Financial markets are to a very large extent influenced by the advent of information. Such disclosures, however, do not only contain information about fundamentals underlying the markets, but they also serve as a focal point for the beliefs of market participants. This dual role of information...

This paper studies the effects that heterogeneous multiple bank financing has on a firm's risk- and information-policy, particularly with respect to credit renegotiation efficiency. We find that a significant, yet limited, degree of relationship lending enables firms with high asset specificity...

Credit rating agencies do not only disclose simple ratings but announce watchlists (rating reviews) and outlooks as well. This paper analyzes the economic function underlying the review procedure. Using Moody's rating data between 1982 and 2004, we find that for borrowers of high...

This paper examines why unsolicited ratings tend to be lower than solicited ratings. Both self-selection among issuers and strategic conservatism of rating agencies may be reasonable explanations. Analyses of default incidences of non-U.S. borrowers between January 1996 and December 2006 show...

Small and medium-sized firms often obtain capital via a mixture of relationship and arm's-length bank lending. We show that such heterogeneous multiple bank financing leads to a lower probability of inefficient credit foreclosure than both monopoly relationship lending and homogeneous multiple...

We investigate optimal capital requirements in a model in which banks decide on their investment in credit scoring systems. Our main result is that regulators should encourage sophisticated banks to keep their asset portfolios safe, while assets with high systematic risk should be concentrated...

This paper examines the effect of imperfect labor market competition on the efficiency of compensation schemes in a setting with moral hazard, private information and risk-averse agents. Two vertically differentiated firms compete for agents by offering contracts with fixed and variable...

Remuneration systems in the banking industry, in particular bonus payments, have frequently been blamed for contributing to the buildup of risks leading to the recent financial crisis. In our model, banks compete for managerial talent that is private information. Competition for talent sets...

In Monte Carlo simulation, Latin hypercube sampling (LHS) [McKay et al. (1979)] is a well-known variance reduction technique for vectors of independent random variables. The method presented here, Latin hypercube sampling with dependence (LHSD), extends LHS to vectors of dependent random...

The payoff of many credit derivatives depends on the level of credit spreads. In particular, credit derivatives with a leverage component are subject to gap risk, a risk associated with the occurrence of jumps in the underlying credit default swap spreads. In the framework of first passage time...