Asymmetric information and liquidity constraints: A new test

Holod, Dmytro; Peek, Joe

doi:10.1016/j.jbankfin.2006.11.012

“…For instance, Berger and Udell (2004) observe that the annual growth of business loans increases with more capital. Holod and Peek (2007) further find that loan growth is exacerbated with more bank capital.…”

Section: Literature Reviewmentioning

confidence: 81%

A Financial Analysis of the Liquidity Creation and the Capital Holdings of Turkish Banks

Danışman

¹

2018

isarder

2

1

0

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In this paper, the impact of the amount of bank capital on the bank liquidity creation is explored using a sample of 21 Turkish banks and quarterly data for the period 2010Q1-2017Q4. Our methodology involves fixed effects panel data estimation techniques and we use lagged independent variables to control for endogeneity. Our findings indicate that the liquidity creation of Turkish banks has dramatically increased over time and it is primarily driven by large banks. Our results from the regression analysis indicate that bank liquidity creation is increased under higher levels of capital for the whole sample. While a higher level of bank capital increases bank liquidity for small banks, the opposite case occurs for large banks, namely, the created liquidity decreases by more bank capital. We offer some important policy implications in that while regulators in the emerging markets impose capital requirements on banks, they need to consider the impact on liquidity creation of banks of different sizes.

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“…In a recent paper, Holod and Peek (2004) follow this logic in using the presence of publicly-traded equity as a measure of financial constraints, and document that the response of bank lending to monetary policy is weaker for public banks than for private banks. The authors argue that the presence of public equity reduces information problems associated with lending to these institutions, which gives them greater access to markets for federal funds and uninsured deposits.…”

Section: The Benefit Of Publicly-traded Banksmentioning

confidence: 95%

“…For example, when a firm faces a binding collateral constraint, the marginal product of capital lies above the cost of capital, and changes in spreads have no effect on investment. 6 Key studies on the lending channel are differentiated by the underlying proxy for the severity of financial constraints: size in Kashyap and Stein (1995), capital in Kishan and Opiela (2002), affiliation with a multi-bank holding company in Ashcraft (2001), and publicly-traded equity in Holod and Peek (2004).…”

Section: Introductionmentioning

confidence: 99%

On the Market Discipline of Informationally-Opaque Firms: Evidence from Bank Borrowers in the Federal Funds Market

Ashcraft

¹

,

Bleakley

²

2006

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractUsing plausibly exogenous variation in demand for federal funds created by daily shocks to reserve balances, we identify the supply curve facing a bank borrower in the interbank market and study how access to overnight credit is affected by changes in public and private measures of borrower creditworthiness. Although there is evidence that lenders respond to adverse changes in public information about credit quality by restricting access to the market in a fashion consistent with market discipline, there is also evidence that borrowers respond to adverse changes in private information about credit quality by increasing leverage so as to offset the future impact on earnings. While the responsiveness of investors to public information is comforting, we document evidence that suggests that banks are able to manage the real information content of these disclosures. In particular, public measures of loan portfolio performance have information about future loan charge-offs, but only in quarters when the bank is examined by supervisors. However, the loan supply curve is not any more sensitive to public disclosures about nonperforming loans in an exam quarter, suggesting that investors are unaware of this information management.Key words: earnings, management, market, discipline, opaqueness, banks (2002) presents evidence that the ratings agencies disagree more about the credit ratings of banks than non-financial firms, and that disagreement increases as the share of informationally-opaque assets increases. On the other hand, Flannery, Kwan, and Nimalendran (2004) conclude that large bank stocks have similar microstructure properties and analyst coverage to matched non-financial firms, and that bank earnings forecasts are more accurate, less dispersed, and revised less frequently. While the authors conclude that banks are no more opaque than non-banks, an alternative interpretation of their results is that banks have a greater ability to manage earnings than non-banks given discretion in the timing of recognizing unrealized losses and gains.

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“…However, for reasons discussed below, capitalconstrained banks may behave differently for reasons other than their ability to raise uninsured deposits. Holod and Peek (2007) utilize the distinction between publicly traded and non-publicly traded banks to classify banks by the ease with which they can access external funds. They find that after controlling for size, capitalization, and other factors, the loan portfolios of publicly traded banks shrink less than those of non-publicly traded banks when monetary policy tightens due to the banks' ability to raise external funds, including by issuing large time deposits.…”

Section: The Effect Of Monetary Policy On Bank Loan Supplymentioning

confidence: 99%

The Role of Banks in the Transmission of Monetary Policy

Peek

¹

,

Rosengren

²

2015

The Oxford Handbook of Banking, Second Edition

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may The Role of Banks in the Transmission of Monetary Policy Joe Peek and Eric S. Rosengren AbstractThe transmission of monetary policy, especially in light of recent events, has received increased attention, especially with respect to the efficacy of the bank lending channel. This paper summarizes the issues associated with isolating the bank lending channel and determining the extent to which it is operational. Evidence on the effectiveness of the bank lending channel is presented, both in the United States and abroad. The paper then provides observations about the likely consequences for the effectiveness of the lending channel of the changes in the financial environment associated with the recent financial crisis.

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Asymmetric information and liquidity constraints: A new test

Cited by 67 publications

References 20 publications

A Financial Analysis of the Liquidity Creation and the Capital Holdings of Turkish Banks

A Financial Analysis of the Liquidity Creation and the Capital Holdings of Turkish Banks

On the Market Discipline of Informationally-Opaque Firms: Evidence from Bank Borrowers in the Federal Funds Market

The Role of Banks in the Transmission of Monetary Policy

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