The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Ownership Structure, Speculation, and Shareholder Intervention
Published: 12/17/2002 | DOI: 10.1111/0022-1082.45483
Charles Kahn, Andrew Winton
An institution holding shares in a firm can use information about the firm both for trading (“speculation”) and for deciding whether to intervene to improve firm performance. Intervention increases the value of the institution's existing shareholdings, but intervention only increases the institution's trading profits if it enhances the precision of the institution's information relative to that of uninformed traders. Thus, the ability to speculate can increase or decrease institutional intervention. We examine key factors that affect the intervention decision, the usefulness of “short‐swing” provisions and restricted shares in encouraging institutional intervention, and implications for ownership structure across different firms.
Moral Hazard and Optimal Subsidiary Structure for Financial Institutions
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00708.x
CHARLES KAHN, ANDREW WINTON
Banks and related financial institutions often have two separate subsidiaries that make loans of similar type but differing risk, for example, a bank and a finance company, or a “good bank/bad bank” structure. Such “bipartite” structures may prevent risk shifting, in which banks misuse their flexibility in choosing and monitoring loans to exploit their debt holders. By “insulating” safer loans from riskier loans, a bipartite structure reduces risk‐shifting incentives in the safer subsidiary. Bipartite structures are more likely to dominate unitary structures as the downside from riskier loans is higher or as expected profits from the efficient loan mix are lower.
Bank Deposit Rate Clustering: Theory and Empirical Evidence
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00185
Charles Kahn, George Pennacchi, Ben Sopranzetti
Like security prices, retail deposit interest rates cluster around integers and “even” fractions. However, explanations for security price clustering are incompatible with deposit rate clustering. A theory based on the limited recall of retail depositors is proposed. It predicts that banks tend to set rates at integers and that rates are “sticky” at these levels. The propensity for integer rates increases with the level of wholesale interest rates and deposit market concentration. When banks set noninteger rates, rates are more likely to be just above, rather than just below, integers. The paper finds substantial empirical support for the theory's implications.