Market discipline of banks: Why are yield spreads on bank-issued subordinated notes and debentures not sensitive to bank risks?

Balasubramnian, Bhanu; Cyree, Ken B.

doi:10.1016/j.jbankfin.2010.07.015

Cited by 98 publications

(62 citation statements)

References 41 publications

(80 reference statements)

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“…The results also show that fixed-rate bonds have higher spreads, consistent with their greater exposure to interest rate risk relative to floating-rate bonds. Finally, the coefficient for coupon rates is significantly positive, as in Balasubramnian and Cyree (2011), reflecting the higher tax attracted by higher coupon securities. 29…”

Section: Bond Credit Spreads Analysismentioning

confidence: 92%

“…Krishnan et al (2005) find significant results for the levels, but not for the first differences. Balasubramnian and Cyree (2011) show that determinants of yield spread changes are jointly significant only for the period before banks started issuing trust-preferred securities (TPS) in the United States. 7 In summary, we draw on the previous literature in two ways: first, to identify the most relevant risk factors (bank-specific/market) that theoretically affect the cost of debt for banks and, second, to calibrate banks' cost of debt.…”

Section: Previous Literaturementioning

confidence: 99%

“…Most of these studies have used Warga, a data set that has not been available since 1998. Balasubramnian and Cyree (2011) Because such problem banks usually face a higher cost of funding before becoming inactive, including them in our sample could create a bias in favor of our hypothesis of a funding advantage for the Big Six. 15 Therefore, we omit all observations related to these banks.…”

Section: Data and Summary Statisticsmentioning

confidence: 99%

See 2 more Smart Citations

Funding advantage and market discipline in the Canadian banking sector

Beyhaghi

D'Souza

Roberts

2014

Journal of Banking & Finance

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Section: Bond Credit Spreads Analysismentioning

confidence: 92%

Section: Previous Literaturementioning

confidence: 99%

Section: Data and Summary Statisticsmentioning

confidence: 99%

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Funding advantage and market discipline in the Canadian banking sector

Beyhaghi

D'Souza

Roberts

2014

Journal of Banking & Finance

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“…The CBOE Volatility Index (VIX) is quoted in percentage points indicating the expected movement in the S&P 500 index over the next 30-day period, which is then annualized. The VIX index is a widely used measure of market risk (Balasubramnian and Cyree 2011), showing market expectations of stock market volatility over the next 30-day period. For example, if the VIX is 18, one can infer that the index option markets expect the S&P500 to move up or down % 20 .…”

Section: ) Vix Indexmentioning

confidence: 99%

Bank performance and executive pay: tournament or teamwork

Luu²

2015

Rev Quant Finan Acc

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3We investigate the relationship between the dispersion of executive pay and bank performance/valuation by examining two competing theories, the tournament theory (hierarchical wage structure) and the equity fairness theory (compressed wage structure). The key variable of executive pay dispersion is measured using a hand-collected dataset composed of 63 banks from OECD countries and 29 banks from developing countries. The dataset covers the period 2004 to 2012. By combining and modifying a translog profit function and a pay-dispersion model, we are able to address the potential problems of relying on reducedform estimation. In our subsample of developed and civil law countries, where bank performance is measured by either Tobin's Q or by the price-to-book ratio, the overall impact of executive pay dispersion is mostly negative, and we find supporting evidence for the equity fairness theory, except for very high levels of dispersion. There is a non-linear effect, as banks perform best when there is either very low or very high executive pay dispersion. For developing country sample banks, greater executive pay dispersion has a negative impact on bank profit. In our subsample of common law countries, however, we find no evidence of a significant impact of executive pay dispersion on bank performance. We conclude that lower executive pay dispersion, a proxy for teamwork, is mostly effective in enhancing bank performance in a significant section of sample banks, i.e., civil law and developing countries.

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“…Gorton and Santomero (1990) use the framework proposed by Black and Cox (1976) in order to test whether implied asset volatilities of junior bank debt are related to other credit risk proxies but find no significant relation. By contrast, Flannery and Sorescu (1996) and Balasubramnian and Cyree (2011) find that junior bank debt yield spreads were sensitive to variables such as leverage and stock volatility. This was particularly true for time periods when financial companies were not perceived to be too-big-too-fail.…”

Section: Asset Value Riskmentioning

confidence: 83%