Reexamine the Role of the Financial Institution Management During Card Debt Crisis or the COVID-19

Due to the increasing popularity of financial technology and the lifting of financial regulations, various financial institutions have become increasingly competitive and actively expand their consumer finance business. Changes in generational consumption behavior have led to excessive credit expansion, excessive debt or bad credit records. All of these result in the emergence of adverse selection and moral hazard problems of information asymmetry, and finally cause the card debt crisis in 2005. This article focuses on variables such as the number of cards in circulation, retail sales volume, revolving balance, and overdue ratios of credit cards in public and private banks, and examine whether the information asymmetry in the credit card market has been improved ,with the financial institution management. Furthermore, due to the COVID-19 exploring whether the information asymmetry has been worsened or improved deserves the attention of the financial authority again. The results reveal that continuous financial institution management is very important and effective during the card debt period or the pandemic.

COVID‐19 intensity across U.S. states and the liquidity of U.S. equity markets: The Official Publication of the Eastern Finance Association

We study the effects of COVID‐19 intensity on equity market liquidity across U.S. states. We exploit cross‐sectional variation in cases and deaths to investigate any association with the deterioration of stock liquidity of firms whose headquarters or operations are in the corresponding state(s). Our motivation stems from several underlying economic channels such as order processing costs, inventory costs, and adverse selection costs. We find strong negative relations between pandemic intensity and various intra‐day liquidity measures. Our results are more pronounced for firms operating in states with more stringent containment and health measures and within industries with greater risk exposure.

COVID-19 intensity across U.S. states and the liquidity of U.S. equity markets

We study the effects of COVID-19 intensity on equity market liquidity across U.S. states. We exploit cross-sectional variation in cases and deaths to investigate any association with the deterioration of stock liquidity of firms whose headquarters or operations are in the corresponding state(s). Our motivation stems from several underlying economic channels such as order processing costs, inventory costs, and adverse selection costs. We find strong negative relations between pandemic intensity and various intra-day liquidity measures. Our results are more pronounced for firms operating in states with more stringent containment and health measures and within industries with greater risk exposure.

Lenders' pricing strategy: Do neighborhood risks matter?

This article explores the different pricing strategies of lenders who originate both government-sponsored enterprise (GSE) and non-GSE loans. We find that conditional on loan and borrower characteristics and some observable local economic factors, mortgage rates on GSE loans vary significantly across regions. However, we observe no sizable regional variation in loan amounts or default risk. By contrast, the mortgage rates on non-GSE loans depend almost entirely on borrowers and loan characteristics. In addition, we find that spatial variations in GSE mortgage rates are highly responsive to regional prepayment risk. Our results are robust to various controls for neighborhood characteristics, including regional-level bank competition, borrower accessibility to mortgages, and household income levels. Overall, the findings offer a novel insight into how lenders adjust pricing strategies in response to a changing lending environment. The results provide implications relating to the present and imminent dangers of housing bubbles and the intensified refinancing wave following the COVID-19 pandemic.

Orchestrating finance with Material Adverse Changes?

From a legal and economic perspective, the global financial crisis, terrorist attacks, wars, natural catastrophes, and COVID-19 all have one thing in common: they are potentially ‘material adverse change’ events. Such events are unpredictable and have severe consequences for the global economy. To help manage the fallout from such negative events, businesses in economically valuable and complex deals, such as debt financing or mergers and acquisition (M&A) agreements, include special contractual risk allocation provisions, called Material Adverse Change/Effect (MAC) clauses. The COVID-19 crisis has had a drastic effect on M&A and debt financing deals, often leading to renegotiation and sometimes to litigation of these agreements based on MAC clauses. Termination of such transactions via MAC clauses poses serious risks, including those of causing a domino-effect in the market.The effects of MAC clauses in debt finance (as opposed to M&A deals), however, have been largely overlooked both in law and in finance. This paper is the first to investigate the pre-contractual (ex-ante) and contractual (ex-post) effects of MAC clauses in commercial debt financing agreements. It proposes a novel Multifunctional Effect Approach of MAC clauses in debt finance. This paper aims to explain why the commercial parties attach high importance to these vague and uncertain MAC clauses in debt financing agreements but hardly ever rely on them. First, the paper argues that apart from acceleration of the credit facilities, MAC clauses have various beneficial effects, such as screening. Secondly, MAC clauses should be regarded not only as mechanisms to solve information asymmetry but also have the following effects: improving governance, decoupling debt, providing restructuring impulses, countering uncertainty, signalling with acceleration. Potentially, MAC clauses also have the effect of a penalty default rule. The paper finds that despite these functions, the potential of MAC clauses in debt finance is not fully utilised, due to the unique characteristics of debt finance. This significantly undermines the efficiency of MAC clauses in debt finance, as lenders overprotect themselves by additionally relying on other contractual protection mechanisms and risk offsetting strategies for more efficiency.

Information Disclosure in China’s Rising Securitization Market

E-commerce and FinTech are currently booming in China. The growing consumer market is accompanied by internet finance, by which consumers can easily borrow money from financial institutions online. As a result, the growing risks of financial institutions are of concern to the government and regulatory bodies. Consequently, the securitization market in China is seeing rapid growth that could affect financial stability. Applying FinTech and emerging technologies in securitization might be an effective way to protect against these risks. This paper studies the question of whether China needs a higher standard of information transparency in order to protect against its risks against the background of digital transformation. We analyzed the determinants of securitization in the Chinese banking sector, relying on data on banks for two periods: pre-2017Q4 and post-2017Q4. The main findings of the paper demonstrate that the application of FinTech in China’s banking industry resulted in less information asymmetry. The risk exposure was the most significant determinant in general. Higher risk exposures increased securitization transaction volumes, which reflects securitization with adverse selection problems between the originator and investors. Liquidity and profitability, as important determinants indicating the moral hazard problem, also affected securitization pre-2017Q4, but liquidity and profitability were found to be unimportant determinants after the application of FinTech (the post-2017Q4 period). Moreover, this study finds that the effects of the adverse selection and moral hazard problems varied in different types of banks. Overall, our findings suggest that the Chinese securitization market needs a higher standard of information transparency.