Report for Swedish Ministry of Finance: Credit ratings (2011), also available in Swedish [Becker Milbourn 2011]
Opinion piece about the benefits of proxy access, Huffington Post (2012) [
Becker Bergstresser Subramanian 2013]
Summary of paper on payout taxes, in the NBER Digest (2012) [Becker Jacob Jacob 2013]
Cyclicality of Credit Supply, in the European Financial Review (2012) [Becker Ivashina forthc., JME]

Reaching for yield, at VoxEU (2012) [Becker Ivashina forthc., JF]
Richmond Federal Reserve article about reaching for yield (2013) [Becker Ivashina forthc., JF]