Using exogenous liquidity windfalls from oil and natural gas shale discoveries, we demonstrate that bank branch networks help integrate U.S. lending markets. Banks exposed to shale booms enjoy ...liquidity inflows, which increase their capacity to originate and hold new loans. Exposed banks increase mortgage lending in nonboom counties, but only where they have branches and only for hard-to-securitize mortgages. Our findings suggest that contracting frictions limit the ability of arm's length finance to integrate credit markets fully. Branch networks continue to play an important role in financial integration, despite the development of securitization markets.
I exploit exogenous changes in local credit supply from shale discoveries to identify where and when local access to finance is economically important for firms. I find that the real effects of a ...credit supply shock are linked to local lending market characteristics. Changes in local credit supply have significant real effects in lending markets dominated by small banks, while there is no effect in other markets. These results suggest that small banks, which do not benefit from deep internal capital markets, face economically meaningful frictions in accessing external interbank markets to fund loans. The effect in other markets, which have large multimarket banks, indicates that these markets are not as dependent on local funding sources for lending. These findings illustrate the important role that the internal capital markets of banks have on real outcomes.
The online appendix is available at
https://doi.org/10.1287/mnsc.2017.2818
.
This paper was accepted by Amit Seru, finance.
I empirically test whether firms engage in risk-shifting. Contrary to what risk-shifting theory predicts, I find that firms reduce investment risk when they approach financial distress. To identify ...the effect of distress on risk-taking, I use a natural experiment with exogenous changes to leverage. Risk reduction is most prevalent among firms that have shorter maturity debt, bank debt, and tighter bank loan financial covenants. These findings suggest that debt composition and financial covenants serve as important mechanisms to mitigate debt-equity agency conflicts, such as risk-shifting, that are not explicitly contracted on.
We study how listing status affects investment behavior. Theory offers competing hypotheses on how listing-related frictions affect investment decisions. We use detailed data on 74,670 individual ...projects in the U.S. natural gas industry to show that private firms respond less than public firms to changes in investment opportunities. Private firms adjust drilling activity for low capital-intensity investments. However, they do not increase drilling in response to new capital-intensive growth opportunities. Instead, they sell these projects to public firms. Our evidence suggests that differences in access to external capital are important in explaining the investment behavior of public and private firms.
We derive a measure that captures the extent to which common ownership shifts managers’ incentives to internalize externalities. A key feature of the measure is that it allows for the possibility ...that not all investors are attentive to whether a manager's actions benefit the investor's overall portfolio. Empirically, we show that potential drivers of common ownership, including mergers in the asset management industry and, under certain circumstances, even indexing, could diminish managerial motives to internalize externalities. Our findings illustrate the importance of accounting for investor inattention when analyzing whether the growth of common ownership affects managerial incentives.
Drilling and Debt GILJE, ERIK P.; LOUTSKINA, ELENA; MURPHY, DANIEL
The Journal of finance (New York),
06/2020, Letnik:
75, Številka:
3
Journal Article
Recenzirano
This paper documents a previously unrecognized debt-related investment distortion. Using detailed project-level data for 69 firms in the oil and gas industry, we find that highly levered firms pull ...forward investment, completing projects early at the expense of long-run project returns and project value. This behavior is particularly pronounced prior to debt renegotiations. We test several channels that could explain this behavior and find evidence consistent with equity holders sacrificing long-run project returns to enhance collateral values and, by extension, mitigate lending frictions at debt renegotiations.
We exploit an exogenous change in basis risk in the oil and gas industry to analyze the channels through which hedging affects firm value. Using a difference-in-differences framework, we find that ...firms affected by a basis risk shock reduce investment, have lower valuations, sell assets, and reduce debt. Our findings are driven by firms with ex ante high leverage. Overall, our results provide evidence that reducing the probability of financial distress and underinvestment risk are first-order channels through which hedging affects firm value.
Using individual credit bureau data matched with cash windfalls from fracking, we estimate that windfall recipients reduce debt-to-income by 2.4 percentage points relative to no-windfall controls. ...Debt repayment effects are 3 times stronger for subprime individuals than for prime individuals. Based on the timing of upfront versus continuing cash payments, debt repayment coincides with the timing of payments but not with news about future payments. These findings present a challenge for purely forward-looking models of debt. Indeed, when we incorporate a windfall shock into a forward-looking model, the model predicts an increase in debt that runs counter to our evidence of debt repayment.
Abstract
We study the effect of personal wealth on entrepreneurial decisions using data on mineral payments from Texas shale drilling to individuals throughout the United States. Large cash windfalls ...increase business formation by 0.8 to 2.1 percentage points, but do not affect transitions to self-employment. By contrast, cash windfalls significantly extend self-employment spells, but do not affect the duration of business ownership. Our findings help reconcile contrasting findings in prior work: liquidity constraints have different effects on entrepreneurial activity that may depend on the entrepreneur’s motivations.
Abstract We study human capital reallocation following firm-specific idiosyncratic shocks. We analyze relegation battles in the English Premier League, a setting that offers well-identified ...idiosyncratic shocks as well as both individual-level and firm-level productivity metrics. Following a negative idiosyncratic shock, we find that relatively more productive players move to more productive clubs and maintain their long-term productivity. They get replaced with lower productivity players. Overall, our results show that in a setting with highly transferable and observable skills, idiosyncratic shocks lead to a reallocation of human capital that moves the industry toward a better overall match between individual-level and firm-level productivity. (JEL G31, G32, G33, J24)
PDF
