The Journal of Finance

Funding Liquidity without Banks: Evidence from a Shock to the Cost of Very Short‐Term Debt

Published: 07/06/2019   |   DOI: 10.1111/jofi.12832

FELIPE RESTREPO, LINA CARDONA‐SOSA, PHILIP E. STRAHAN

In 2011, Colombia instituted a tax on repayment of bank loans, which increased the cost of short‐term bank credit more than long‐term credit. Firms responded by cutting short‐term loans for liquidity management purposes and increasing the use of cash and trade credit. In industries in which trade credit is more accessible (based on U.S. Compustat firms), we find substitution into accounts payable and little effect on cash and investment. Where trade credit is less available, firms increase cash and cut investment. Thus, trade credit provides an alternative source of liquidity that can insulate some firms from bank liquidity shocks.

Bank Quality, Judicial Efficiency, and Loan Repayment Delays in Italy

Published: 02/20/2020   |   DOI: 10.1111/jofi.12896

FABIO SCHIANTARELLI, MASSIMILIANO STACCHINI, PHILIP E. STRAHAN

Italian firms delay payment to banks weakened by past loan losses. Exploiting Credit Register data, we fully absorb borrower fundamentals with firm‐quarter effects. Identification therefore reflects firm choices to delay payment to some banks, depending on their health. This selective delay occurs more where legal enforcement of collateral recovery is slow. Poor enforcement encourages borrowers not to pay when the value of their bank relationship comes into doubt. Selective delays occur even by firms able to pay all lenders. Credit losses in Italy have thus been worsened by the combination of weak banks and weak legal enforcement.

The Empirical Implications of the Cox, Ingersoll, Ross Theory of the Term Structure of Interest Rates

Published: 07/01/1986   |   DOI: 10.1111/j.1540-6261.1986.tb04523.x

STEPHEN J. BROWN, PHILIP H. DYBVIG

The one‐factor version of the Cox, Ingersoll, and Ross model of the term structure is estimated using monthly quotes on U.S. Treasury issues trading from 1952 through 1983. Using data from a single yield curve, it is possible to estimate implied short and long term zero coupon rates and the implied variance of changes in short rates. Analysis of residuals points to a probable neglected tax effect.

Testing Market Efficiency: Evidence From The NFL Sports Betting Market

Published: 04/18/2012   |   DOI: 10.1111/j.1540-6261.1997.tb01129.x

PHILIP K. GRAY, STEPHEN F. GRAY

This article examines the efficiency of the National Football League (NFL) betting market. The standard ordinary least squares (OLS) regression methodology is replaced by a probit model. This circumvents potential econometric problems, and allows us to implement more sophisticated betting strategies where bets are placed only when there is a relatively high probability of success. In‐sample tests indicate that probit‐based betting strategies generate statistically significant profits. Whereas the profitability of a number of these betting strategies is confirmed by out‐of‐sample testing, there is some inconsistency among the remaining out‐of‐sample predictions. Our results also suggest that widely documented inefficiencies in this market tend to dissipate over time.

Do Conglomerate Firms Allocate Resources Inefficiently Across Industries? Theory and Evidence

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00440

Vojislav Maksimovic, Gordon Phillips

We develop a profit‐maximizing neoclassical model of optimal firm size and growth across different industries based on differences in industry fundamentals and firm productivity. In the model, a conglomerate discount is consistent with profit maximization. The model predicts how conglomerate firms will allocate resources across divisions over the business cycle and how their responses to industry shocks will differ from those of single‐segment firms. Using plant level data, we find that growth and investment of conglomerate and single‐segment firms is related to fundamental industry factors and individual segment level productivity. The majority of conglomerate firms exhibit growth across industry segments that is consistent with optimal behavior.

COMPETITION, CONFUSION, AND COMMERCIAL BANKING*

Published: 03/01/1964   |   DOI: 10.1111/j.1540-6261.1964.tb00743.x

Almarin Phillips

Strategic Default and Equity Risk Across Countries

Published: 11/19/2012   |   DOI: 10.1111/j.1540-6261.2012.01781.x

GIOVANNI FAVARA, ENRIQUE SCHROTH, PHILIP VALTA

We show that the prospect of a debt renegotiation favorable to shareholders reduces the firm's equity risk. Equity beta and return volatility are lower in countries where the bankruptcy code favors debt renegotiations and for firms with more shareholder bargaining power relative to debt holders. These relations weaken as the country's insolvency procedure favors liquidations over renegotiations. In the limit, when debt contracts cannot be renegotiated, equity risk is independent of shareholders' incentives to default strategically. We argue that these findings support the hypothesis that the threat of strategic default can reduce the firm's equity risk.

Private and Public Merger Waves

Published: 04/12/2013   |   DOI: 10.1111/jofi.12055

VOJISLAV MAKSIMOVIC, GORDON PHILLIPS, LIU YANG

We document that public firms participate more than private firms as buyers and sellers of assets in merger waves and their participation is affected more by credit spreads and aggregate market valuation. Public firm acquisitions realize higher gains in productivity, particularly for on‐the‐wave acquisitions and when the acquirer's stock is liquid and highly valued. Our results are not driven solely by public firms' better access to capital. Using productivity data from early in the firm's life, we find that better private firms subsequently select to become public. Initial size and productivity predict asset purchases and sales 10 and more years later.

Determinants of Thrift Institution Resolution Costs

Published: 07/01/1990   |   DOI: 10.1111/j.1540-6261.1990.tb05103.x

JAMES R. BARTH, PHILIP F. BARTHOLOMEW, MICHAEL G. BRADLEY

This paper provides a detailed examination of the cost imposed by thrift institutions resolved during the period 1980–1988. A simple model is presented to explain the cost of resolution. This model is tested empirically with a comprehensive data set that permits us to avoid some of the econometric problems present in earlier studies. The empirical evidence suggests that the model that explains resolution costs in the late 1980s is significantly different from the model for either the middle or early 1980s. This evidence is consistent with the changing nature of the thrift crisis and changes in the regulator's closure rule. Our econometric evidence, moreover, is consistent with the hypothesis that, for troubled institutions, tangible net worth systematically understates market‐value net worth. In addition, the importance of including time effects as well as institution effects as determinants of the cost of resolution is revealed.

Contingent Claims Analysis of Corporate Capital Structures: an Empirical Investigation

Published: 07/01/1984   |   DOI: 10.1111/j.1540-6261.1984.tb03649.x

E. PHILIP JONES, SCOTT P. MASON, ERIC ROSENFELD

DISCUSSION

Published: 05/01/1963   |   DOI: 10.1111/j.1540-6261.1963.tb00717.x

Hal B. Lary, Philip W. Bell, Roy L. Reierson

Evidence of Financial Leverage Clienteles

Published: 09/01/1983   |   DOI: 10.1111/j.1540-6261.1983.tb02287.x

JOHN M. HARRIS, RODNEY L. ROENFELDT, PHILIP L. COOLEY

Exporting Liquidity: Branch Banking and Financial Integration

Published: 02/03/2016   |   DOI: 10.1111/jofi.12387

ERIK P. GILJE, ELENA LOUTSKINA, PHILIP E. STRAHAN

Using exogenous liquidity windfalls from oil and natural gas shale discoveries, we demonstrate that bank branch networks help integrate U.S. lending markets. Banks exposed to shale booms enjoy liquidity inflows, which increase their capacity to originate and hold new loans. Exposed banks increase mortgage lending in nonboom counties, but only where they have branches and only for hard‐to‐securitize mortgages. Our findings suggest that contracting frictions limit the ability of arm's length finance to integrate credit markets fully. Branch networks continue to play an important role in financial integration, despite the development of securitization markets.

Contributing Authors and Institutions to the Journal of Finance: 1946–1985

Published: 12/01/1986   |   DOI: 10.1111/j.1540-6261.1986.tb02535.x

J. LOUIS HECK, PHILIP L. COOLEY, CARL M. HUBBARD

Publication of the December 1985 issue of the Journal of Finance completed the Journal's first 40 years of contributions to the profession. This study identifies and summarizes the contributing authors, where they earned their doctoral degrees, and their employers at the time of publication. The authors, degree‐granting institutions, and employers appearing most frequently in the Journal are ordered for the entire 40‐year period and for various subperiods. Where possible, the present findings are compared with those of previously published studies.

Are All Ratings Created Equal? The Impact of Issuer Size on the Pricing of Mortgage‐Backed Securities

Published: 11/19/2012   |   DOI: 10.1111/j.1540-6261.2012.01782.x

JIE (JACK) HE, JUN (QJ) QIAN, PHILIP E. STRAHAN

Initial yields on both AAA‐rated and non‐AAA rated mortgage‐backed security (MBS) tranches sold by large issuers are higher than yields on similar tranches sold by small issuers during the market boom years of 2004 to 2006. Moreover, the prices of MBS sold by large issuers drop more than those sold by small issuers, and the differences are concentrated among tranches issued during 2004 to 2006. These results suggest that investors price the risk that large issuers received more inflated ratings than small issuers, especially during boom periods.

THE COMMISSION ON FINANCIAL STRUCTURE AND REGULATION: ITS ORGANIZATION AND RECOMMENDATIONS

Published: 05/01/1972   |   DOI: 10.1111/j.1540-6261.1972.tb00962.x

Donald P. Jacobs, Almarin Phillips

Asset Efficiency and Reallocation Decisions of Bankrupt Firms

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00063

VOJISLAV MAKSIMOVIC, GORDON PHILLIPS

This paper investigates whether Chapter 11 bankruptcy provides a mechanism by which insolvent firms are efficiently reorganized and the assets of unproductive firms are effectively redeployed. We argue that incentives to reorganize depend on the level of demand and industry conditions. Using plant‐level data, we find that Chapter 11 status is much less important than industry conditions in explaining the productivity, asset sales, and closure conditions of Chapter 11 bankrupt firms. This suggests that firms that elect to enter into Chapter 11 incur few real economic costs.

The Industry Life Cycle, Acquisitions and Investment: Does Firm Organization Matter?

Published: 04/01/2008   |   DOI: 10.1111/j.1540-6261.2008.01328.x

VOJISLAV MAKSIMOVIC, GORDON PHILLIPS

We examine the effect of industry life‐cycle stages on within‐industry acquisitions and capital expenditures by conglomerates and single‐segment firms controlling for endogeneity of organizational form. We find greater differences in acquisitions than in capital expenditures, which are similar across organizational types. In particular, 36% of the growth recorded by conglomerate segments in growth industries comes from acquisitions, versus 9% for single‐segment firms. In growth industries, the effect of financial dependence on acquisitions and plant openings is mitigated for conglomerate firms. Plants acquired by conglomerate firms increase in productivity. The results suggest that organizational forms' comparative advantages differ across industry conditions.

Real and Financial Industry Booms and Busts

Published: 01/13/2010   |   DOI: 10.1111/j.1540-6261.2009.01523.x

GERARD HOBERG, GORDON PHILLIPS

We examine how product market competition affects firm cash flows and stock returns in industry booms and busts. Our results show how real and financial factors interact in industry business cycles. In competitive industries, we find that high industry‐level stock market valuation, investment, and financing are followed by sharply lower operating cash flows and abnormal stock returns. Analyst estimates are positively biased and returns comove more. In concentrated industries these relations are weak and generally insignificant. Our results are consistent with participants in competitive industries not fully internalizing the negative externality of industry competition on cash flows and stock returns.

Liquidity, Reconstitution, and the Value of U.S. Treasury Strips

Published: 03/01/1993   |   DOI: 10.1111/j.1540-6261.1993.tb04712.x

PHILLIP R. DAVES, MICHAEL C. EHRHARDT

An apparent pricing anomaly exists in the market for U.S. Treasury strips: zero‐coupon strips created from principal payments typically trade at significantly higher prices than otherwise identical zero‐coupon strips created from coupon payments. In addition to documenting this phenomenon, this study demonstrates that differences in liquidity and differences in reconstitution characteristics explain much of this price variation.