Articles scientifiques

(Interstate) banking and (interstate) trade: Does real integration follow financial integration?


Journal of Financial Economics

avril 2012, vol. 104, n°1, pp.89-117

Départements : Economie et Sciences de la décision, GREGHEC (CNRS), Finance

Mots clés : Trade; Banking deregulation; Finance'growth nexus

We examine whether financial sector integration leads to real sector integration through trade. Our conjecture is that financial sector integration between two regions leads to higher trade flows between them. In our stylized model, this happens because banks with presence in the two regions are better able to assess risks and charge the appropriate premiums for trade-related projects pertinent for the two markets; whereas the same banks charge higher average interest rates for projects that involve trade to other markets from which they are absent. We use the deregulation of the inter-state banking in the U.S. as a natural experiment to test the implication of our theory model with the state-level Commodity Flow Survey data. Our empirical evidence, based on difference-in-difference and GMM2S-IV estimates, indicates that there is a trade channel associated with the finance-growth nexus: the trade share of state-pairs that have opened their banking market to each other's financial institutions increases by 9.2% relative to the trade shares of state-pairs that did not. Looking at actual entry data, we estimate that bank entry within a trading pair increases trade in this pair by 54% relative to those that do not have such a bank link. This is probably the lower bound estimate for international trade barriers stemming from the lack of a unified banking system.

A Global Equilibrium Asset Pricing Model with Home Preference


Management Science

février 2012, vol. 58, n°2, pp.273-292

Départements : Finance

Mots clés : International asset pricing, Home bias, Familiarity, Regret

We develop a global equilibrium asset pricing model assuming that investors suffer from foreign aversion, a preference for home assets based on familiarity. Using a utility formulation inspired by regret theory, we derive closed-form solutions. When the degree of foreign aversion is high in a given country, investors place a high valuation on domestic equity, which results in a lower expected return. Thus, the model generates the simple prediction that a country’s degree of home bias and the expected return of its domestic assets should be inversely related. Our predicted relation between the degree of home bias and a country’s expected return has the opposite sign predicted by models that assume some form of market segmentation. Using IMF portfolio data we find that expected returns are negatively related to home bias

Clearing, Counterparty Risk, and Aggregate Risk


International Monetary Fund (IMF) Economic Review

juillet 2012, vol. 60, n°2, pp.193-222

Départements : Finance

The paper studies the optimal design of clearing systems. The paper analyzes how counterparty risk should be allocated, whether traders should be fully insured against that risk, and how moral hazard affects the optimal allocation of risk. The main advantage of centralized clearing, as opposed to no or decentralized clearing, is the mutualization of risk. While mutualization fully insures idiosyncratic risk, it cannot provide insurance against aggregate risk. When the latter is significant, it is efficient that protection buyers exert effort to find robust counterparties, whose low default risk makes it possible for the clearing system to withstand aggregate shocks. When this effort is unobservable, incentive compatibility requires that protection buyers retain some exposure to counterparty risk even with centralized clearing

Competition and the Cost of Debt


Journal of Financial Economics

septembre 2012, vol. 105, n°3, pp.661-682

Départements : Finance

Mots clés : Product market competition, Import tariffs, Cost of debt, Bank loans

This paper empirically shows that the cost of bank debt is systematically higher for firms that operate in competitive product markets. Using various proxies for product market competition, and reductions of import tariff rates to capture exogenous changes to a firm's competitive environment, I find that competition has a significantly positive effect on the cost of bank debt. Moreover, the analysis reveals that the effect of competition is greater in industries in which small firms face financially strong rivals, in industries with intense strategic interactions between firms, and in illiquid industries. Overall, these findings suggest that banks price financial contracts by taking into account the risk that arises from product market competition

Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis


Review of Financial Studies

novembre 2012, vol. 25, n°11, pp.3305-3350

Départements : Finance, GREGHEC (CNRS)

accepté le 28 juin 2012Cross-listed firms in the United States have a higher investment-to-price sensitivity than do firms that never cross-list. This difference is strong, does not exist prior to the cross-listing date, and does not vanish afterward. Moreover, it does not appear to be primarily driven by improvements in governance, disclosure, and access to capital associated with a U.S. cross-listing. Instead, we argue that a cross-listing enhances managers' reliance on stock prices because it makes stock prices more informative to them. Consistent with this explanation, U.S. cross-listings that are more likely to strengthen the informativeness of stock prices for managers feature a higher investment-to-price sensitivity.