Research
Publications
(Journal of Financial Intermediation)
Most regulators grant contingent convertible bonds (CoCos) the status of equity. Theory however suggests that these securities can distort incentives via inducing debt overhang and risk shifting. In this paper we therefore theoretically model how the degree of this distortion varies with bank risk. Our model predicts that riskier banks face higher debt overhang from CoCos. Next, analyzing a comprehensive database of CoCo issuance in Europe, we empirically test the predictions of our model. We find that banks with lower risk are more likely to issue CoCos than their riskier counterparts. Since in the current regulatory framework of Basel III banks are expected to raise equity prior to CoCo conversion, future debt overhang makes CoCos an expensive source of capital. Thus, riskier banks will opt for equity issuance over CoCos.
Presentations: AFFI 2018, ÖFG Research Group on Financial Crises 2018, Swiss Winter Conference on Financial Intermediation 2019 (Poster), Vienna Graduate School of Finance
(Journal of Financial Intermediation)
Firms insure themselves from liquidity shocks by contracting on credit lines from banks. I document novel empirical evidence on how the risk of contract nonperformance by banks is priced. Firms pay a higher price for loan commitments from safer banks. A one standard deviation increase in the cross-sectional mean of bank capital increases the commitment fees by 5%. To investigate a potential causal effect of lender stability on commitment fees, I exploit exogenous variation in the market value of banks’ assets from natural disasters. The sensitivity of the fees is higher for firms with higher short-term liabilities and higher income uncertainty.
Presentations: Australian Finance & Banking Conference 2019, Reserve Bank of India, Vienna Graduate School of Finance seminar, KU Leuven (Brown Bag), University of Zurich (Brown Bag), Oxford Finance Job Market Workshop 2018
"Still 'Too Much, Too Late': Provisioning for Expected Loan Losses" with Roman Goncharenko (Forthcoming)
(International Journal of Central Banking)
We investigate the effect of earlier loan loss recognition on bank loan supply and stability. Although earlier loss recognition improves stability by strengthening the overall loss absorption capacity, it may amplify lending procyclicality. Under the expected provisioning approach, the bank recognizes the bulk of future losses after the deterioration of the aggregate state which constrains its lending capacity during bad times. The tax-deductibility of expected provisions further amplifies procyclicality. The calibration of our model predicts an economically significant increase in lending procyclicality under the new accounting standards of IFRS 9 and US GAAP which adopt the expected provision approach.
Presentations: IFABS (Angers) 2019, 27th Finance Forum (Madrid) 2019, 2nd Endless Summer Conference (Greece) 2019, KU Leuven, Vienna Graduate School of Finance
Working Papers
(Under Review)
This paper explores how a job guarantee welfare program interacts with credit markets. We analyze the impact of a country-wide job guarantee program, launched in India in 2006. Exploiting the staggered implementation of the program we estimate the treatment effect of the program on household and commercial borrowing. We find that the program led to an increase of up to 23 per cent in credit outstanding in districts which received the treatment first. Personal borrowing increased by up to 27 per cent and commercial borrowing by around 18 to 20 per cent. We do not find conclusive evidence of any effect on later treated districts. We rationalize our findings as relaxation of credit supply constraints because the program reduced information asymmetries between banks and rural households. Our findings shed light on the complementary relation between credit markets and welfare states.
Presentations: IIPF(2022) Linz
This paper shows that supply chain connections influence the adoption of climate-responsible policies. Using granular firm-level data, we show that suppliers adopt climate actions (such as emission initiatives and emission targets) and climate governance measures (such as board oversight and explicit managerial incentives) following customer firms' adoption of emission reduction targets. Such transmissions are driven by relative bargaining power rather than through a reconfiguration of customer firms' supply chain. However, we find no effect on adopting suppliers' climate outcomes or its leading indicators. This policy-outcome gap is lower when suppliers have higher gross margins, and customers can better monitor suppliers' climate actions. Our results have important implications for public policies on the environmental due diligence of supply chains.
Presentations: American Economic Association (2023) - New Orleans, FMA Europe (2023), BEC (2023)