Rebel A. Cole

Agency Costs and Ownership Structure

We provide measures of absolute and relative equity agency costs for corporations under different ownership and management structures. Our base case is Jensen and Mecklings (1976) zero agency-cost firm, where the manager is the firms sole shareholder. We utilize a sample of 1,708 small corporations from the FRB/NSSBF database and find that agency costs (i) are significantly higher when an outsider rather than an insider manages the firm; (ii) are inversely related to the managers ownership share; (iii) increase with the number of nonmanager shareholders, and (iv) to a lesser extent, are lower with greater monitoring by banks.

The importance of relationships to the availability of credit

In this article, I examine the effect of pre-existing relationships between a firm and its potential lender on the potential lenders decision whether or not to extend credit to the firm. I find that a potential lender is more likely to extend credit to a firm with which it has a pre-existing relationship as a source of financial services, but that the length of this relationship is unimportant. These findings provide empirical support for theories of financial intermediation positing that banking relationships generate valuable private information about the financial prospects of the financial institutions customer. The results also provide evidence that potential lenders are less likely to extend credit to firms with multiple sources of financial services, in support of the theory that the private information a financial institution generates about a firm is less valuable when the firm deals with multiple sources of financial services.

Separating the likelihood and timing of bank failure

Abstract We use a split-population survival-time model to separate the determinants of bank failure from the factors influencing the survival time of failing banks. Basic indicators of a banks condition, such as capital, troubled assets, and net income, are important in explaining the timing of bank failure. However, many of the other variables typically included in bank failure models, such as measures of bank liquidity, are not associated with the time to failure. The results also suggest that the closure of large banks is not delayed relative to the closure of small banks.

Expropriation Through Loan Guarantees to Related Parties: Evidence from China

We identify and analyze a sample of publicly traded Chinese firms that issued loan guarantees to their related parties (usually the controlling block holders), thereby expropriating wealth from minority shareholders. Our results show that the issuance of related guarantees is less likely at smaller firms, at more profitable firms and at firms with higher growth prospects. We also find that the identity and ownership of block holders affect the likelihood of expropriation. In addition, we use this sample to provide new evidence on the relation between tunneling and proxies for firm value and financial performance. We find that Tobins Q, ROA and dividend yield are significantly lower, and that leverage is significantly higher, at firms that issued related guarantees.

Political Connections and Minority-Shareholder Protection: Evidence from Securities-Market Regulation in China

We examine the wealth effects of 3 regulatory changes designed to improve minority-shareholder protection in the Chinese stock markets. Using the value of a firm’s related-party transactions as an inverse proxy for the quality of corporate governance, wefind that firms with weaker governance experienced significantly larger abnormal returns around announcements of the new regulations than did firms with stronger governance. We also find that firms with strong ties to the government did not benefit from the regulations, suggesting that minority shareholders did not expect regulators to enforce the new rules on firms where blockholders have strong political connections.

The Effect of Changes in Ownership Structure on Performance: Evidence from the Thrift Industry

Restrictions on the ownership structure of a public company may harm the companys performance by preventing owners from choosing the best structure. We examine the stock-price performance and ownership structure, before and after the expiration of anti-takeover regulations, of a sample of thrift institutions that converted from mutual to stock ownership. We find that after the anti-takeover provisions expire, firm performance improves significantly, and the portions of the firm owned by managers, noninstitutional outside block holders, and the firms employee stock ownership plan increase. Changes in performance are positively associated with changes in ownership by managers and by noninstitutional outside block holders but negatively associated with changes in ownership by employee stock ownership plans.

Bank stock returns and economic growth

Previous research has established (i) that a countrys financial sector influence future economic growth and (ii) that stock market index returns affect future economic growth. We extend and tie together these two strands of the growth literature by analyzing the relationship between banking industry stock returns and future economic growth. Using dynamic panel techniques to analyze panel data from 18 developed and 18 emerging markets, we find a positive and significant relationship between bank stock returns and future GDP growth that is independent of the previously documented relationship between market index returns and economic growth. We also find that much of the informational content of bank stock returns is captured by country-specific and institutional characteristics, such as bank-accounting-disclosure standards, banking crises, enforcement of insider trading law and government ownership of banks.

Changes in REIT Liquidity 1990–1994: Evidence from Intra‐day Transactions

This study uses data on intra-day transactions to analyze whether real estate investment (REIT) liquidity as measured by the bid-ask spread changed from 1990 to 1994, a period during which the industrys market capitalization increased from

Who Needs Credit and Who Gets Credit? Evidence from the Surveys of Small Business Finances

8.7 billion to

Moral Hazard, portfolio allocation, and asset returns for thrift institutions

45 billion. REIT percentage spreads (spread as percentage of share price) narrowed significantly, primarily attributable to higher share prices rather than narrower dollar-value spreads. An empirical model is used to analyze the determinants of percentage spreads. Return variance and share price, not market capitalization are found to be the primary determinants of percentage spreads in both periods. This suggests that the liquidity of REIT securities is similar to that of non-REIT securities with similar prices and return variance. In addition, percentage spreads are wider for REITs trading on the NASDAQ. Copyright American Real Estate and Urban Economics Association.