The Journal of Finance

Relationship‐Specific Assets and the Pricing of Underwriter Services

Published: 12/01/1992   |   DOI: 10.1111/j.1540-6261.1992.tb04686.x

CHRISTOPHER JAMES

This paper investigates the effect of setup costs on the pricing of investment banking services. The existence of setup costs is predicted to result in lower underwriter spreads in IPOs for firms that are expected to issue again. Consistent with this prediction, I find significantly lower spreads for firms that make subsequent issues. I also find that a firm's likelihood of changing underwriters in a subsequent offer is related to the time between offerings and the underwriter's pricing performance in the IPO. These results suggest that the deviations from optimal IPO pricing carry a penalty for the underwriter.

Bank Debt Restructurings and the Composition of Exchange Offers in Financial Distress

Published: 06/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb02700.x

CHRISTOPHER JAMES

This article examines the relation between bank debt forgiveness and the structure of public debt exchange offers in financial distress. I find that the structure of exchange offers and the likelihood of an offer's success are significantly related to whether the bank participates in the restructuring transaction. Exchange offers made in conjunction with bank concessions are characterized by significantly greater reductions in public debt outstanding and significantly less senior debt offered to bondholders. Overall, the results suggest that the structure of a firm's public and private claims significantly affects the firm's ability to modify its capital structure in financial distress.

The Losses Realized in Bank Failures

Published: 09/01/1991   |   DOI: 10.1111/j.1540-6261.1991.tb04616.x

CHRISTOPHER JAMES

This paper examines the losses realized in bank failures. Losses are measured as the difference between the book value of assets and the recovery value net of the direct expenses associated with the failure. I find the loss on assets is substantial, averaging 30 percent of the failed bank's assets. Direct expenses associated with bank closures average 10 percent of assets. An empirical analysis of the determinants of these losses reveals a significant difference in the value of assets retained by the FDIC and similar assets assumed by acquiring banks.

An Analysis of Bank Loan Rate Indexation

Published: 06/01/1982   |   DOI: 10.1111/j.1540-6261.1982.tb02225.x

CHRISTOPHER JAMES

This paper examines the economic rationale for the use of bank loan commitments and the effect on the allocation of bank credit of indexing the loan rate offered through the commitment to the prime. A simple model of the loan market is constructed and used to examine the effect changes in loan demand and the cost of bank funds have on the allocation of bank credit under indexation. It is shown that indexing implies changes in the relative cost of borrowing for certain groups of bank customers. For nonprime customers, an increase in the cost of bank funds results in a decline in the relative cost of borrowing under commitments. The pattern of commitment use is found to be consistent with the predictions of the model.

Bank Information Monopolies and the Mix of Private and Public Debt Claims

Published: 12/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb05229.x

JOEL HOUSTON, CHRISTOPHER JAMES

This article examines the determinants of the mix of private and public debt using detailed information on the debt structure of 250 publicly traded corporations from 1980 through 1990. We find that the relationship between bank borrowing and the importance of growth opportunities depends on the number of banks the firm uses and whether the firm has public debt outstanding. For firms with a single bank relationship, the reliance on bank debt is negatively related to the importance of growth opportunities. In contrast, among firms borrowing from multiple banks, the relationship is positive.

Regulation and the Determination of Bank Capital Changes: A Note

Published: 12/01/1983   |   DOI: 10.1111/j.1540-6261.1983.tb03848.x

J. KIMBALL DIETRICH, CHRISTOPHER JAMES

The effectiveness of bank capital adequacy requirements is examined in this paper. Using empirical tests similar to those employed by Peltzman and Mingo, no significant relationship is found between changes in bank capital and the capital standards imposed by regulators. The findings conflict with those of previous studies. The conflict in findings, it is argued, results from the failure of previous studies to account for the effect of binding deposit rate ceilings.

The Relation Between Common Stock Returns Trading Activity and Market Value

Published: 09/01/1983   |   DOI: 10.1111/j.1540-6261.1983.tb02283.x

CHRISTOPHER JAMES, ROBERT O. EDMISTER

This study examines the relation between common stock returns, trading activity and market value. Our results indicate that although firm size and trading activity are highly correlated, differences in trading activity are not the underlying reason for the firm size anomaly, the finding of systematic differences in risk adjusted returns across stocks of firms of different size.

The Determinants of Long‐Term Corporate Debt Issuances

Published: 03/05/2015   |   DOI: 10.1111/jofi.12264

DOMINIQUE C. BADOER, CHRISTOPHER M. JAMES

A significant proportion of the debt issued by investment‐grade firms has maturities greater than 20 years. In this paper we provide evidence that gap‐filling behavior is an important determinant of these very long‐term issues. Using data on individual corporate debt issues between 1987 and 2009, we find that gap‐filling behavior is more prominent in the very long end of the maturity spectrum where the required risk capital makes arbitrage costly. In addition, changes in the supply of long‐term government bonds affect not just the choice of maturity but also the overall level of corporate borrowing.

The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions

Published: 09/01/1984   |   DOI: 10.1111/j.1540-6261.1984.tb03898.x

MARK J. FLANNERY, CHRISTOPHER M. JAMES

This paper examines the relation between the interest rate sensitivity of common stock returns and the maturity composition of the firm's nominal contracts. Using a sample of actively traded commerical banks and stock savings and loan associations, common stock returns are found to be correlated with interest rate changes. The co‐movement of stock returns and interest rate changes is positively related to the size of the maturity difference between the firm's nominal assets and liabilities.

An Analysis of the Impact of Deposit Rate Ceilings on the Market Values of Thrift Institutions

Published: 12/01/1982   |   DOI: 10.1111/j.1540-6261.1982.tb03617.x

LARRY Y. DANN, CHRISTOPHER M. JAMES

This paper examines the impact of changes in deposit interest rate regulations on the common stock values of savings and loan institutions. The analysis indicates that stockholder‐owned savings and loans (S & L's) have experienced statistically significant declines in equity market values at the announcement of the removal of ceilings on certain consumer (small saver) certificate accounts and the introduction of short term variable rate money market certificates. We find the evidence to be consistent with the hypothesis that S & L's have earned economic rents from restrictions on interest rates paid to small saver accounts, and that relaxation of interest rate ceilings has reduced these rents.

A VARMA Analysis of the Causal Relations Among Stock Returns, Real Output, and Nominal Interest Rates

Published: 12/01/1985   |   DOI: 10.1111/j.1540-6261.1985.tb02389.x

CHRISTOPHER JAMES, SERGIO KOREISHA, MEGAN PARTCH

Previous research has documented a negative relation between common stock returns and inflation. Recently, Fama [3] and Geske and Roll [6] have argued that this relation results from a more fundamental one between real activity and expected inflation. Stock returns, they argue, signal changes in real activity, which in turn affect expected inflation. However, unlike Fama, Geske and Roll argue that changes in real activity result in changes in money supply growth, which in turn affect expected inflation. Empirical tests have analyzed separately each link in the proposed causal chain. In this article, we investigate simultaneously the relations among stock returns, real activity, inflation, and money supply changes using a vector autoregressive moving average (VARMA) model. Our empirical results strongly support Geske and Roll's reversed causality model.

Do Banks Provide Financial Slack?

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00464

Charles J. Hadlock, Christopher M. James

We study the decision to choose bank debt rather than public securities in a firm's marginal financing choice. Using a sample of 500 firms over the 1980 to 1993 time period, we find that firms are relatively more likely to choose bank loans when variables that measure asymmetric information problems are elevated. The sensitivity of the likelihood of choosing bank debt to information problems is greater for firms with no public debt outstanding. These results are consistent with the hypothesis that banks help alleviate asymmetric information problems and that firms weigh these information benefits against a wide range of contracting costs when choosing bank financing.

Ratings Quality and Borrowing Choice

Published: 05/31/2019   |   DOI: 10.1111/jofi.12820

DOMINIQUE C. BADOER, CEM DEMIROGLU, CHRISTOPHER M. JAMES

Past studies document that incentive conflicts may lead issuer‐paid credit rating agencies to provide optimistically biased ratings. In this paper, we present evidence that investors question the quality of issuer‐paid ratings and raise corporate bond yields where the issuer‐paid rating is more positive than benchmark investor‐paid ratings. We also find that some firms with favorable issuer‐paid ratings substitute public bonds with borrowings from informed intermediaries to mitigate the “lemons discount” associated with poor quality ratings. Overall, our results suggest that the quality of issuer‐paid ratings has significant effects on borrowing costs and the choice of debt.