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Publications:
Understanding FX Liquidity. N. Karnaukh. A. Ranaldo, and P. Söderlind. Review of Financial Studies, forthcoming.
Is Director Industry Experience Valuable? F. von Meyerinck, D. Oesch, and M. Schmid. Financial Management, forthcoming.
Competing with Superstars. M. Ammann, P. Horsch, and David Oesch. Management Science, forthcoming.
The Exposure of Mortgage Borrowers to Interest Rate Risk, Income Risk and House Price Risk – Evidence from Swiss Loan Application Data. M. Brown and B. Guin. Swiss Journal of Economics and Statistics, forthcoming.
Microfinance Banks and Financial Inclusion. M. Brown, B. Guin und K. Kirschenmann. Review of Finance, forthcoming.
Selected Working Papers:
Debt Covenant Renegotiation and Investment. M. Arnold und R. Westermann, 2015.
This paper analyzes the impact of debt covenant renegotiation on corporate policies and firm value. We study a structural model of a levered firm that may renegotiate covenant protected debt both upon distress and at investment. The renegotiation at investment reduces the agency costs of debt by inducing firm value maximizing leverage decisions upon investment and mitigating the overinvestment problem. Our model explains stylized empirical patterns on the renegotiation frequency, and on the relationship between observed covenant structures and firm characteristics. Finally, it also offers a rich set of novel empirical predictions.
The Dark Side of the Four-Eyes Principle – Evidence from Bank Lending. M. Brown, M. Schaller, S. Westerfeld, and M. Heusler. School of Finance Working Paper 2015/4.
We document that in small business lending the four-eyes principle leads loan officers to propose inflated credit ratings for their clients. Inflated ratings are, however, anticipated and corrected by the credit officers responsible for approving credit assessments. More experienced loan officers inflate those parameters of a credit rating which are least likely to be corrected by credit officers. Our analysis is based on administrative data covering 10,568 internal ratings for 3,661 small business clients at 6 retail banks. Our results provide empirical support to theories suggesting that internal control can induce strategic communication of information in organizations when decision proposers and decision makers have diverging interests. Our findings also point to the limits of the four-eyes principle as a risk-management tool in financial institutions..
Ambiguity and Reality. F. Trojani, C. Wiehenkamp, and J. Wrampelmeyer. School of Finance Working Paper No. 2014/18.
Model builders face ambiguity about the true data generating process. Consequently, they need to deal with ambiguity attitudes (inside uncertainty) and ambiguous financial reality (outside uncertainty) when developing and estimating financial models. We introduce a novel approach for systematically dealing with outside uncertainty in addition to inside uncertainty in a tractable way. By bounding the effects of ambiguous data features, we avoid the adverse consequences of outside uncertainty, such as strongly biased equity premiums and investment policies. In a real data application, we show that asset managers can be more reliably evaluated using our bounded-influence approach.
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