The Journal of Finance

Does Distance Still Matter? The Information Revolution in Small Business Lending

Published: 12/2002,  Volume: 57,  Issue: 6  |  DOI: 10.1111/1540-6261.00505  |  Cited by: 1717

Mitchell A. Petersen, Raghuram G. Rajan

The distance between small firms and their lenders is increasing, and they are communicating in more impersonal ways. After documenting these systematic changes, we demonstrate they do not arise from small firms locating differently, consolidation in the banking industry, or biases in the sample. Instead, improvements in lender productivity appear to explain our findings. We also find distant firms no longer have to be the highest quality credits, indicating they have greater access to credit. The evidence indicates there has been substantial development of the financial sector, even in areas such as small business lending.

The Benefits of Lending Relationships: Evidence from Small Business Data

Published: 3/1994,  Volume: 49,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1994.tb04418.x  |  Cited by: 3898

MITCHELL A. PETERSEN, RAGHURAM G. RAJAN

This paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm. We analyze data collected in a survey of small firms by the Small Business Administration. The primary benefit of building close ties with an institutional creditor is that the availability of financing increases. We find smaller effects on the price of credit. Attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit. In sum, relationships are valuable and appear to operate more through quantities rather than prices.

RISK AND THE CAPITAL STRUCTURE OF THE FIRM*

Published: 3/1964,  Volume: 19,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1964.tb00756.x  |  Cited by: 0

Harold Petersen

THE EFFECT OF “FAIR VALUE” RATE BASE VALUATION IN ELECTRIC UTILITY REGULATION

Published: 12/1976,  Volume: 31,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1976.tb03227.x  |  Cited by: 0

H. Craig Petersen

DEFERRED DEPRECIATION—A CANADIAN ANTI‐INFLATIONARY MEASURE*

Published: 5/1952,  Volume: 7,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1952.tb01539.x  |  Cited by: 0

Mitchell W. Sharp

INTEREST RATES VERSUS INTEREST CEILINGS IN THE ALLOCATION OF CREDIT FLOWS

Published: 5/1967,  Volume: 22,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1967.tb00012.x  |  Cited by: 0

George W. Mitchell

PROPERTY TAXATION IN RELATION TO INVESTMENT IN URBAN AREAS

Published: 6/1951,  Volume: 6,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1951.tb04459.x  |  Cited by: 0

George W. Mitchell

Expected Inflation and Interest Rates in a Multi‐asset Model: A Note

Published: 6/1985,  Volume: 40,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1985.tb04977.x  |  Cited by: 3

DOUGLAS W. MITCHELL

This paper analyzes the effect of expected inflation on nominal interest rates, in a theoretical model with money and two different bond types. The inclusion of three assets instead of the usual two causes the effect of expected inflation on the interest rates to deviate from unity. Depending on the sizes of the wealth and interest rate effects on the various asset demands, the effect of expected inflation could even be negative. Several special cases are also considered, and the implications for the interpretation of empirical results are discussed.

ECONOMIC ASPECTS OF REVENUE BOND FINANCING

Published: 5/1955,  Volume: 10,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1955.tb01268.x  |  Cited by: 0

George W. Mitchell

Bond Covenants and Delegated Monitoring

Published: 6/1988,  Volume: 43,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1988.tb03946.x  |  Cited by: 320

MITCHELL BERLIN, JAN LOEYS

This paper examines alternative contracting arrangements available to a firm seeking to finance an investment project. The authors consider the choice between loan contracts with covenants based on noisy indicators of the firm's financial health and loan contracts enforced by a monitoring specialist. In one interpretation, the specialist is a financial intermediary. The firm's choice is shown to depend upon the firm's credit rating, the accuracy of financial indicators of the firm's condition, the loss from premature liquidation of the firm's project, and the cost of monitoring.

Characteristics of Risk and Return in Risk Arbitrage

Published: 12/2001,  Volume: 56,  Issue: 6  |  DOI: 10.1111/0022-1082.00401  |  Cited by: 565

Mark Mitchell, Todd Pulvino

This paper analyzes 4,750 mergers from 1963 to 1998 to characterize the risk and return in risk arbitrage. Results indicate that risk arbitrage returns are positively correlated with market returns in severely depreciating markets but uncorrelated with market returns in flat and appreciating markets. This suggests that returns to risk arbitrage are similar to those obtained from selling uncovered index put options. Using a contingent claims analysis that controls for the nonlinear relationship with market returns, and after controlling for transaction costs, we find that risk arbitrage generates excess returns of four percent per year.

The Effect of a Rating Downgrade on Outstanding Commercial Paper

Published: 3/1994,  Volume: 49,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1994.tb04419.x  |  Cited by: 37

LELAND CRABBE, MITCHELL A. POST

Diamond (1991) argues that a firm's reputation determines whether it borrows directly or through an intermediary. We test the Diamond model by examining the quantity response of commercial paper issued by bank holding companies to a rating downgrade. From 1986 to 1991, cumulative abnormal declines averaged 6.69 percent in the first two weeks after the downgrade and 11.05 percent in the subsequent 12 weeks. In contrast to commercial paper issued by bank holding companies, large CDs issued by affiliated banks did not change significantly in the period around a downgrade, suggesting that deposit insurance may have removed market discipline from the CD market.

Law, Stock Markets, and Innovation

Published: 7/16/2013,  Volume: 68,  Issue: 4  |  DOI: 10.1111/jofi.12040  |  Cited by: 449

JAMES R. BROWN, GUSTAV MARTINSSON, BRUCE C. PETERSEN

We study a broad sample of firms across 32 countries and find that strong shareholder protections and better access to stock market financing lead to substantially higher long‐run rates of R&D investment, particularly in small firms, but are unimportant for fixed capital investment. Credit market development has a modest impact on fixed investment but no impact on R&D. These findings connect law and stock markets with innovative activities key to economic growth, and show that legal rules and financial developments affecting the availability of external equity financing are particularly important for risky, intangible investments not easily financed with debt.

Price Pressure around Mergers

Published: 2/2004,  Volume: 59,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2004.00626.x  |  Cited by: 287

Mark Mitchell, Todd Pulvino, Erik Stafford

This paper examines the trading behavior of professional investors around 2,130 mergers announced between 1994 and 2000. We find considerable support for the existence of price pressure around mergers caused by uninformed shifts in excess demand, but that these effects are short‐lived, consistent with the notion that short‐run demand curves for stocks are not perfectly elastic. We estimate that nearly half of the negative announcement period stock price reaction for acquirers in stock‐financed mergers reflects downward price pressure caused by merger arbitrage short selling, suggesting that previous estimates of merger wealth effects are biased downward.

Limited Arbitrage in Equity Markets

Published: 4/2002,  Volume: 57,  Issue: 2  |  DOI: 10.1111/1540-6261.00434  |  Cited by: 271

Mark Mitchell, Todd Pulvino, Erik Stafford

We examine 82 situations where the market value of a company is less than its subsidiary. These situations imply arbitrage opportunities, providing an ideal setting to study the risks and market frictions that prevent arbitrageurs from immediately forcing prices to fundamental values. For 30 percent of the sample, the link between the parent and its subsidiary is severed before the relative value discrepancy is corrected. Furthermore, returns to a specialized arbitrageur would be 50 percent larger if the path to convergence was smooth rather than as observed. Uncertainty about the distribution of returns and characteristics of the risks limits arbitrage.

The Impact of Public Information on the Stock Market

Published: 7/1994,  Volume: 49,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1994.tb00083.x  |  Cited by: 379

MARK L. MITCHELL, J. HAROLD MULHERIN

AbstractWe study the relation between the number of news announcements reported daily by Dow Jones & Company and aggregate measures of securities market activity including trading volume and market returns. We find that the number of Dow Jones announcements and market activity are directly related and that the results are robust to the addition of factors previously found to influence financial markets such as day‐of‐the‐week dummy variables, news importance as proxied by large New York Times headlines and major macroeconomic announcements, and noninformation sources of market activity as measured by dividend capture and triple witching trading. However, the observed relation between news and market activity is not particularly strong and the patterns in news announcements do not explain the day‐of‐the‐week seasonalities in market activity. Our analysis of the Dow Jones database confirms the difficulty of linking volume and volatility to observed measures of information.

Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom

Published: 1/23/2009,  Volume: 64,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2008.01431.x  |  Cited by: 1643

JAMES R. BROWN, STEVEN M. FAZZARI, BRUCE C. PETERSEN

The financing of R&D provides a potentially important channel to link finance and economic growth, but there is no direct evidence that financial effects are large enough to impact aggregate R&D. U.S. firms finance R&D from volatile sources: cash flow and stock issues. We estimate dynamic R&D models for high‐tech firms and find significant effects of cash flow and external equity for young, but not mature, firms. The financial coefficients for young firms are large enough that finance supply shifts can explain most of the dramatic 1990s R&D boom, which implies a significant connection between finance, innovation, and growth.