Research
Job Market Paper
Disentangling the loan premium: The value of bank lending (Draft upon request by email)
Schwert (2020) shows that firms borrowing from both banks and the corporate bond market pay a substantial premium on bank loans, raising questions about firms’ bargaining power and banks’ competition. In this paper, I show that a large portion of the bank loan premium can be explained as a payment to bank lenders for facilitating out-of-court restructurings. This suggests a value creation from bank lending activities. Using a sample of loans matched with bond quotes, I estimate a loan premium of around 95 bps. I examine the effect of a U.S. court ruling in 2014 that disrupted market expectations and disincentivized out-of-court restructurings. Following the ruling, more affected firms experience a dramatic decrease in the loan premium by 70-90 bps, due to fewer restructuring opportunities and diminished potential for avoiding bankruptcy costs. Additionally, I show that a minor portion of the premium compensates for the prepayment flexibility in the loan contracts.
Presentations at: Nordic Finance Network PhD Workshop 2024, FIRS PhD Session 2024, Tri-City Day-Ahead Workshop 2024
Working Papers
Bank Equity Risk (coauthored with Jens Dick-Nielsen and David Lando)
Financial regulation has led banks to increase their equity ratios. Yet several studies find that this has not led to a decrease in bank equity risk. We show theoretically, that holding less capital in excess of the minimum capital requirement can outweigh the risk-reducing effect of increased total capitalization on equity. Using times series data and a natural deregulation experiment we find that excess capitalization is a significant determinant of equity risk, and can explain why bank equity risk has not become lower after the Global Financial Crisis. Lower leverage has, however, reduced the cost of bank debt.
Presentations at: Aalto*, Aarhus University*, Bloomberg*, Copenhagen Business School, CICF 2023, Danish Finance Institute*, Deloitte*, European Central Bank*, European Banking Authority*, EFA Annual Meeting 2023*, New York Fed*, Norges Bank, Swedish House of Finance, University of Zurich
Forgiven but not forgotten: Emerging market credit spreads following debt relief (coauthored with Mikkel Vittrup Hauerberg, David Lando and Aleksander Koldborg Tetzlaff)
We examine yield spreads of government debt issues from countries that have received large-scale debt relief through the Heavily Indebted Poor Countries (HIPC) program and the Multilateral Debt Relief Initiative (MDRI). Using data from more than 3,000 bond issues and after controlling for macroeconomic, political, and geographical factors, we find that HIPC governments pay an average yield spread premium of close to 1.5% on USD-denominated and non-USD-denominated bonds compared to similar countries which have not received relief. Markets seem to rationally anticipate a deterioration in the credit quality of relieved countries.