Journal of Financial Management, Markets and Institutions

We examine whether SFAS 166/167, which ended exclusion of qualifying special purpose entities (QSPEs) from consolidation, impacted the cost of equity capital for a sample of banks. This exclusion previously allowed banks to avoid consolidating many, risky asset securitization transactions. These transactions were prevalent during and after the global financial crisis (GFC). We compare changes in the cost of equity capital for a sample of banks that consolidated SPEs after implementation of SFAS 166/167, to a control group of banks that reported no material impact of SFAS 166/167. We find the cost of equity capital increased significantly more for the banks consolidating previously unconsolidated SPE’s, than for the banks that were relatively unaffected by the rule change. In particular, we find that banks with greater reductions to their reported Tier-1 capital ratios as a result of consolidation are associated with significantly greater cost of equity capital in the post-SFAS166/167 period.

A relatively small sample of experts ($N=60$) working within the quantitative financial area completed two questionnaires measuring their personality and values. This study set out to determine how personality and motivation/work values predict subjective work success and organizational fit using the High Potential Traits Inventory (HPTI) and the Work Value Questionnaire (WVQ). Compared to the population norms, the “Quants” were higher on Curiosity and Conscientiousness but lower on Tolerance of Ambiguity and Risk-Taking Approach. The “Quants” scored higher than population norms on one facet of intrinsic motivation and all three of the extrinsic motivation. The results demonstrated that Conscientiousness and Intrinsic Motivation were both significant predictors of subjective work success. The results are discussed in terms of how to select, manage and promote “Quants”. Implications and limitations are discussed.

This paper investigates the effect of low interest rates on bank profitability and risk-taking. A comprehensive depiction of the current state of research was developed based on systematic literature review and qualitative content analysis. A low interest rate environment, as present in many economies, has various implications on bank profitability and risk-taking. A positive relationship is found between interest rates and net interest income, while the relationship with non-interest income is negative. Also, banks increase risk-taking in search for yield. The influence on bank profitability is highly dependent on several factors, but in most papers a negative influence is found. Throughout the world banks have managed to limit the impact through mitigation strategies, such as diversification, which are presented as guidance.

We explore the quality of risk assessment for entrepreneurs/small business borrowers as compared to consumers, when the same information on previous credit history is used for both segments in marketplace lending. By building several cross-sectional logistic regression and machine-learning models and applying them separately to small business loans (SBL) and consumers we can measure models’ predictive accuracy for different segments, and thus, make observations about the value of the information used for screening. We find the differences in profiles between SBL and consumers, hence they should be assessed by separate models. Yet separate SBL models do not perform well when applied to a future time period. We attribute this to the relatively low predictive value of personal credit history for entrepreneurs as compared to the consumers. We advocate the use of additional information for risk assessment of entrepreneurs, in order to improve the quality of credit screening. This should lead to improved access of small business borrowers to credit in situations when they have to compete with consumers for funding.

We investigate whether and how SMEs’ credit quality influences their substitution of bank credit for trade credit. Using data from the five largest European countries, we find that substitution of bank credit for trade credit decreases during the financial crisis, but it decreases significantly less for ex ante low credit quality firms. We control for pre-crisis or lagged firm characteristics including size and external finance dependence, industry effects, sample selection effects and cross-country heterogeneity. We also find that low credit quality firms increase their absolute and relative trade credit usage significantly more than high credit quality firms during the financial crisis. The effects are consistent across countries and stronger for net trade credit borrowers and financially constrained firms. The evidence highlights how credit quality influences demand-side driven substitution in SME finance.