Charlotte Ostergaard

U.S. Banking Deregulation, Small Businesses, and Interstate Insurance of Personal Income

We estimate the effects of deregulation of U.S. banking restrictions on the amount of interstate personal income insurance during the period 1970–2001. Interstate income insurance occurs when personal income reacts less than one-to-one to state-specific shocks to output. We find that income insurance improved after banking deregulation, and that this effect is larger in states where small businesses are more important. We further show that the impact of deregulation is stronger for proprietors’ income than other components of personal income. Our explanation of this result centers on the role of banks as a prime source of small business finance and on the close intertwining of the personal and business finances of small business owners. Our analysis casts light on the real effects of bank deregulation, on the insurance function of banks, and on the integration of bank markets.

Consumption and Aggregate Constraints: Evidence from U.S. States and Canadian Provinces

State‐level consumption exhibits excess sensitivity to lagged income to the same extent as U.S. aggregate data, but state‐specific (idiosyncratic) consumption exhibits substantially less sensitivity to lagged state‐specific income—a result that also holds for Canadian provinces. We propose the following interpretation: borrowing and lending in response to changes in consumer demand are easier for individual U.S. states than for the United States as a whole, and therefore, the measured deviation from the benchmark permanent income hypothesis model is smaller. However, lagged state‐specific variables help predict state‐specific consumption, suggesting that the PIH model still requires qualification.

Risk sharing and portfolio allocation in EMU

This paper investigates whether risk sharing, measured as income and consumption smoothing, among countries in the EU and the European Economic and Monetary Union (EMU) has increased since the adoption of the euro. We ask: Have the recent increase in foreign equity and debt holdings been associated with more risk sharing? Do certain classes of assets (debt, equity, foreign direct investment) provide relatively more or less risk sharing? Do liabilities provide risk sharing differently from assets? Do investments in EMU countries provide more or less risk sharing per euro invested compared to investments in non-EMU countries? Has increased banking integration improved risk sharing? Due to the short span of years since the introduction of the euro, our results are tentative, but they indicate that the monetary union has facilitated risk sharing, although the level of risk sharing is still much below the level found among U.S. states.

Social Capital and the Viability of Stakeholder-Oriented Firms: Evidence from Norwegian Savings Banks

Stakeholder oriented governance systems are often thought to hamper efficiency. We show that social capital improves the viability of stakeholder-oriented firms in competitive markets. Studying exits from the population of Norwegian savings banks after deregulations, we find that banks located in communities with high social capital have a higher probability of survival. We propose that social capital facilitates collective decision-making, ensuring that banks internalize the preferences of the community in return for continued community patronage. Consistently, we find that in high social capital areas banks operate with lower interest rate margins, lower returns on assets, and lower loan losses.

Why Do Boards Exist? Governance Design in the Absence of Corporate Law

We study how owners trade off the costs and benefits of establishing a board in a historical setting, where boards are optional and authority over corporate decisions can be freely allocated across the general meeting, the board, and management. We find that informed owners and boards are substitutes, and that boards exist in firms most prone to collective action problems. Boards monitor, advise, and mediate among shareholders, and these different roles entail different allocations of authority. Boards also arise to balance the need for small shareholder protection with the need to curb managerial discretion.