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Three Essays in Financial Intermediation.

Record Type:	Language materials, manuscript : Monograph/item
Title/Author:	Three Essays in Financial Intermediation./
Author:	Fleckenstein, Quirin.
Description:	1 online resource (261 pages)
Notes:	Source: Dissertations Abstracts International, Volume: 84-12, Section: A.
Contained By:	Dissertations Abstracts International84-12A.
Subject:	Finance. -
Online resource:	click for full text (PQDT)
ISBN:	9798379648688

Three Essays in Financial Intermediation.
Fleckenstein, Quirin.

Three Essays in Financial Intermediation. - 1 online resource (261 pages)

Source: Dissertations Abstracts International, Volume: 84-12, Section: A.

Thesis (Ph.D.)--New York University, 2023.

Includes bibliographical references

In the last 20 years, nonbank financial intermediaries have replaced banks as the dominant lender to medium-size and large corporations in the US and Europe. In the three chapters of this thesis, I study the implications of this development for financial stability and for the role of banks in the intermediation process.In chapter 1, called "Intermediary Frictions and the Corporate Credit Cycle: Evidence From CLOs", I quantify the contribution of intermediary agency frictions to the cyclicality of lending by non-bank intermediaries. I focus on collateralized loan obligations (CLOs), which are actively managed closed-end funds that provide about one-third of the credit to speculative-grade corporations in the US and are particularly cyclical in their lending. For variation in agency frictions, I exploit an institutional feature that leads to variation in CLOs' discretion to trade their assets. I document that CLOs' cost of debt contains significant compensation for agency problems. Agency problems intensify in bad times when aggregate volatility rises, raising CLOs' cost of debt, and reducing the issuance of new CLOs. This affects real outcomes of CLO-dependent firms. To mitigate this effect, CLOs issued in volatile periods restrict their discretion in trading, which, however, also reduces their alpha. Calibrating a novel intermediation model to these reduced-form estimates, I find that more than half of the steep fall in CLO issuance during volatile periods is due to agency frictions. A counterfactual analysis reveals that without CLOs restricting their discretion in volatile periods, CLO issuance would be substantially more cyclical and real effects on speculative-grade firms correspondingly larger.In chapter 2, called "Nonbank Lending and Credit Cyclicality", Manasa Gopal, German Gutierrez, Sebastian Hillenbrand, and I document three new facts about nonbank lending in the syndicated loan market. First, lending by nonbanks is about three times as cyclical as lending by banks, even after controlling for borrower demand and loan characteristics. Second, the cyclicality of nonbanks - as opposed to bank health - explains the majority of the decline in origination during both the Great Recession and the COVID-19 crisis. Third, cyclicality in flows to nonbanks explains cyclicality in nonbank lending. We highlight frictions that likely exacerbate the cyclicality of flows to the two main nonbank investors in the market - CLOs and loan mutual funds. Time-series variation in CLO equity requirements affects the convenience yield earned per dollar of CLO equity capital and impacts new CLO issuance. These changes in the benefit from securitization along with run risk for open end mutual funds affect new loan originations in the syndicated loan market.In chapter 3, called "The Myth of the Lead Arranger's Share", Kristian Blickle, Sebastian Hillenbrand, Anthony Saunders, and I challenge theories that lead arrangers retain shares of syndicated loans to overcome information asymmetries. Lead arrangers frequently sell their entire loan stake - in over 50% of term and 70% of institutional loans. These sell-offs usually occur days after origination, with lead arrangers retaining no other borrower exposure in 37% of sell-off cases. Counter to theories, sold loans perform better than retained loans. Our results imply that information asymmetries could be lower than commonly assumed or mitigated by alternative mechanisms such as underwriting risk. We also provide guidance for Dealscan users on how to approximate loan ownership after origination.

Electronic reproduction.
Ann Arbor, Mich. :
ProQuest,
2024

Mode of access: World Wide Web

ISBN: 9798379648688Subjects--Topical Terms:

559073
Finance.
Subjects--Index Terms:

Collateralized loan obligationsIndex Terms--Genre/Form:

554714
Electronic books.

Three Essays in Financial Intermediation.
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502 $a Thesis (Ph.D.)--New York University, 2023.
504 $a Includes bibliographical references
520 $a In the last 20 years, nonbank financial intermediaries have replaced banks as the dominant lender to medium-size and large corporations in the US and Europe. In the three chapters of this thesis, I study the implications of this development for financial stability and for the role of banks in the intermediation process.In chapter 1, called "Intermediary Frictions and the Corporate Credit Cycle: Evidence From CLOs", I quantify the contribution of intermediary agency frictions to the cyclicality of lending by non-bank intermediaries. I focus on collateralized loan obligations (CLOs), which are actively managed closed-end funds that provide about one-third of the credit to speculative-grade corporations in the US and are particularly cyclical in their lending. For variation in agency frictions, I exploit an institutional feature that leads to variation in CLOs' discretion to trade their assets. I document that CLOs' cost of debt contains significant compensation for agency problems. Agency problems intensify in bad times when aggregate volatility rises, raising CLOs' cost of debt, and reducing the issuance of new CLOs. This affects real outcomes of CLO-dependent firms. To mitigate this effect, CLOs issued in volatile periods restrict their discretion in trading, which, however, also reduces their alpha. Calibrating a novel intermediation model to these reduced-form estimates, I find that more than half of the steep fall in CLO issuance during volatile periods is due to agency frictions. A counterfactual analysis reveals that without CLOs restricting their discretion in volatile periods, CLO issuance would be substantially more cyclical and real effects on speculative-grade firms correspondingly larger.In chapter 2, called "Nonbank Lending and Credit Cyclicality", Manasa Gopal, German Gutierrez, Sebastian Hillenbrand, and I document three new facts about nonbank lending in the syndicated loan market. First, lending by nonbanks is about three times as cyclical as lending by banks, even after controlling for borrower demand and loan characteristics. Second, the cyclicality of nonbanks - as opposed to bank health - explains the majority of the decline in origination during both the Great Recession and the COVID-19 crisis. Third, cyclicality in flows to nonbanks explains cyclicality in nonbank lending. We highlight frictions that likely exacerbate the cyclicality of flows to the two main nonbank investors in the market - CLOs and loan mutual funds. Time-series variation in CLO equity requirements affects the convenience yield earned per dollar of CLO equity capital and impacts new CLO issuance. These changes in the benefit from securitization along with run risk for open end mutual funds affect new loan originations in the syndicated loan market.In chapter 3, called "The Myth of the Lead Arranger's Share", Kristian Blickle, Sebastian Hillenbrand, Anthony Saunders, and I challenge theories that lead arrangers retain shares of syndicated loans to overcome information asymmetries. Lead arrangers frequently sell their entire loan stake - in over 50% of term and 70% of institutional loans. These sell-offs usually occur days after origination, with lead arrangers retaining no other borrower exposure in 37% of sell-off cases. Counter to theories, sold loans perform better than retained loans. Our results imply that information asymmetries could be lower than commonly assumed or mitigated by alternative mechanisms such as underwriting risk. We also provide guidance for Dealscan users on how to approximate loan ownership after origination.
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