Papers at SSRN: http://ssrn.com/author=35100
Geographical 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.
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, Journal of Finance, 2015, with 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 VoxEU. Richmond Federal Reserve article about reaching for yield.
Insolvency Resolution and the Missing High Yield Bond Markets, Review of Financial Studies, 2016, with Jens Josephson.In many countries, poorly functioning bankruptcy procedures force viable but insolvent firms to restructure out of court, where banks may have a bargaining advantage of other creditors. We model the choice of restructuring process and derive implications for the corporate mix of bank and bond financing. Empirical patterns match the model: inefficient bankruptcy in a country is associated with less bond issuance by risky, but not by safe, borrowers there. This pattern holds for both levels and changes in bankruptcy recovery. Our results establish a link between bankruptcy reform and corporate bond markets, especially high yield markets.
Financial Repression in the European Sovereign Debt Crisis, working paper, with Victoria Ivashina *UPDATED August 2016*
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.
Bad Times, Good Credit, working paper, with Marieke Bos and Kasper Roszbach *UPDATED November 2016*
Do information frictions contribute to cyclicality in corporate credit markets? We compare a Swedish bank's ability to predict defaults of its borrowers through the cycle. We find that the bank has more precise information in recessions. We conclude that information frictions in the corporate loan market likely do not contribute to cyclicality.
Covenant-light Contracts and Creditor Coordination, working paper, with Victoria Ivashina
We analyze the unprecedented rise in covenant-light loans (loans whose covenants are not tested continuously) in the US leveraged loan market. Both in the aggregate tim series and in the cross-section at a given time, cov-lite is strongly associated with having many relatively passive investors (mutual funds and collateralized loan obligations, CLOs). we interpret this as evidence that coordination among creditors drives contracting in the loan market.
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.
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").
Non-rating revenue and conflict of interest, Journal of Financial Economics, forthcoming, with Ramin Baghai.
Indian rating agencies have been required to report consulting relationships and the associated financial flows from issuers. We use this setting to examine whether issuers who hire agencies for non-ratings business receive different (better) ratings than those that do not. Issuers who also hire rating agencies on average have ratings that are 0.3 higher (than the ratings they are assigned by a rating agency which they do not hire). This effect is larger when the amount of revenues generated by the consulting is higher. The better ratings are not likely to be explained by differences in perceived default risk.
Reputation and competition in the credit ratings market—evidence from commercial mortgage-backed securities, working paper, with Ramin Baghai. *NEW October 2016*
We examine an incident when, due to a procedual misstake, S&P was shut out of rating commercial mortgage-backed securities (CMBS) starting in mid-2011. Comparing their ratings of particular securities (CMBS tranches) to those of other agencies suggests S&P issued better ratings (closer to AAA) afte the loss of market share (but not before). This evidence is consistent with theories suggesting that rating agencies can inflate ratings to gain market share.
Wealth and Executive Compensation, Journal of Finance, 2006.
Local Dividend Clienteles, Journal of Finance, 2011, with Zoran Ivkovic and Scott Weisbenner.
Estimating the Effects of Large Shareholders Using a Geographic Instrument, Journal of Financial and Quantitative Analysis, 2011, with Henrik Cronqvist and Rudiger Fahlenbrach.
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.
Improving Director Elections, Harvard Business Law Review, 2013, with Guhan Subramanian.
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.
Harvard Law School Blog about fiduciary duties (2010) [Becker Strömberg RFS 2012]
Report for Swedish Ministry of Finance: Credit ratings (2011), also available in Swedish [Becker Milbourn JFE 2011]
Opinion piece about the benefits of proxy access, Huffington Post (2012) [Becker Bergstresser Subramanian JLE 2013]
Summary of paper on payout taxes, in the NBER Digest (2012) [Becker Jacob Jacob JFE 2013]
Cyclicality of Credit Supply, in the European Financial Review (2012) [Becker Ivashina JME 2014]
Reaching for yield, at VoxEU (2012) [Becker Ivashina JF 2015]
Richmond Federal Reserve article about reaching for yield (2013) [Becker Ivashina JF 2015]
SNS Konjunkturråd (2015) "Den Svenska Skulden" (in Swedish)Possible bias in ratings when rating agencies perform consulting services, at Vox EU (2016) [Baghai Becker 2016]
Op ed about tuition fees (in Swedish) in daily Dagens Nyheter (2014)
Blog post "Högre Utbildning i Europa" at Ekonomistas about European higher education (in Swedish)
Book chapter "Reaching for yield, avoiding high yield: the price impact"; on seasonality of the IG-HY yield difference in corporate bond markets (likely driven by regulatory capital), in the book High Yield, Future Tense (2015, ed M Fridson, NYSSA)
Book chapter "How the insurance industry’s asset portfolio responds to regulation" in book The Economics, Regulation and Systemic Risk of Insurance Markets (2017, eds. F Hufeld, R Koijen, C Thimann, Oxford University Press).
Bo Becker >