Narrow Results

This study examines the relationships between entrepreneurs' use of bootstrap financing methods and access to short- and long-term debt capital. By providing additional funding options, bootstrap financing helps alleviate liquidity issues by providing small firms additional sources of capital when more traditional sources are not accessible. Capital constraints can result in firms being unable to successfully compete and often lead to difficulties associated with liquidity constraints. The findings show that use of short- and long-term debt capital is directly associated with the use of bootstrap financing sources. The growing body of research is demonstrating that bootstrap financing is commonly used, but is related to the use of debt capital. These findings contribute to the growing body of research on small firm use of bootstrap financing and can be used by owners of small firms, consultants and educators. Programs that provide educational assistance to owners of small firms, including university courses and practitioner seminars/workshops, can expand the coverage of bootstrap financing in the curriculum.

For China where the interest rate channel is not operative, the bank lending channel plays a major role in propagating the effect of monetary policy changes. This paper conducts a formal test on the validity of bank lending channel in China with two structural vector autoregression (SVAR) models. We find that (i) monetary policy actions affect banks’ balance sheet, but there is no systematic relationship in bank portfolios typically observed in the previous literature; (ii) monetary policy changes lead to a shift in bank loan supply, which supports rather than only being consistent with the lending view.

I empirically evaluate the information content of a change in the size of a bank’s loan portfolio. I find a positive (negative) stock market reaction to loan portfolio growth in high (low) earnings banks. I also find that the information content of loan growth depends on features of the bank, the loan, and the macroeconomic state. In particular, loan growth, in conjunction with earnings, conveys meaningful information about bank value for small banks only, for commercial loans, and during normal times. Further, I posit that if the market reaction conveys meaningful information about a bank’s value, then loan portfolio growth should predict future performance measures of the bank. In fact, I find that loan portfolio growth, when interacted with earnings, predicts future non-performing loans.

This paper examines the impact of banks’ lending incentives on asset prices and bank cash holdings under liquidity risk. Banks make lending decisions based on the tradeoff between costs (fire sales of illiquid assets) and benefits (high returns from bank loans). This paper shows fire sales of assets can be an endogenous outcome, even if banks are endowed with enough cash to meet liquidity shocks. This paper also helps explain why banks have kept a large amount of cash without lending after government capital injections in the 2008 financial crisis. The model further provides policy implications for government intervention.

Reducing credit procyclicality represents one of the key challenges on the regulatory agenda to reform the financial system architecture. Some early experiences may provide some insights on how countercyclical regulations may be effective. The Spanish dynamic provisions scheme implemented in 2000 is one of the main reference points in this context. We analyze the effects of dynamic provisions on managerial accounting discretion and ex-ante risk-taking behavior by banks. We empirically examine a sample of Spanish banks using quarterly information from 1995Q1 to 2013Q4. Our findings suggest that the counter-cyclicality of provisions has been reduced over time, as it has also been the case of managerial discretion (income smoothing and profit signaling). However, the results suggest that banks game on dynamic provisions by taking an ex-ante riskier behavior once the dynamic provisioning scheme is adopted.

The following sections are included:

• INTRODUCTION
• SUMMARY STATISTICS FOR CREDIT APPLICANT REJECTIONS AND APPROVALS
• FACTORS AFFECTING THE LIKELIHOOD OF CREDIT REJECTION
• CONCLUSIONS
• ACKNOWLEDGMENT
• NOTES
• REFERENCES