Research
Research
This paper provides the first evidence of positive bank-to-bank spillovers. I show that geographic linkages between banks that engage in home lending in the same geographic region transmit positive shocks from one bank to another. I exploit shocks to the deposit base of banks located in counties experiencing shale oil booms and show that a non-shocked bank in a non-boom county expands lending more if its linkages have greater exposure to shale booms. Results show that the shock exposure of linkages has a positive impact on home prices of non-boom counties, and non-shocked banks located therein respond with increased lending.
This paper identifies geographic linkages as novel linkages that can transmit negative shocks from one bank to another. I consider linkages between banks that engage in home lending in the same geographic area. Exploiting home price changes initiated by the Great Recession and heterogeneity in such changes across geographic areas to capture variations in a bank’s exposure to negative shocks, I show that a bank contracts lending more if its linkages are more shocked. Results suggest investor-runs as the underlying mechanisms of spillovers: Because similar banks lend in similar markets, investors lose confidence on the quality of banks that are geographically linked with shocked banks and run on them, thus resulting in banks reducing lending.
This paper identifies a novel governance mechanism whereby board directors experience reputational spillovers for their association with poor monitors via board appointments. Because similar individuals associate with one another and learn from one another, associations with poor monitors affect the perceptions of a director’s monitoring quality. I find that directors serving on the same committee of a board experience spillovers. Exploiting negative shocks to outsider perceptions of the monitoring quality of directors serving on the audit committee of firms experiencing securities fraud litigations, I find that at non-shocked firms where they also serve on the audit committee, other audit directors experience spillovers, despite having no direct exposure to the shock: their likelihood of reappointment on the committee and becoming committee chair declines. They are also less likely to obtain new directorships in the labor market.