Credit Risk and Asymetric Information
Paper Session
Friday, Jan. 3, 2025 8:00 AM - 10:00 AM (PST)
- Atif Mian, Princeton University
Do Bankers Matter for Main Street? The Financial Intermediary Labor Channel
Abstract
Financial intermediary (FI) stress, measured by leverage, is an important driver of asset prices and quantities. We identify a new and equally important FI channel driving risk and the real sector: FIs are stressed when FI labor share (FLS) is high. FLS negatively forecasts aggregate output, investment, and credit growth; it positively forecasts excess returns and cost of credit. High FLS banks lend less and are riskier. Firms connected to such banks borrow less, grow less, and pay more to borrow. A DSGE model where FIs face shocks to the quantity of labor needed to intermediate capital explains these findings.Incentives to Lose: Disclosure of Cover Bids in OTC Markets
Abstract
We study incentives for post-trade information disclosure in the over-the-counter financial markets. We argue that execution prices alone do not fully capture the value of the traded assets, and model incentives to hide or reveal information embedded in unexecuted offers. Our model explains why investors, requesting quotes from multiple dealers in the corporate bond market, might choose to conceal the runner-up offer — the cover — from the winning dealer even though the increased informational opacity can decrease dealers’ incentives to win the trade and worsens their quotes. Investors conceal covers if they trade frequently, gains from trade are high, or uncertainty about bond values is low. We discuss the implications for market liquidity, fragmentation, and the design of electronic RFQ platforms.JEL Classifications
- G1 - General Financial Markets