Do universal banks finance riskier but more productive firms?

Neuhann, Daniel; Saidi, Farzad

doi:10.1016/j.jfineco.2018.01.011

Cited by 58 publications

(27 citation statements)

References 40 publications

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“…average, a 4.4 (9.3) percent lower increase in nonperforming C&I loans for a unit increase in C&I loans than banks with below-median exposure. These findings are in line with the findings of Neuhann and Saidi (2018) who document that concurrent lending and underwriting clients have lower bankruptcy risk.…”

Section: Resultssupporting

confidence: 91%

“…Thus, also underwriting the securities of a borrower exacerbates the uncertainty about the risks banks take. 12 A bank that lends to and underwrites the securities of the same corporate client produces more private information compared to stand-alone commercial or investment banks (Benston 1990;Mishkin 2004;Drucker and Puri 2007;Neuhann and Saidi 2018) for at least two reasons.…”

Section: Concurrent Lending and Underwriting Informational Advantagementioning

confidence: 99%

“…From the bank's perspective, concerns and negative perceptions induced by the possibility to exploit conflict of interest may lead to negative outcomes such as more rigorous regulatory scrutiny, higher cost of capital, and lower valuation (Narayanan et al 2007). 4 Naturally, banks 3 This ratio is higher in the 1987-2010 sample period of Neuhann and Saidi (2018) mainly because our definition of a concurrent loan is more restrictive. We classify a loan as concurrent if the loan is made to a corporate client between 1 year before and 1 year after the security is issued whereas Neuhann and Saidi (2018) use a period that spans 2 years before to 2 years after the loan issuance.…”

mentioning

confidence: 99%

“…Prior studies examine implications for bank stock returns(Bhargava and Fraser 1998), profitability(Cornett et al 2002;Drucker and Puri 2005), compensation structure(Fields and Fraser 1999), market-based riskiness(Geyfman and Yeager 2009), competition in the underwriting market(Gande et al 1999), and lending decisions(Neuhann and Saidi 2018).…”

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confidence: 99%

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Concurrent Lending and Underwriting, Expected Loss Recognition Timelinessand Loan Credit Quality.

Sobngwi¹

2020

Preprint

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While the Glass-Steagall Act strictly enforced the separation of commercial (e.g., lending) and investment banking activities (e.g., securities underwriting), the gradual erosion of its restrictions during the 1980s has allowed banks to engage in both types of activities. 1 The most notable outcome of this deregulation is the increasingly common bank practice of lending to and underwriting the securities of the same corporate client (i.e., concurrent lending and underwriting). Prior research has studied various implications of concurrent lending and underwriting such as for bank stock returns, profitability and market risk but has not examined the implications for financial reporting. We attempt to fill this gap in the literature by examining (i) how concurrent lending and underwriting relates to the timeliness of expected loan loss recognition (hereafter, loss recognition timeliness) and (ii) how the change in loss recognition timeliness induced by concurrent lending and underwriting influences loan portfolio credit quality. Banks that engage in concurrent lending and underwriting are relatively large and represent approximately 50 percent of the total assets of the banking industry in the United States. 2 Concurrent loans, which are primarily commercial and industrial (C&I) loans, constitute a substantial portion of these banks' C&I loan originations. For example, in 53 (4) percent of the C&I loan originations during 1987-2010, the same bank also underwrote corporate debt (equity) securities of the borrower (Neuhann and Saidi 2018). Concurrent loans constitute, on average, 33 1 Banks that can engage, either directly or through affiliates, in all aspects of the banking and securities businesses are called universal banks (Wilmarth 2002). 2 Sample banks that engage in concurrent lending and underwriting account for 49.7 percent of total assets in the U.S. banking industry during our sample period. This ratio has remained quite stable over the subsequent years. For example, it was 53.7 percent in 2010 and 49.8 percent in 2016. 6 These banks provided 64 percent of the loans extended to public firms during 1987-2010 (Neuhann and Saidi 2018). 7 Prior studies examine discretionary reporting of loan loss provisions in association with tax and capital requirements (

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Section: Resultssupporting

confidence: 91%

Section: Concurrent Lending and Underwriting Informational Advantagementioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

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Concurrent Lending and Underwriting, Expected Loss Recognition Timelinessand Loan Credit Quality.

Sobngwi¹

2020

Preprint

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“…Portfolio risk Banks differ in terms of borrower risk (Neuhann and Saidi, 2018;Levine, Lin and Xie, 2016). If diversified banks extend loans to less risky borrowers, they are less exposed to the negative effects of a crisis.…”

Section: Extensions and Robustnessmentioning

confidence: 99%

Bank Loan Supply During Crises: The Importance of Geographic Diversification

Doerr

Schaz

2017

SSRN Journal

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BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org).

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Financial Management and Early Warning System of Non-profit Organizations Based on Artificial Neural Network

Jiang,

Luo

2024

Communications in Computer and Information Science

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Do universal banks finance riskier but more productive firms?

Cited by 58 publications

References 40 publications

Concurrent Lending and Underwriting, Expected Loss Recognition Timelinessand Loan Credit Quality.

Concurrent Lending and Underwriting, Expected Loss Recognition Timelinessand Loan Credit Quality.

Bank Loan Supply During Crises: The Importance of Geographic Diversification

Financial Management and Early Warning System of Non-profit Organizations Based on Artificial Neural Network

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