banner
Fuqua home search contact
Faculty & Research Home > Faculty Profile > Personal Home Page
Personal Home Page
Research by Topics

Links to published papers are from the Journals' designated sites.  Note you should obtain permission to access these sites.

Recent Working papers

Banking

Venture Capital, Entrepreneurship, Household Finance

Behavioral Finance

IPOs, Credit Ratings, Misc finance

----------

Recent Papers

  • "On Deposit Stability in Failing Banks," with Chris Martin and Alex Ufier.
  • "Loan Officer Incentives, Internal Ratings, and Default Rates," with Tobias Berg and Jorg Rocholl.
    "Loan Officer Incentives, Internal Ratings, and Default Rates," with Tobias Berg and Jorg Rocholl.

    Abstract:
    In this paper, we analyze the effect of loan officer incentives on bank-internal ratings. Internal ratings are regularly used by banks and regulators for loan making, risk assessment, and capital adequacy ratios (as per Basel II/III). However, how internal ratings are impacted by loan officer incentives is widely unknown. Using unique lending data, we find that loan officer incentives skew internal ratings even in settings where the internal ratings are computed by a credit scoring model with hard information based inputs. We find loan officers make multiple attempts to get loans over the cutoff by re-inputting information using additional trials. These results hold when cut-offs change and also in a regression-discontinuity design. We further find that additional trials result in higher default rates. Our results suggest strategic manipulation of information and of internal ratings stemming from loan officer incentives and suggest it is important for banks and regulators to take such effects into account when using internal ratings for risk assessment and regulation.


  • "What Do A Million Observations Have to Say About Loan Defaults? Opening the Black Box of Relationships," with Jorg Rocholl and Sascha Steffen, forthcoming in Journal of Financial Intermediation.
    "What Do A Million Observations Have to Say About Loan Defaults? Opening the Black Box of Relationships," with Jorg Rocholl and Sascha Steffen, forthcoming in Journal of Financial Intermediation

    Abstract:
    Using a unique dataset of more than 1 million loans made by 296 German banks, we evaluate the impact of many aspects of customer-bank relationships on loan default rates. Our research suggests a practical solution to reducing loan defaults for new customers: Have the customer open a simple transactions account - savings or checking account. Observe for some time and then decide whether to make a loan. Loans made under this model have lower default, as banks can use historical data about their borrowers to establish a baseline against which new client-related information can be evaluated. Banks assemble this historical information through relationships of different forms. We define relationships in many different ways to capture non-credit relationships, transaction accounts, as well as the depth and intensity of relationships, and find each of these can provide information that helps reduce default - even establishing a simple savings or checking account and observing the activity prior to loan granting can help reduce loan defaults. Our results show that banks with relationship-specific information act differently compared with banks that do not have this information both in screening and subsequent monitoring borrowers which helps reduce loan defaults.


  • "Adverse Incentives in Crowdfunding," with Thomas Hildebrand and Jorg Rocholl, forthcoming at Management Science.
    "Adverse Incentives in Crowdfunding," with Thomas Hildebrand and Jorg Rocholl.

    Abstract:
    This paper analyses the substantially growing markets for crowdfunding, in which lenders give money to borrowers without financial intermediation. Critics suggest these markets allow sophisticated investors to take advantage of unsophisticated investors. The growth and viability of these markets critically depends on the underlying incentives. We provide evidence of perverse incentives in crowdfunding that are not fully recognized by the market. In particular we look at group leader bids in the presence of origination fees and find that these bids are wrongly perceived as a signal of good loan quality, resulting in lower interest rates. Yet these loans actually have higher default rates. These adverse incentives are overcome only with sufficient skin in the game and when there are no origination fees. The results provide important implications for crowdfunding, its structure and regulation.


  • "A Corporate Beauty Contest," with John Graham and Cam Harvey, forthcoming at Management Science.
    "A Corporate Beauty Contest," with John Graham and Cam Harvey.

    Abstract:
    We conduct beauty contest experiments, studying the facial traits of CEOs using nearly 2,000 subjects and link these traits to both CEO compensation and performance. In one experiment, we use pairs of photographs and find that subjects rate CEO faces as appearing more “competent” than non-CEO faces. Another experiment matches CEOs from large firms against CEOs from smaller firms and finds large-firm CEOs look more competent. In a third experiment, subjects numerically rate the facial traits of CEOs. We find competent looks are priced into CEO compensation. Our evidence suggests this premium has a behavioral origin. First, we find no evidence that the premium is associated with superior performance. Second, we separate inside and outside CEO hires. Second, we separate inside and outside CEO hires and find that the competence premium is driven by outside hires – the situation where first impressions are likely to be more important.


  • "A Tale of Two Runs: Depositor Responses to Bank Solvency Risk," with Rajkamal Iyer and Nick Ryan, Journal of Finance, 2016, 71(6), 2687-2726
    "A Tale of Two Runs: Depositor Responses to Bank Solvency Risk," with Rajkamal Iyer and Nick Ryan, Journal of Finance, 2016, 71(6), 2687-2726

    Abstract:
    We examine heterogeneity in depositor responses to solvency risk using depositor-level data for a bank that faced two different runs. We find that depositors with loans and bank staff are less likely to run than others during a low-solvency-risk shock, but are more likely to run during a high-solvency-risk shock. Uninsured depositors are also sensitive to bank solvency. In contrast, depositors with older accounts run less, and those with frequent past transactions run more, irrespective of the underlying risk. Our results show that the fragility of a bank depends on the composition of its deposit base.


Back to Top


Banking


On the scope of bank activities: Expansion of bank powers into underwriting

Back to Top


Bank-firm and Bank-Depositor Relationships

Back to Top


On the loan sale market and loan contracting

Back to Top


On Financial Crisis and Bank Runs

Back to Top


Venture Capital, Entrepreneurship, Household Finance

Back to Top


Behavioral Finance

Back to Top


IPOs, Credit Ratings, Misc finance

Back to Top


Additional Information

Home

Official Faculty Profile

Vita

Teaching

Research