Forthcoming Articles

Safe Asset Shortages: Evidence from the European Government Bond Lending Market

Reena Aggarwal, Jennie Bai, and Luc Laeven

We identify the unique role of the government bond lending market in collateral transformation during periods of market stress. Using a novel database, we provide evidence that safe assets in the lending market have higher demand, higher borrowing cost, and higher usage of non-cash collateral relative to non-safe assets during stressed market conditions. Moreover, we find that market participants are able to obtain safe assets using relatively low-quality non-cash collateral, allowing for collateral transformation. We show that policy interventions by central banks can help reduce safe asset shortages by returning sought-after safe assets to the market.

Corporate Governance and Loan Syndicate Structure

Sreedhar Bharath, Sandeep Dahiya, and Issam Hallak

Firms with greater shareholder rights have a greater risk-shifting incentive requiring more lender monitoring. Thus, reduction in shareholder rights implies more diffused (less monitoring intensive) loan syndicates. Using the passage of US second-generation antitakeover laws as an exogenous shock that reduced shareholder rights as a natural experiment, we find that loan syndicates became significantly more diffuse after the passage of these laws. These results are confirmed in a large sample of bank loans made during the 1990-2007 period when the loan syndicate market matured. Our results show how corporate governance causally affects financial contracting and creditor control in firms.

The Predictive Power of the Dividend Risk Premium

Davide E. Avino, Andrei Stancu, and Chardin Wese Simen

We show that the dividend growth rate implied by the options market is informative about (i) the expected dividend growth rate and (ii) the expected dividend risk premium. We model the expected dividend risk premium and explore its implications for the predictability of dividend growth and stock market returns. Correcting for the expected dividend risk premium strengthens the evidence of dividend growth and stock market return predictability both in- and out-of-sample. Economically, a market timing investor who accounts for the time varying expected dividend risk premium realizes an additional utility gain of 2.02% per year.