Trade credit and firm investments: empirical evidence from Italian cooperative banks

Filomeni, Stefano; Modina, Michele; Tabacco, Elena

doi:10.1007/s11156-022-01122-3

Cited by 8 publications

(1 citation statement)

References 138 publications

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“…Further, we also contribute to the theoretical literature on corporate finance that highlights the role of asymmetric information in accessing external debt financing (Demetriades & Devereux, 2000;Fazzari et al, 1988;Myers & Majluf, 1984). In this respect, existing studies provide evidence that greater information asymmetry generate barriers, especially for smaller and more informationally opaque unlisted firms, to tap into external sources of financing to fund investments (Filomeni et al, 2023). To mitigate the problem of asymmetric information, banks gather valuable qualitative soft information about the economic prospects of corporations through a monitoring activity that involves 'human touch' between the parties that contributes to reduce borrowers' moral hazard (Diamond, 1984;Qian et al, 2015).…”

Section: Introductionmentioning

confidence: 74%

Can market information outperform hard and soft information in predicting corporate defaults?

et al. 2023

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Recent evidence has shown that hybrid models for credit ratings are important when assessing the risk of firms. Within this stream of literature, we aim to provide novel evidence on how hard (quantitative), soft (qualitative), and market information predict corporate defaults for unlisted firms by implementing the Cox proportional hazard model. We address this research question by exploiting a unique proprietary dataset comprising of detailed information on internal credit ratings of European unlisted mid‐sized firms and compute their Merton's distance‐to‐default (DD) measure of credit risk with market data collected on comparable publicly listed companies. Our results show that the bank's use of hard, soft, and market information when assessing the credit ratings of borrowers has a significant influence on the prediction of their defaults. Further, we investigate the significant influence of soft information in predicting corporate defaults by drawing on two separate processes through which loan officers can inject soft information in credit scoring, that is, ‘codified’ and ‘uncodified’ discretion. Finally, when we distinguish between the loan officer's discretion to upgrade or downgrade an applicant's credit score, we find that it is the upgrade that is likely to predict a lower probability of a firm defaulting. This study contributes to the policy debate on safeguarding the banking sector's continuity by positing that integrating market information into banks' hybrid methods of credit rating helps to improve the accuracy in predicting unlisted firms' credit risk that is useful to policy makers for the design of future forward‐looking financial risk management frameworks.

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Section: Introductionmentioning

confidence: 74%

Can market information outperform hard and soft information in predicting corporate defaults?

et al. 2023

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The impact of the Paycheck Protection Program on the risk-taking behaviour of US banks

Filomeni

2023

Rev Quant Finan Acc

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The economic impact of the COVID-19 pandemic placed many small businesses across the US in financial distress. In response to this, in March 2020 the US government introduced, as part of the CARES Act, the Paycheck Protection Program (PPP) intended to provide relief to small businesses and to preserve jobs during the pandemic. The latter resulted in three waves of funding distributed to small businesses through SBA approved lenders, mainly represented by US banks. By using a panel dataset of 4610 banks over the period Q1 2019–Q4 2020 and by employing a difference-in-differences approach (DiD), I investigate whether participation in the Paycheck Protection Program affected community banks’ credit risk-taking behaviour in the post-PPP period, compared to their non-community banking counterparts in the US. I find that the Paycheck Protection Program led community banks to decrease their risk appetite outside of the program relative to non-community banks, consistent with their greater exposure to the commercial real estate sector, heavily hit by the pandemic. My results are robust to a battery of robustness tests and identification strategies. In this research article, I offer novel evidence on the indirect impact of the Paycheck Protection Program as a government-funded stimulus program administered through banks by investigating the indirect effect of the Paycheck Protection Program on the risk-taking of US community banks that dominate lending of PPP loans as a result of their competitive advantage in soft information-intensive small business lending. Such evidence is informative to policymakers as they weigh the merits of various program options to combat the economic damage imposed by the COVID-19 pandemic and as they consider the design of economic stimulus programs in response to future economic crises.

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Securitization and risk appetite: empirical evidence from US banks

Filomeni

2024

Rev Quant Finan Acc

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I investigate the impact of securitization on the risk-taking by bank holding companies (BHCs). For 2001 to 2017, I find a negative relationship between securitization and the risk appetite of BHCs. I find a negative relationship between securitization and the risk appetite of BHCs that is consistent with the recourse hypothesis of securitization. I also discover that the equilibrium in this relationship changes from the pre-crisis to the crisis period (crisis effect). This crisis effect hampers BHCs’ ability to engage in securitization that leads them to accumulate more risky assets on their books due to the deteriorated quality of their loan portfolios. This equilibrium then reverses after the crisis (post-crisis effect) due to policy makers’ response to the excessive risk-taking that manifested during the crisis. Moreover, I find that the securitization of residential mortgages not only boosts the recourse hypothesis but also triggers the crisis effect. My findings provide novel empirical insights into the different nexuses between the securitization and risk appetite of BHCs around the financial crisis.

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Trade credit and firm investments: empirical evidence from Italian cooperative banks

Cited by 8 publications

References 138 publications

Can market information outperform hard and soft information in predicting corporate defaults?

Can market information outperform hard and soft information in predicting corporate defaults?

The impact of the Paycheck Protection Program on the risk-taking behaviour of US banks

Securitization and risk appetite: empirical evidence from US banks

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