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Book part
Publication date: 27 February 2009

Kamphol Panyagometh and Gordon S. Roberts

This chapter extends Panyagometh and Roberts (2008) by taking into account differences in costs of closure among countries and the effects of subordinated debt on moral…

Abstract

This chapter extends Panyagometh and Roberts (2008) by taking into account differences in costs of closure among countries and the effects of subordinated debt on moral hazard problems. Our results show that a mandatory subordinated debt policy (MSDP) can be used with contingent purchase and assumption policy to further reduce probability of future bank failure if the high level of uninsured debt can improve the effectiveness of monitoring. While a MSDP might be appropriate for some developed countries with effective informational and supervisory environments and developed financial markets, such as the U.S., extending a MSDP into developing countries is questionable.

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Research in Finance
Type: Book
ISBN: 978-1-84855-447-4

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Article
Publication date: 1 March 2000

Iraj J. Fooladi and Gordon S. Roberts

Outlines the development of duration as a risk management tool for fixed income securities, shows how it is calculated and gives examples to illustrate its use in…

Abstract

Outlines the development of duration as a risk management tool for fixed income securities, shows how it is calculated and gives examples to illustrate its use in assessing risk exposure and immunizing bond portfolio returns against interest rate risk. Cites research confirming its effectiveness and goes on to discuss the application of duration gaps to balance sheet hedging (macrohedging) by financial institutions and the New Zealand government. Considers some complications of duration analysis due to convexity, stochastic process risk and default risk.

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Managerial Finance, vol. 26 no. 3
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 4 March 2008

Li Hao and Gordon S. Roberts

Prior research suggests that given the legal environment in the U.S., smaller syndicates with fewer lead banks should represent “best practices” to promote efficient…

Abstract

Prior research suggests that given the legal environment in the U.S., smaller syndicates with fewer lead banks should represent “best practices” to promote efficient monitoring and ease of renegotiation. Such syndicates should be associated with lower loan spreads. Controlling for other influences on loan pricing, we conduct tests of this proposition drawing on data from DealScan, Compustat and Federal Reserve Call Reports for U.S. loans between 1988 and 1999. Consistent with our hypothesis, the number of lead lenders is shown to have a significant positive influence on loan yield spreads.

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Research in Finance
Type: Book
ISBN: 978-1-84950-549-9

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Book part
Publication date: 24 March 2005

Gordon S. Roberts and Nadeem A. Siddiqi

Using the Dealscan database of large, U.S. corporate loans, we examine the determinants of the number of bank relationships and the presence or absence of collateral…

Abstract

Using the Dealscan database of large, U.S. corporate loans, we examine the determinants of the number of bank relationships and the presence or absence of collateral. Consistent with prior studies, we find that important explanatory variables are firm quality, desire for financial flexibility, the probability of financial distress, growth opportunities and firm size. Higher quality firms as well as firms with a stronger desire for financial flexibility are less likely to collateralize and borrow from more lenders. Larger firms as well as those with lower probabilities of financial distress and greater growth opportunities prefer multiple lenders.

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Research in Finance
Type: Book
ISBN: 978-0-76231-161-3

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Book part
Publication date: 11 December 2006

Patricia A. McGraw, Kamphol Panyagometh and Gordon S. Roberts

We extend Diamond's (1989, 1991) life-cycle hypothesis to posit that, once they reach the stage of bank borrowing, firms begin with prime loans and evolve toward borrowing…

Abstract

We extend Diamond's (1989, 1991) life-cycle hypothesis to posit that, once they reach the stage of bank borrowing, firms begin with prime loans and evolve toward borrowing more cheaply at LIBOR as they grow larger, less risky and less characterized by asymmetric information. We conduct multinomial logit regressions to explain firms’ membership in one of three groups: prime only, prime and LIBOR, and LIBOR. We also examine spreads over prime and LIBOR and find that loans set up to allow borrowing at prime carry higher spreads than those allowing borrowing at LIBOR. Both sets of tests support the life-cycle hypothesis.

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Research in Finance
Type: Book
ISBN: 978-1-84950-441-6

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Book part
Publication date: 1 January 2005

Aron A. Gottesman and Gordon S. Roberts

We investigate the nature of mid-loan relationships between bank-lenders and borrowers, to test whether firms borrow from banks to signal quality. Using the LPC DealScan…

Abstract

We investigate the nature of mid-loan relationships between bank-lenders and borrowers, to test whether firms borrow from banks to signal quality. Using the LPC DealScan, CRSP, and Wall Street Journal databases, we test whether borrower abnormal returns are related to bank, borrower, deal, and/or event characteristics during the duration of the loan. We demonstrate that borrower abnormal returns are related to mid-loan bank events, defined as an event resulting in bank abnormal returns beyond a specified threshold. The results suggest that borrowers are affected by bank events mid-loan, even when the event is not directly related to bank default.

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Research in Finance
Type: Book
ISBN: 978-0-76231-277-1

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Book part
Publication date: 27 February 2009

Kamphol Panyagometh and Gordon S. Roberts

Using a two bank, two-period game-theoretic model, this chapter shows that contingent purchase and assumption policy under which the choice of acquirer for a failed bank…

Abstract

Using a two bank, two-period game-theoretic model, this chapter shows that contingent purchase and assumption policy under which the choice of acquirer for a failed bank is contingent on the surviving banks’ risk-taking behavior is generally most effective in reducing moral hazard problems, particularly for countries with low levels of competition and high regulatory barriers. Moreover, we find that to minimize the probability of future bank failures, the choice of acquiring bank should be based not only on the short-term goal of resolving the insolvencies of financial institutions, but also on the long-term effects of ex ante risk-taking incentives.

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Research in Finance
Type: Book
ISBN: 978-1-84855-447-4

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Book part
Publication date: 22 June 2001

Patricia A. McGraw and Gordon S. Roberts

Banks may face environmental liability when they extend secured loans but this liability does not extend to public secured debt. This paper introduces the concept of…

Abstract

Banks may face environmental liability when they extend secured loans but this liability does not extend to public secured debt. This paper introduces the concept of lender environmental liability to the literature of theoretical finance by extending the work of Stulz and Johnson (1985) and Schwartz (1981, 1984) to distinguish among three possible cases for lender environmental liability. Using option payoff graphs we demonstrate that secured debt can be worth less to the lender than unsecured debt. We reinforce this conclusion by employing a formal debt valuation model based on an extension of Lai (1995).

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Research in Finance
Type: Book
ISBN: 978-1-84950-578-9

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Book part
Publication date: 22 June 2001

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Research in Finance
Type: Book
ISBN: 978-1-84950-578-9

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Book part
Publication date: 24 March 2005

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Research in Finance
Type: Book
ISBN: 978-0-76231-161-3

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