Theses and Dissertations - Department of Economics, Finance & Legal Studies

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Browsing Theses and Dissertations - Department of Economics, Finance & Legal Studies by Subject "Banking"

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    Essays on financial stability and the industrial organization of the banking system
    (University of Alabama Libraries, 2020) Gao, Jiahong; Reed, Robert R.; University of Alabama Tuscaloosa
    The focus of my dissertation is to study how the industrial organization of the banking sector affects the risk-taking behavior of financial intermediaries and the degree of instability within the banking system. In the first chapter, I ask whether the notion that market concentration promotes stability survives when the government intervention during a crisis is properly taken into account. To this end, I study suspension policies in an environment without commitment, following Ennis and Keister (2009). When the BA only values the welfare of depositors, the degree of fragility is independent of the competitive structure of the banking system. However, having a BA that puts some weight on the monopolist’s welfare can serve as a commitment device in suspending payments earlier to protect bank profits, which reduces fragility under a monopoly. The second chapter investigates how the industrial organization of the banking sector may be associated with different triggers for the system to be unstable. In particular, my analysis is based on a modern version of the Diamond and Dybvig (1983) framework in which a self-fulfilling run occurs at a non-trivial probability and banks lack commitment in determining the structure of liabilities as in Ennis and Keister (2010). I find that the possibility that the monopolistic bank may lose its rents in times of stress encourages it to be relatively illiquid. As a result, a monopoly is more stable (fragile) than perfect competition if the ex-ante probability of a financial crisis is below (above) some threshold. The last chapter examines the effects of bank failures and market concentration on credit market activity across United States. In particular, I employ a recent 17-year panel of all FDIC-insured commercial banks over the period 1994Q3 to 2010Q4 and construct state-specific measures of bank failures and deposit concentration. Using a seemingly unrelated regressions (SUR) model, I find that over the full sample, banks issued less loans if the likelihood of a bank failure in a given state increased. Further, banks in states with higher degrees of concentration also issued less loans. Interestingly, there appears evidence that market concentration serves as a buffer against instability.
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    Monetary Policy and Discount Window Lending During the Financial Crisis: Theory and Empirical Evidence
    (University of Alabama Libraries, 2020) Zhang, Cuiyi; Reed, Robert R.; University of Alabama Tuscaloosa
    This dissertation studies monetary policy during the financial crisis. Particularly, the three essays investigate the transmission channel and effect Discount Window (DW) and Term Auction Facility (TAF) as well as the optimal policy conduct during crisis period. In the first essay, we examine the transmission channels of the Federal Reserve's maturity extension policy on DW and TAF activity during the crisis period. Specifically, we separate the maturities and the size of loans to differentiate the effects of overnight fund availability from maturity extension. Our findings indicate that maturity extension of DW loans promoted long-term (LT) lending by small banks in the banking sector, but this was generally limited to the time before the failure of Lehman Brothers. Finally, maturity extension of the TAF promoted residential real estate (RRE) lending by medium and large banks. In the second chapter, we seek to examine the impact of mortgage recourse provisions on the effectiveness of the Federal Reserve's maturity extension policy during the crisis. Our results indicate that banks that were operating in non-recourse states did have a higher probability to borrow from the DW in comparison to their peers in recourse states. Moreover, small-sized banks in non-recourse states tended to borrow for longer maturities, especially after the bankruptcy of Lehman Brothers. Furthermore, the effect of maturity extension at the Federal Reserve's Term lending programs was weaker among non-recourse banks. In the last chapter, we develop a general equilibrium framework in which banks perform two important functions in the financial system – risk pooling and lending services. In doing so, the paper thoroughly investigates how the effects of monetary policy depend on the distribution of liquidity risk and demand for loans in the economy. When the rate of money growth is sufficiently high, monetary policy is superneutral in parts of the economy but non-superneutral to the rest. Finally, if there is more liquidity risk in parts of the economy, it is optimal to adopt a lower rate of money growth. However, if such an increase happens in the lower liquidity risk region, the optimal policy is the opposite.
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    Three essays in corporate finance
    (University of Alabama Libraries, 2015) Adhikari, Binay Kumar; Agrawal, Anup; University of Alabama Tuscaloosa
    This dissertation consists of three essays in corporate finance. There are five chapters. In the first essay, we find that local gambling preferences have economically meaningful effects on corporate innovation. Using a county's Catholics-to-Protestants ratio as a proxy for local gambling preferences, we show that firms headquartered in areas with greater tolerance for gambling tend to be more innovative, i.e. they spend more on R&D, and obtain more and better quality patents. These results are supported by several robustness checks, tests to mitigate identification concerns, and analyses of several secondary implications. Investment in innovation makes a stock more lottery-like, a feature desired by individuals with a taste for gambling. Gambling preferences of both local investors and managers appear to influence firms' innovative endeavors and facilitate transforming their industry growth opportunities into firm value. In the second essay, we find robust evidence that banks headquartered in more religious areas take less risk and remain less vulnerable to financial crises. To reduce risk, these banks grow their assets more slowly, hold safer assets, rely less on non-traditional banking, and provide less incentives to their executives to increase risks. Local religiosity has a more pronounced influence on risks among banks for which local investors and managers are more important. But these banks command lower market valuations during normal times. Overall, this paper provides the first empirical evidence of the importance of human behavior in bank risk-taking. In the third essay, I examine the influence of sell-side financial analysts on corporate social responsibility (CSR), and find that firms with greater analyst coverage tend to be less socially responsible. To establish causality, I employ a difference-in-differences (DiD) technique, using brokerage closures and mergers as exogenous shocks to analyst coverage, as well as an instrumental variables approach. Both identification strategies suggest that analyst coverage has a negative causal effect on CSR. My findings are consistent with the view that spending on CSR is a manifestation of agency problem, and that financial analysts exert pressure on managers to cut back such discretionary spending.