Ari Hyytinen

Law or finance: evidence from Finland

Although it is widely acknowledged that the benefits of corporate governance reform could be substantial, systematic evidence on such reforms is scant. We both document and evaluate a contemporary corporate governance reform by constructing 18 measures of shareholder and creditor protection for Finland for the period 1980–2000. The measures reveal that shareholder protection has been strengthened whereas creditor protection has been weakened. We also demonstrate how the reform is consistent with a reorganisation of the Finnish financial market in which a bank-centred financial system shifted from relationship-based debt finance towards increasing dominance by the stock market. We find evidence that the development of shareholder protection has been a driver of the reorganisation, whereas the changes in creditor protection have mirrored market developments.

Does patenting increase the probability of being acquired? Evidence from cross-border and domestic acquisitions

A firm that owns a patent has a legal right to exclude. Applying for the patent, however, discloses discovery of an invention by the firm. Both the ownership of the right and the disclosure of the discovery expose the firm to an acquisition, because other firms may be interested in buying the right or the invention for a number of reasons. This idea of patent-driven mergers and acquisitions (M&As) is tested using a large sample of Finnish firms that are mostly private and small. It is found that patenting by a Finnish firm is positively correlated with the probability that the firm is acquired by a foreign firm.

Enhancing bank transparency : A re-assessment

Transparency regulation aims at reducing financial fragility by strengthening market discipline. There are however two elementary properties of banking that may render such regulation inefficient at best and detrimental at worst. First, an extensive financial safety net may eliminate the disciplinary effect of transparency regulation. Second, achieving transparency is costly for banks, as it dilutes their charter values, and hence it also reduces their private costs of risk-taking. We consider both the direct costs of complying with disclosure requirements and the indirect transparency costs stemming from imperfect property rights governing information and specify the conditions under which transparency regulation can (and cannot) reduce financial fragility.

Asymmetric Information and the Market Structure of the Venture Capital Industry

In this paper we study a horizontally differentiated market for financial intermediation and develop a simple explanation for concentration in the financial intermediation industry. We show that under asymmetric information, if the demand for funds is not perfectly elastic, the heterogeneity of entrepreneurs in need of financing translates into a barrier to entry. That is, we do not need to resort to learning, weak property rights or exogenous costs of entry to generate this result.

Loan market equilibrium with difference of opinion and imperfect competition

Abstract Difference of opinion between banks and borrowers influences the competitiveness of loan markets: the more optimistic the borrowers, the more elastic the demand for loans. This reduces lending rates, decreases the expected profits of banks and discourages entry by banks.

Information production and lending market competition

Abstract In this paper, I analyze the effects of pre-lending screening on loan market outcomes under oligopolistic competition. Following Shaffer [J. Finan. Intermediation 7 (1998) 359], I consider the effects of a shift from independent screening to common (correlated) filters. I also consider the effects of an increase in the intrinsic accuracy of screening. I find that the joint effect of these changes is to decrease both the interest rate margin and the lending volume. Further, provided that the average creditworthiness in the population of borrowers is relatively high, these changes decrease the profitability of lending.

Vertical Differentiation, Asymmetric Information and Endogenous Bank Screening

In a model of bank lending characterized by asymmetric information, we show that banks may use an interim monitoring technology strategically to soften price competition, even though the borrowers face no moral hazard problem. The interim monitoring technology can also be used to alleviate adverse selection. The equilibria that emerge resemble those in vertical product differentiation models. We also show that because of the strategic use of interim monitoring, a bank may forego the use of a costless and perfect ex-ante screening technology.