Cahiers de recherche

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Départements : Finance, GREGHEC (CNRS)

This paper explores the impact of regulations imposed by the Chinese government on the development of the Chinese IPO market between 2000 and 2011. Some of these regulations have affected the population of Chinese firms that went public domestically, some firms being excluding from the domestic IPO markets, others being induced to list abroad. We also provide evidence that, because of limits on prices and proceeds, the Chinese IPO market does not attract companies that need cash the most. Some IPO firms that raise large amounts of cash decide to pay large dividends shortly after going public, which investors interpret as evidence that their growth options were overestimated at the time of their IPO.

Mots clés : Regulation, Emerging markets, Initial Public Offerings

Départements : Finance, GREGHEC (CNRS)

We analyze the nature and the implications of debt financing of political campaigns. Debt is a significant source of funding of political campaigns. Almost half of all campaigns rely on some form of debt. Indebted politicians raise more funds, especially from special interest groups, in subsequent election cycles. Moreover, indebted legislators who receive funds from labor organization are more likely to take pro-labor policy positions in Congress. This evidence is consistent with the view that indebted politicians trade political favors in return for additional campaign funds from special interest groups. The results suggest that debt distorts political decision making by forcing indebted politicians to cater to contributors’ demands.

Mots clés : debt financing, political campaigns, political decision making

Départements : Finance, GREGHEC (CNRS)

We study the supervision of multinational banks (MNBs), allowing for either national or supranational supervision. National supervision leads to insufficient monitoring of MNBs due to a coordination problem between supervisors. Supranational supervision solves this problem and generates more monitoring. However, this increased monitoring can have unintended consequences, as it also affects the choice of foreign representation. Indeed, supranational supervision encourages MNBs to expand abroad using branches rather than subsidiaries, resulting in more pressure on their domestic deposit insurance fund. In some cases, it discourages foreign expansion altogether, so that financial integration paradoxically decreases. Our framework has implications on the design of supervisory arrangements for MNBs, the European Single Supervisory Mechanism being a prominent example.

Mots clés : Cross-Border Banks, Multinational banks, Supervision, Monitoring, Regulation, Banking Union

Départements : Finance, GREGHEC (CNRS)

We present a model of trading in the art auction market. Agents make purchase and sale decisions based on the relative magnitude of their private use value. This generates an endogenous negative relation between holding periods and financial returns. In economic expansions consignment volume goes up, while reserve prices become less restrictive. Our model of endogenous trading finds empirical support in historical art transaction data. Finally, we show that transaction-based price indexes provide biased estimates of art’s volatility and covariance with the economy, and can be expected to suffer from index revision problems.

Mots clés : art; auctions; endogenous trading; price indexes; private values

Départements : Finance, GREGHEC (CNRS)

We consider private-value auctions in the presence of exogenous participation costs and secret reserve prices endogenously set by sellers whose valuation of the item equals zero. We show that in first-price auctions there is an equilibrium for any arbitrary reserve price level. In second-price auctions, the only equilibrium with truthful bidding is a situation where no buyer enters and the seller chooses a reserve price that deters entry.

Départements : Finance

I study the implications of skewness in labor income risk for portfolio choices over the life-cycle. First, I show that French households that face higher left-skewness have lower equity holdings. Then, I calibrate a life-cycle model that incorporates the cyclical skewness observed in US data. The negative effect of skewness on the equity share counteracts the low beta of labor income shocks, in particular for households with modest financial wealth relative to human capital. In the baseline calibration, and holding variance constant, skewness turns upside down the predicted life-cycle profile of the equity share and produces a hump-shaped relationship with age

Mots clés : Household finance, Labor income risk, Portfolio choices, Human capital, Life-cycle model

Départements : Finance, GREGHEC (CNRS)

We examine how the merger between two European megabanks affects credit supply to small and medium-sized businesses. Using loan-level and firm-level data from the credit register, we exploit variation in the merging banks' market overlap to isolate the competition effect of the merger. We find that in local markets in which the merging banks' market shares overlap, the merged bank decreases the supply of credit to both existing firms and to new firms. This effect is not offset by other banks increasing their lending, leading to an overall decline in bank credit. This reduction in credit supply is associated with higher firm exit. However, for the rest of firms that do not exit, the merger has no adverse real effects on investment, employment, or firm entry

Mots clés : Bank megamerger; Banking competition; Credit Supply

Départements : Finance, GREGHEC (CNRS)

Banks heavily rely on wholesale funding – a source of funds characterized as unstable. We explore the actual fragility of wholesale funding using transaction-level data on short-term, unsecured certificates of deposits in the European market. We do not observe any freeze during a period that includes both the subprime crisis and the European sovereign crisis. Yet, many banks suddenly experience funding dry-ups. Banks with low future quality are more likely to face funding dry-ups, whereas banks with a high future quality tend to increase their reliance on wholesale funding in periods of stress. The reallocation of funds from low- to high-quality banks is inconsistent with theories based on adverse selection, and in line with theories of informed runs

Mots clés : bank run, wholesale funding, market freeze, certificates of deposits

Départements : Finance, GREGHEC (CNRS)

I study the returns to investments in durable assets since the start of the twentieth century. These assets are generally characterized by relatively low capital gains and substantial price fluctuations. The rate of value appreciation has been more pronounced for collectibles, but transaction costs are very high in such markets as well. However, a rental income yield can add substantially to the returns on housing and land, and likewise owners of collectibles may receive a significant emotional dividend. Because of the lack of such an income or utility stream, gold, silver, and diamonds appear to have been particularly bad long-term investments (at least if not held in the form of jewelry). Finally, durable assets are unlikely to be good inflation hedges, but they may still help diversifying a portfolio because of the imperfect correlations with financial assets

Mots clés : returns; housing; land; art, collectibles; gold; silver; diamonds

Départements : Finance, GREGHEC (CNRS)

We propose a simple model in which investors price a stock using a persistent signal and sticky belief dynamics à la Coibion and Gorodnichenko (2012). In this model, returns can be forecasted using (1) past profits, (2) past change in profits, and (3) past returns. The model thus provides a joint theory of two of the most economically significant anomalies, i.e. quality and momentum. According to the model, these anomalies should be correlated, and be stronger when signal persistence is higher, or when earnings expectations are stickier. Using I/B/E/S data, we measure expectation stickiness at the analyst level. We find that analysts are on average sticky and, consistent with a limited attention hypothesis, more so when they cover more industries. We then find strong support for the model's prediction in the data: both the momentum and the quality anomaly are stronger for stocks with more persistent profits, and for stocks which are followed by stickier analysts. Consistently with the model, both strategies also comove significantly.

Mots clés : Stock market anomalies, Sticky expectations