Florian Heider's homepage
This is my private site and the views expressed in the material on these pages are my own and do not reflect those of the European Central Bank (my official webpage
Contact: florian *dot* heider *at* gmail *dot* com [PGP key
- Corporate Finance
- Banking, Interbank Markets
- Market infrastructures
Published research in refereed journals:
(links are to final or near-final versions on SSRN, for published versions see journal sites)
Analyzes optimal hedging contracts between a protection buyer and protection sellers. Such contracts may turn into liabilities and undermine incentives of protection sellers not to take risks. Margins help to restore incentives. [Featured in Financial Times Alphaville (11.1.2012)]
Examines the impact of ECB liquidity provision on the trading of liquidity among banks since the Lehman Bankruptcy. More central bank liquidity reduces the demand for liquidity in the market but also increases the supply in stressed countries, especially during the height of the sovereign debt crisis.
Uses staggered corporate income tax rates across U.S. states to show that tax considerations are a first-order determinant of firms’ capital structure choices. Consistent with dynamic trade-off theory, the tax sensitivity of leverage is asymmetric (firms do not reduce leverage in response to tax cuts) and leverage exhibits hysteresis.
Asymmetric information about banks' illiquid assets leads to a malfunctioning of unsecured interbank markets where banks smooth idiosyncratic liquidity shocks.
- Loan prospecting, with Roman Inderst, Review of Financial Studies, 25, 2381-2415 (2012).
Loan officers need to prospect for loans and transmit the soft information they obtain in the process. Competition worsens the bank's internal agency problem, reduces loan officers to salespeople with steep, volume-based incentives and lowers lending standards.
Central clearing platforms offer mutualization of counterparty risk. But this insurance undermines institutions' incentives to search for robust counterparties, which is necessary to insure against aggregate risk. There exists a trade-off between mutualization of risk and the system's ability to withstand aggregate risk.
Firms that are uncertain about the risk of their operations issue equity to close their financing deficit. The evidence points to an adverse selection cost of debt.
Uses a corporate-finance empirical approach to examine the cross-sectional and time-series variation in the capital structure of large, publicly traded US and European banks. The findings are inconsistent with a first-order effect of capital regulation.
Introduces an agency cost of "winner-picking" in multi-divisional firms that can lead to a conglomerate discount even though the reallocation of resources is ex-post efficient.
Explains the decoupling of secured and unsecured rates in the interbank market during the 2007-09 financial crisis and emphasizes the importance of the availability of collateral.
Current working papers:
We model the interaction between optimal margins and fire-sale prices (when assets are sold to satisfy margin calls). The supply of assets can be downward-sloping, which creates multiple welfare-ranked equilibria. The pecuniary externality present when selling assets means that margins are used too much relative to the constrained-efficient outcome.
In a semi-strong efficient stock market, the stock price is a sufficient statistic for CEO effort with respect to other public information. But the stock price does not fully reflect the value consequences of CEO shirking. To deter such off-equilibrium behaviour, the CEO must receive a lot of stock-based pay. Our model can explain the prevalence of stock-based pay in hard-to-value firms despite market efficiency, efficient contracting and the absence of manipulation.
Banks need to hold liquidity (reserves) for prudential reasons. Holding liquid assets gives banks the right incentives to invest in risk management. Once banks operate under deposit insurance (which we derive from first principles) or trade on the interbank market (to insure against idiosyncratic liquidity risk), holding liquid assets must be regulated. Our theory of liquidity requirements avoids "Goodhart's paradox" and bears little resemblance to current Basel-type liquidity regulation.