Gökhan Torna

Risk Overhang and Loan Portfolio Decisions: Small Business Loan Supply Before and During the Financial Crisis

We estimate a structural model of bank portfolio lending and find that the typical U.S. community bank reduced its business lending during the global financial crisis. The decline in business credit was driven by increased risk overhang effects (consistent with a reduction in the liquidity of assets held on bank balance sheets) and by reduced loan supply elasticities suggestive of credit rationing (consistent with an increase in lender risk aversion). Nevertheless, we identify a cadre of strategically focused relationship banks that made and maintained higher levels of business loans during the crisis.

The Impact of Expanded Bank Powers on Loan Portfolios Compositions

This paper investigates the impact of the integration of traditional and nontraditional banking activities on loan portfolio management at the consolidated level. The increased risk exposure to nontraditional banking assets, e.g., trading and merchant banking assets, has a nontrivial impact on traditional loan portfolios and, in particular, on the supply of short-term credits. The findings show that confronted with the market-wide shock of the financial crisis, commercial-focused banks which hold larger amounts of risky nontraditional banking assets gravitate their loan portfolios away from business and consumer loan sectors. The results from a quasi-natural experiment reveal that in response to an exogenous regulatory shock of FAS No. 166 and 167, which required banks to transfer off-balance sheet securitized loans onto bank balance sheets, securitizer banks tend to reduce business credits substantially more due to their pre-existing exposures to nontraditional assets.

The distribution of unlevered housing in American urban areas

Purpose The purpose of this paper is to investigate the impact of social and economic factors on home ownership as an investment in American urban areas. Design/methodology/approach The authors run a spatial analysis using home ownership data on 817 American counties from US Census Bureau’s 2013 American Community Survey. Findings While the amenity value of home ownership is found to be important to overall housing tenure decisions, it is found to be less so for the ownership cohort without mortgages. Economic factors are found to impact the spatial pattern of owner-occupied housing without mortgage differently than that of all owner-occupied housing. The implications of these differences for investors are explored. Research limitations/implications The results may lack generalizability outside of the American urban areas. Practical implications As a result of the findings of this study, a shift in investor focus from minimizing initial housing costs to sustainable housing costs is recommended. Originality/value This study provides insights into the social and economic dimensions of owner-occupied housing in order to create a more profitable investing policy for promoting home ownership.

Can Investors Anticipate Post-IPO Mergers and Acquisitions?

Given the frequency and its important value implication of post-IPO M&A activity, we investigate empirically whether investors can utilize information based on IPO deal structure to predict merger and acquisition activity among newly public firms. Consistent with the hypothesis that some firms conduct IPOs to facilitate future M&A activity, we find that whether a newly public firm subsequently becomes a bidder or target is predicted by aspects of IPO deal structure. These characteristics include underwriter quality, promotional activity, pricing, proceeds, ownership structure, and issuance activity suggestive of market timing. Investors appear to rely on these observable aspects of a firm’s going public process to anticipate the implications of M&A activity for security valuation. Specifically, when newly public firms with IPO deal structures predictive of acquisition activity announce an acquisition their stock returns are indistinguishable from zero. In contrast, abnormal returns to acquisition announcements by unlikely or surprise bidders are positive on average. These results suggest that the going public process has important implications for future M&A activity and valuation.