Publication:

Berger, A., El Ghoul, S., Guedhami, O., and Guo, J. (2021). Corporate capital structure and firm value: International evidence on the special roles of bank debt, Review

of Corporate Finance 1, 1-41 (Lead article of Inaugural Issue).

 Abstract:

We contribute to the corporate capital structure and bank specialness literature by studying the effects of bank debt on corporate value. We apply a novel methodology to almost 60,000 firms in 110 countries over 17 years—over 300,000 total observations. We find that bank term loans and credit lines are strongly positively associated with firm value, but only when employed very intensively—at 90% or more of total corporate debt. These effects are consistent with bank specialness at high-intensity levels. These findings support previously untested theoretical predictions that bank specialness would be stronger or exist only at high bank debt intensities. Our results hold broadly but are stronger for credit-constrained firms—small firms and those in low-income countries. Channel analysis suggests that term loans boost short-term firm performance more, while credit lines better promote long-run growth. The findings suggest future research topics and have policy implications, particularly during the COVID-19 crisis.

Working Papers:

Guo, J. (2023). Not All Bank Liquidity Is Created Equal: Evidence from Exogenous Shocks During COVID. Job Market Paper

Abstract:

A fundamental role of banks is liquidity creation for their customers. Total bank liquidity creation in the U.S. grew modestly during COVID, but the mix among components changed dramatically. Assetside liquidity creation dropped below zero, while the liability side increased significantly. I investigate these changes in composition and find that not all bank liquidity is created equal. I use unique bank liquidity creation data and two exogenous shocks to demand, the shock from disease, and the shock from government shutdown mandates. I find that both shocks shift liquidity creation from the asset side to the liability side—cash and securities increased while bank loans decreased on the asset side, and liquid deposits surged on the liability side. This shift reduced bank profits and increased bank risks. 

Guo, J. (2023). Bank-Borrower Relationships Originated from Supply-Chain Relationships: A New Concept and Empirical Tests Employing a Network Approach. 

Abstract:

How are bank-borrower relationships originated, and does the origin influence the treatment of borrowers? I address these two key questions from a network perspective, focusing on bank-borrower relationships generated from existing supply-chain relationships. Using stochastic actor-oriented models adapted from the social network literature, I tackle the issue of endogenous relationship evolution in networks. I find that supply-chain relationships create bank-borrower relationships via multilevel closure where firms borrow from the banks of their supply-chain partners. These bank-borrower relationships bring about relatively favorable terms for borrowers on syndicated loans—lower interest spreads, larger amounts, and longer maturities. Surprisingly, these benefits occur only when the multilevel closure is achieved with participants in loan syndicates as opposed to with lead banks. The results show strong influences of participant banks in contract determination in the market flex model. 

-Accepted by Doctoral Consortium, FMA 2023, Chicago.

Berger, A. N., Guo, J., and Stanley, B. (2023). For Better or Worse? Evidence from Exogenous Turnover of Executives.

Abstract:

Banking organizations are extraordinarily difficult to manage, and research and policy stakes are high for whether executive managers elicit high performances from these firms. We address whether banking executives impact bank performance for better or worse, tackling three empirical challenges. We employ exogenous external shocks that trigger managerial turnover to address identification concerns; use single-industry data to avoid biases from inter-industry differences; and draw data from government-mandated reports to investigate performance channels with detail and accuracy not generally available. We find banking managers strongly improve market and accounting performance measures through increased asset turnover and improved product quality.

-Accepted by FMA, 2023

-Semi-finalist of Best Paper Award, FMA 2023

Work In Progress:

Berger A.N., Guo, J., Karolyi, S., Pour Rostami L. (2023), Blocking the Deposit-Credit Chain: Cryptocurrencies, Deposits, and the Real Economy.

Abstract:

We expand the bank liquidity creation concept from its current focus on bank portfolios to include providing liquidity to secondary markets for financial assets. We test opposing theories of the effects of bank capital on secondary market liquidity of syndicated loans. We find that higher bank capital significantly increases secondary market loan liquidity, consistent with risk absorption theory. The data also support the loan riskiness and bank balance sheet quality channels behind this theory. We use the exogenous capital shock from the 2012 JPMorgan Chase ‘London Whale’ incident to help establish causality. Our findings have important research and policy implications.

Berger A.N., Guo, J., Karolyi, S., Pour Rostami L. (2023), A Public Market Test of Private Credit Markets: The Bright Side Versus the Dark Side of Relationship Banking.

Abstract:

We show that households’ demand for deposits declines when cryptocurrency returns are high, reducing bank lending and employment. We identify this channel using heterogeneity in banks’ geographic exposures to households with cryptocurrency investments. Banks exposed to crypto-investing households have deposit outflows when cryptocurrency returns are high and reduce lending more in those and other markets. Our findings highlight a novel indirect exposure of banks to cryptocurrency markets and illustrate how cryptocurrency demand can have real effects by weakening traditional financial intermediation.