Finance Seminars, Patricio Valenzuela – University of Chile.
Title: Sovereign Credit Risk, Financial Fragility, and Global Factors
This study explores the relationship between sovereign credit risk, financial stability, and global factors in emerging market economies, by using a novel model-based semi-parametric metric (JLoss) that computes the expected joint loss of the banking sector in the event of a large financial meltdown. Our metric of financial fragility is positively associated with sovereign bond spread and negatively associated with higher sovereign credit ratings, after controlling for the standard determinants of sovereign credit risk. The results additionally indicate that countries with more fragile banking sectors are exposed to a global (exogenous) financial factors than those with more resilient banking sectors. These findings underscore that regulators must ensure that stability of the banking sector to improve governments’ borrowing costs in international debt markets.
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Finance Seminars, Bernardo de Oliveira Guerra Ricca, INSPER.
Title: Procurement payment periods and political contributions: evidence from Brazilian municipalities
Evidence of quid pro quo in public procurement persists despite the increasing adoption of competitive auctions. One possible explanation is that donors receive preferential treatment after the bidding stage. I test for the existence of a new channel through which politicians can exchange favors with campaign donors: earlier payment in procurement contracts. I explore an electoral reform that bans corporate contributions and partially breaks down the relationship between donors and politicians. Using a within-firm difference-in-differences identification strategy, I find that the payment period to firms that donate to the coalition government increases after the reform. The effect is larger in municipalities with low liquidity and for contracts allocated through competitive procurement methods. My results point to the importance of designing rules that curb discretion over payment periods.
Finance Seminars, Rafael Schiozer, FGV EAESP.
Title: Bank loan forbearance: evidence from a million restructured loans
Forbearance is a concession granted by a lending bank to a borrower for reasons of financial difficulty. This paper examines why and when delinquent bank loans are forborne, using a novel dataset with over 13 million delinquent loans to non-financial firms in Brazil, from which 1.1 million are forborne. Our evidence shows that renegotiations of delinquent loans typically involve an extension in maturity. We also show that larger loans are more likely to be forborne, and that the greater the difficulty to seize collateral, the larger the probability of forbearance. Previous forbearances to a borrower are also positively associated with the probability of forbearance, which may be an indicative of loan evergreening. We also show that more than 80% of forbearance events occur in less than four months after a loan becomes more than 60 days past due (after which the bank may no longer accrue interest). Finally, we find that a regulatory rule that forces banks to increase provisions of non-delinquent loans when the same borrower also has a delinquent loan creates incentives for banks to forbear delinquent loans. Because loan evergreening may pose macroeconomic resource allocation problems and forbearance may be used to conceal loan losses, decrease provisions and manage earnings and capital, our findings have implications for the design of regulation and supervisory processes.
CBFR informrs that Professor Murillo Campello (Johnson Business School/ Cornell University) will teach the course "Advanced Corporate Finance" from July 4th - 17th at EBAPE.
Dr. Wolf Wagner, a CBFR fellow, gave a Workshop at FGV-EBAPE on Financial Stability from May 13th to 23th, 2019. The workshop is part of the Finance Track of EBAPE's MSc/PhD program.
Santiago Finance Workshop, organized by the University of Chile, December 10-11, 2018.
Submission deadline for papers: June 30, 2018.
The Center for Banking and Finance in Rio together with the Brazilian School of Public and Business Administration (EBAPE) at the Getúlio Vargas Foundation (FGV) invite for its International Conference on Banking and Economic Development to be held in Rio de Janeiro, Brazil on December 6-7, 2018.
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Title: The Micro Impact of Macroprudential Policies Firm-Level Evidence
Combining balance sheet data on 900,000 firms from 49 countries with information on the adoption of macroprudential policies during 2003-2011, we find that these policies are associated with lower credit growth. These effects are especially significant for micro, small and medium enterprises (MSMEs) and young firms that, according to the literature, are more financially constrained and bank dependent. Among MSMEs and young firms, those with weaker balance sheets exhibit lower credit growth in conjunction with the adoption of macroprudential policies, suggesting that these policies can enhance financial stability. Finally, our results show that macroprudential policies have real effects, as they are associated with lower investment and sales growth.
Finance Seminars, Co-Pierre Georg, University of Cape Town, South Africa.
Title: How Financial Institutions Manage Political Risk: Evidence from Brexit and the Trump Election
Recent years have seen a significant increase in political uncertainty around the world. This paper exploits trade-level data to study how financial institutions manage such political risk, in particular how they reacted to the Brexit vote and the Trump election. We provide evidence that in the weeks before the votes, financial institutions were more likely to increase their exposure to UK and US when the polls suggested that Brexit and Trump’s victory were less likely. Financial institutions also significantly sell their holdings of UK and US securities, respectively, in the immediate aftermath of these votes. Furthermore, these effects are more pronounced for institutions with a higher exposure to the UK (and US), and for more fragile banks, such as those exhibiting low equity ratio or high loss provision. In addition, we also show that these results are mainly driven by the institutions' proprietary trading rather than by the institutions’ customers trading strategies.
Finance Seminar, Pedro Matos, University of Virginia, EUA.
Title: Leviathan Inc. and Corporate Environmental Engagement
In a 2010 report, The Economist called the resurgence of state-owned mega-enterprises, especially those in emerging economies, “Leviathan Inc.”, and criticized their poor governance and efficiency. We show that state-owned enterprises engage more in environmental issues and are more responsive to salient environmental events and change in government’s political orientation. The effect is more pronounced in energy firms from emerging economies and countries with higher energy risks, and with direct shareholdings by domestic government rather than sovereign wealth funds. Firm performance does not suffer from such engagement suggesting that “Leviathan Inc.” may be better positioned at dealing with environmental externalities.