The Journal of Finance

Local Bank Financial Constraints and Firm Access to External Finance

Published: 09/10/2008   |   DOI: 10.1111/j.1540-6261.2008.01393.x

DANIEL PARAVISINI

I exploit the exogenous component of a formula‐based allocation of government funds across banks in Argentina to test for financial constraints and underinvestment by local banks. Banks are found to expand lending by $0.66 in response to an additional dollar of external financing. Using novel data to measure risk and return on marginal lending, I show that the profitability of lending does not decline and total borrower debt increases during lending expansions, holding investment opportunities constant. Overall, financial shocks to constrained banks are found to have a quick, persistent, and amplified effect on the aggregate supply of credit.

Specialization in Bank Lending: Evidence from Exporting Firms

Published: 06/20/2023   |   DOI: 10.1111/jofi.13254

DANIEL PARAVISINI, VERONICA RAPPOPORT, PHILIPP SCHNABL

We develop a novel approach for measuring bank specialization using granular data on borrower activities and apply it to Peruvian exporters and their banks. We find that borrowers seek credit from banks that specialize in their export destinations, both when expanding exports and when exporting to new countries. Firms experiencing country‐specific export demand shocks adjust borrowing disproportionately from specialized banks. Specialized bank credit supply shocks affect exports disproportionately to countries of specialization. Our results demonstrate that firm credit demand is bank‐ and activity‐specific, which reduces banking competition and affects the transmission and amplification of shocks through the banking sector.

Public Information and Coordination: Evidence from a Credit Registry Expansion

Published: 03/21/2011   |   DOI: 10.1111/j.1540-6261.2010.01637.x

ANDREW HERTZBERG, JOSÉ MARÍA LIBERTI, DANIEL PARAVISINI

This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders' joint reaction to new information, we exploit a natural experiment that forced lenders to share negative private assessments about their borrowers. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of other lenders' reaction to the negative news about the firm. The results show that public information exacerbates lender coordination and increases the incidence of firm financial distress.

Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation

Published: 05/07/2010   |   DOI: 10.1111/j.1540-6261.2010.01553.x

ANDREW HERTZBERG, JOSE MARIA LIBERTI, DANIEL PARAVISINI

We present evidence that reassigning tasks among agents can alleviate moral hazard in communication. A rotation policy that routinely reassigns loan officers to borrowers of a commercial bank affects the officers' reporting behavior. When an officer anticipates rotation, reports are more accurate and contain more bad news about the borrower's repayment prospects. As a result, the rotation policy makes bank lending decisions more sensitive to officer reports. The threat of rotation improves communication because self‐reporting bad news has a smaller negative effect on an officer's career prospects than bad news exposed by a successor.