On the market discipline of informationally opaque firms: Evidence from bank borrowers in the federal funds market

Arbeitspapier

Using plausibly exogenous variation in demand for federal funds created by daily shocks to reserve balances, we identify the supply curve facing a bank borrower in the interbank market and study how access to overnight credit is affected by changes in public and private measures of borrower creditworthiness. Although there is evidence that lenders respond to adverse changes in public information about credit quality by restricting access to the market in a fashion consistent with market discipline, there is also evidence that borrowers respond to adverse changes in private information about credit quality by increasing leverage so as to offset the future impact on earnings. While the responsiveness of investors to public information is comforting, we document evidence that suggests that banks are able to manage the real information content of these disclosures. In particular, public measures of loan portfolio performance have information about future loan charge-offs, but only in quarters when the bank is examined by supervisors. However, the loan supply curve is not any more sensitive to public disclosures about nonperforming loans in an exam quarter, suggesting that investors are unaware of this information management.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Staff Report ; No. 257

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Information and Market Efficiency; Event Studies; Insider Trading ; General Financial Markets: Government Policy and Regulation ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Thema: earnings, management, market, discipline, opaqueness, banks ; Geldmarkt ; Kreditwürdigkeit ; USA ; Geldmarktpapier

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Ashcraft, Adam B. ; Bleakley, Hoyt
• Ereignis: Veröffentlichung
• (wer): Federal Reserve Bank of New York
• (wo): New York, NY
• (wann): 2006

Weitere Informationen

• Handle: http://hdl.handle.net/10419/60686
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ