article in Volume 23, Issue 5 of the Review of Finance is Credit Market Competition and Liquidity Crises by Elena Carletti and Agnese Leonello. This paper finds that – contrary to common concerns – greater
competition in the banking industry can reduce the risk of financial
The Double-Edged Sword of Competition
In most industries, competition
is believed to be socially beneficial – it benefits customers through greater
product choice and lower prices, suppliers through higher input costs, and
workers through enhanced wages.… Read more...
The lead article in Volume 23, Issue 4 of the Review of Finance is Are US Industries Becoming More Concentrated? by Gustavo Grullon, Yelena Larkin, and Roni Michaely. This paper finds that industry concentration has increased substantially in the US over the last two decades.… Read more...
article in Volume 23, Issue 3 of the Review of Finance is Do Credit Default Swaps Mitigate the Impact of Credit Downgrades? by Sudheer Chava, Rohan Ganduri, and Chayawat Ornthanalai. When a firm’s debt is downgraded, its stock
price falls, it subsequently raises less debt, and its cost of debt
increases. This paper finds that, when
credit default swaps (CDS) trade on its debt, all three effects are reduced –
suggesting that CDS alleviates the financial frictions arising from downgrades.… Read more...
article in Volume 23, Issue 2 of the Review of Finance is Labor
and Capital Dynamics under Financing Frictions by Ryan Michaels, Beau Page,
and Toni Whited. This paper uses a new quarterly panel dataset to examine how financing
frictions affect firms’ investment and hiring decisions. In particular, it shows that higher leverage
reduces wages, even though it does not reduce employment. To rationalize the findings, the authors
build a model where higher leverage increases the probability of default,
reducing the surplus to be shared with workers and thus wages.… Read more...
post is thanks to Editor Amiyatosh Purnanandam)
The lead article in
Volume 22, Issue 6 of the Review of Finance is Complex Mortgages
by Gene Amromin, Jennifer Huang, Clemens Sialm, and Edward Zhong.
The Changing Nature of Mortgages
Mortgage products were
extremely simple in the twentieth century.… Read more...
(This post is thanks to Editor Amit Goyal)
The lead article in Volume 23, Issue 1 of the Review of Finance is “Which Factors?” by Kewei Hou, Haitao Mo, Chen Xue, and Lu Zhang.
A factor model proposes why different stocks have different returns.… Read more...
The lead article in Volume 22, Issue 5 of the Review of Finance is A Theory of Costly Sequential Bidding by Kent Daniel and David Hirshleifer. This paper explains why, in many real-life auctions such as M&A, bidders may engage in “jump-bids” – bid much more than needed to stay in the auction – when it might seem more prudent to bid the minimum possible increment
How to Bid in an Auction?… Read more...
(This post is thanks to Advisory Editor Andrew Ellul)
The lead article in Volume 22, Issue 4, of the Review of Finance is Labor Representation in Governance as an Insurance Mechanism by E. Han Kim, Ernst Maug and Christoph Schneider. This paper provides evidence that labor participation in firms’ governance enables risk sharing between employees and employers.… Read more...
The lead article in Volume 22, Issue 3 of the Review of Finance is The Cost of Political Connections by Marianne Bertrand, Francis Kramarz, Antoinette Schoar, and David Thesmar. This paper shows that CEOs with a background in politics don’t shut down potentially underperforming plants, and open plants that they might not have otherwise, to boost employment in the run-up to a local election.… Read more...
The lead article in Volume 22, Issue 2 of the Review of Finance is Corporate Credit Risk Premia by Antje Berndt, Rohan Douglas, Darrell Duffie and Mark Ferguson. This paper shows that corporate credit risk premia vary substantially both over time and between bonds.… Read more...