-
About the
New York Fed -
Economic
Research -
Financial Institution Supervision
- Financial Services
& Infrastructure- Outreach
& EducationThe New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
Liberty Street Economics
21 posts on "Corporate Finance"May 29, 2019
Is There Too Much Business Debt?
By many measures nonfinancial corporate debt has been increasing as a share of GDP and assets since 2010. As the May Federal Reserve Financial Stability Report explained, high business debt can be a financial stability risk because heavily indebted corporations may need to cut back spending more sharply when shocks occur. Further, when businesses cannot repay their loans, financial institutions and investors incur losses. In this post, we review measures of corporate leverage in the United States. Although corporate debt has soared, concerns about debt growth are mitigated in part by higher corporate cash flows.
Posted by Blog Author at 7:00 AM in Banks, Corporate Finance, Credit, Financial Intermediation | Permalink | Comments (10)October 22, 2018
Tax Reform and U.S. Effective Profit Taxes: From Low to Lower
The Tax Cuts and Jobs Act (TCJA) reduced the federal corporate profit tax rate from 35 percent to 21 percent. Adding in state profit taxes, the overall U.S. tax rate went from 39 percent, one of the highest rates in the world, to 26 percent, about the average rate abroad. The implications of the new law for U.S. competitiveness depend on how these statutory tax rates compare with the actual rates faced by U.S. and foreign companies. To address this question, this post presents new evidence on tax payments as a share of profits, as well as analytical measures of tax impacts on profitability. We find that the U.S. effective tax rate was already below the average rate abroad prior to enactment of the TCJA, and that it is now well below the rate in most countries.
Continue reading "Tax Reform and U.S. Effective Profit Taxes: From Low to Lower" »
Posted by Blog Author at 7:00 AM in Corporate Finance, International Economics | Permalink | Comments (0)October 01, 2018
Regulatory Changes and the Cost of Capital for Banks
In response to the financial crisis nearly a decade ago, a number of regulations were passed to improve the safety and soundness of the financial system. In this post and our related staff report, we provide a new perspective on the effect of these regulations by estimating the cost of capital for banks over the past two decades. We find that, while banks’ cost of capital soared during the financial crisis, after the passage of the Dodd-Frank Act (DFA), banks experienced a greater decrease in their cost of capital than nonbanks and nonbank financial intermediaries (NBFI).
Continue reading "Regulatory Changes and the Cost of Capital for Banks" »
Posted by Blog Author at 7:02 AM in Bank Capital, Banks, Corporate Finance, Crisis, Dodd-Frank | Permalink | Comments (0)November 29, 2017
Did Investor Sentiment Affect Credit Risk around the 2016 Election?
Immediately following the presidential election of 2016, both consumer and investor sentiments were buoyant and financial markets boomed. That these sentiments affect financial asset prices is not so surprising, given past stock market evidence and episodes such as the dot-com bubble. Perhaps more surprising, the risk of corporate default—which is driven mainly by firms’ financial health but also by bond liquidity—also fell following the election, as indicated by lower yield spreads. In this post, I show that, although expectations of better corporate and macroeconomic conditions were the primary drivers of lower credit risk, improved investor sentiment also contributed.
Continue reading "Did Investor Sentiment Affect Credit Risk around the 2016 Election?" »
November 09, 2016
Performance Bonds for Bankers: Taking Aim at Misconduct
Given the long list of problems that have emerged in banks over the past several years, it is time to consider performance bonds for bankers. Performance bonds are used to ensure that appropriate actions are taken by a party when monitoring or enforcement is expensive. A simple example is a security deposit on an apartment rental. The risk of losing the deposit motivates renters to take care of the apartment, relieving the landlord of the need to monitor the premises. Although not quite as simple as a security deposit, performance bonds for bankers could provide more incentive for bankers to take better care of our financial system.
Continue reading "Performance Bonds for Bankers: Taking Aim at Misconduct" »
Posted by Blog Author at 7:00 AM in Corporate Finance, Expectations, Financial Markets, Regulation | Permalink | Comments (2)October 12, 2016
Let the Light In: How Financial Reporting and Transparency Improve Corporate Governance
Financial reporting is valuable because corporate governance—which we view as the set of contracts that help align managers’ interests with those of shareholders—can be more efficient when the parties commit themselves to a more transparent information environment. This is a key theme in our recent article “The Role of Financial Reporting and Transparency in Corporate Governance,” which reviews the literature on the part played by financial reporting in resolving agency conflicts among managers, directors, and shareholders. In this post, we highlight some of the governance issues and recommendations discussed in the article.
Posted by Blog Author at 7:00 AM in Corporate Finance, Financial Institutions, Financial Markets | Permalink | Comments (0)October 05, 2016
Why Did the Recent Oil Price Declines Affect Bond Prices of Non-Energy Companies?
Oil prices plunged 65 percent between July 2014 and December of the following year. During this period, the yield spread—the yield of a corporate bond minus the yield of a Treasury bond of the same maturity—of energy companies shot up, indicating increased credit risk. Surprisingly, the yield spread of non‑energy firms also rose even though many non‑energy firms might be expected to benefit from lower energy‑related costs. In this blog post, we examine this counterintuitive result. We find evidence of a liquidity spillover, whereby the bonds of more liquid non‑energy firms had to be sold to satisfy investors who withdrew from bond funds in response to falling energy prices.
Posted by Blog Author at 7:00 AM in Corporate Finance, Credit, Financial Markets, Inflation, Liquidity, Treasury, Unemployment | Permalink | Comments (0)February 18, 2016
Are Asset Managers Vulnerable to Fire Sales?
Update: A technical appendix has been added to the post.
According to conventional wisdom, an open-ended investment fund that has a floating net asset value (NAV) and no leverage will never experience a run and hence never have to fire-sell assets. In that view, a decline in the value of the fund’s assets will just lead to a commensurate and automatic decline in the fund’s equity—end of story. In this post, we argue that the conventional wisdom is incomplete and then explore some of the systemic risk consequences of investment funds’ vulnerabilities to fire-sale spillovers.
Continue reading "Are Asset Managers Vulnerable to Fire Sales?" »
Posted by Blog Author at 7:00 AM in Corporate Finance, Financial Institutions, Fire Sale, Systemic Risk | Permalink | Comments (5)June 22, 2015
Becoming a Large Bank? It’s Not Easy
Size is usually seen as the leading indication of the costs that a bank failure would impose on society. As a result, the Dodd-Frank Act of 2010 requires banks to have adequate capital and liquidity to mitigate default risk and imposes additional requirements on larger banks to enhance their safety. In this post, we show that it is highly uncommon for banks to reach sizes at which they are considered systemically important.
Posted by Blog Author at 7:00 AM in Banks, Corporate Finance, Financial Institutions | Permalink | Comments (2)June 01, 2015
What Drives Buyout Booms and Busts?
Buyout activity by financial investors fluctuates substantially over time. In the United States, peak years result in close to one hundred public-to-private buyout transactions and trough years in as few as ten. The typical buyout is primarily funded by debt, hence the term “leveraged buyout” (or LBO). As a result, analysis of buyout fluctuations has focused on the availability and cost of debt financing. However, in a recent staff report, we find that the overall cost of capital, rather than debt alone, is the primary driver of buyout activity. We argue that it is the common changes in both the cost of debt and the cost of equity—the aggregate risk premium—that are the source of booms and busts in buyout activity.
Posted by Blog Author at 7:00 AM in Corporate Finance, Financial Institutions, Financial Markets | Permalink | Comments (0)About the BlogLiberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
Economic Research Tracker
Liberty Street Economics is now available on the iPhone® and iPad® and can be customized by economic research topic or economist.
View by Topicbank capital balance of payments banks central bank corporate finance credit crisis crisis chronicles cryptocurrencies current account dealers demographics dodd-frank dsge economic history education employment euro area exchange rates expectations exports fed funds federal reserve financial institutions financial intermediation financial markets fire sale fiscal policy fomc forecasting foreclosure great recession hey, economist! high frequency trading historical echoes household household finance housing human capital inequality inflation international economics labor economics labor market lender of last resort liquidity macroecon monetary policy mortgages new jersey new york new york city panic phillips curve puerto rico recession regional analysis regulation repo sandy stocks student loans systemic risk tariffs treasury unemployment wagesMost Viewed
Last 12 MonthsUseful LinksComment GuidelinesWe encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:Please be brief: Comments are limited to 1500 characters.Please be quick: Comments submitted after COB on Friday will not be published until Monday morning.Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.Please be on-topic and patient: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post. We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will not be posted.Disclosure PolicyThe LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.Archives - Financial Services
RSS Feed