How to Make Finance Work Greenwood, Robin; Scharfstein, David S
Harvard business review,
03/2012, Letnik:
90, Številka:
3
Magazine Article
The U.S. financial sector is now a dynamic and growing business that attracts the best and the brightest. It is tempting to declare the industry a roaring success. But its purpose is to serve the ...needs of U.S. households and firms, and by this standard its performance has been mixed. The rest of the economy, however, has not been well served by the financial sector's boom. First, the shift from deposit-based banking to a market-based "shadow banking" system, without adequate regulatory adjustments, has left the financial system vulnerable to crisis. Second, trillions of dollars have been steered into residential real estate and away from more-productive investments. Third, the cost of professional investment management is too high, which drains talent from other industries. The financial sector could promote the health and competitiveness of the U.S. economy by increasing capital and liquidity requirements, reorienting the discussion around housing finance reform from keeping mortgage credit cheap to ensuring financial stability, and instituting measures that compel asset managers to compete on the true value of the services they provide.
Loan Syndication and Credit Cycles Ivashina, Victoria; Scharfstein, David
The American economic review,
05/2010, Letnik:
100, Številka:
2
Journal Article
Recenzirano
Cyclicality in the supply of business credit has been the focus of a considerable amount of research. This cyclicality can stem from shocks to borrowers' collateral, which affects firms' ability to ...raise capital if agency and information problems are significant (Ben S Bernanke and Mark Gertler 1989). Or it can stem from shocks to bank capital, which affect the supply of bank loans if agency and information problems limit the ability of banks to raise additional capital (Bernanke 1983). In this paper, we examine cyclicality in the supply of credit in the context of modern forms of banking, often referred to as the originate-to-distribute model. In particular, we are interested in the role of syndicated lending. The process of syndication leads to an expansion of credit because it enables banks to share risk, which lowers their risk threshold for originating a loan. It also expands credit by making it possible for institutional investors to participate directly in funding the types of loans that banks originate, rather than indirectly by funding the bank. While loan syndication arguably expends credit supply, the question we address here is whether it increases the cyclicality of credit supply.
Time is of the essence in evaluating potential drugs and biologics for the treatment and prevention of COVID‐19. There are currently 876 randomized clinical trials (phase 2 and 3) of treatments for ...COVID‐19 registered on clinicaltrials.gov. Covariate adjustment is a statistical analysis method with potential to improve precision and reduce the required sample size for a substantial number of these trials. Though covariate adjustment is recommended by the U.S. Food and Drug Administration and the European Medicines Agency, it is underutilized, especially for the types of outcomes (binary, ordinal, and time‐to‐event) that are common in COVID‐19 trials. To demonstrate the potential value added by covariate adjustment in this context, we simulated two‐arm, randomized trials comparing a hypothetical COVID‐19 treatment versus standard of care, where the primary outcome is binary, ordinal, or time‐to‐event. Our simulated distributions are derived from two sources: longitudinal data on over 500 patients hospitalized at Weill Cornell Medicine New York Presbyterian Hospital and a Centers for Disease Control and Prevention preliminary description of 2449 cases. In simulated trials with sample sizes ranging from 100 to 1000 participants, we found substantial precision gains from using covariate adjustment–equivalent to 4–18% reductions in the required sample size to achieve a desired power. This was the case for a variety of estimands (targets of inference). From these simulations, we conclude that covariate adjustment is a low‐risk, high‐reward approach to streamlining COVID‐19 treatment trials. We provide an R package and practical recommendations for implementation.
This paper presents evidence of performance persistence in entrepreneurship. We show that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs ...and those who have previously failed. In particular, they exhibit persistence in selecting the right industry and time to start new ventures. Entrepreneurs with demonstrated market timing skill are also more likely to outperform industry peers in their subsequent ventures. This is consistent with the view that if suppliers and customers perceive the entrepreneur to have market timing skill, and is therefore more likely to succeed, they will be more willing to commit resources to the firm. In this way, success breeds success and strengthens performance persistence.
It is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets. This paper ...examines how changes in public market signals affected venture capital investing between 1975 and 1998. We find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable. Their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries. The increase in investment rates does not affect the success of these transactions adversely to a significant extent. These findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts.
We examine the investment behavior of firms before and after being spun off from their parent companies. Their investment after the spin-off is significantly more sensitive to measures of investment ...opportunities (e.g., industry Tobin's Q or industry investment) than it is before the spin-off. Spin-offs tend to cut investment in low Q industries and increase investment in high Q industries. These changes are observed primarily in spin-offs of firms in industries unrelated to the parents' industries and in spin-offs where the stock market reacts favorably to the spin-off announcement. Our findings suggest that spin-offs may improve the allocation of capital.
We investigate product-market competition when managers maximize shareholder value rather than their expected discounted value of profits. If shareholders are imperfectly informed about future ...profitability, shareholder-value maximization can lead to either more or less aggressive product-market strategies. Lower rivals' profits lead investors to believe that the firm's costs are low relative to those of its rivals and that the industry's prospects are poor. If the former (latter) inference dominates, each firm tries to lower (raise) its rivals' profits to increase its own stock price. We also consider implications for corporate financial structure.
We compare different indexation schemes in terms of their ability to facilitate forgiveness and reduce the investment disincentives associated with the large LDC debt overhang. Indexing to an ...endogenous variable (e.g., a country's output) has a negative moral hazard effect on investment. This problem does not arise when payments are linked to an exogenous variable such as commodity prices. Nonetheless, indexing payments to output may be useful when debtors know more about their willingness to invest than lenders. We also reach new conclusions about the desirability of default penalties under asymmetric information.
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