Relationship banking, liquidity, and investment in the German industrialization

Article Abstract:

Close bank relationships are thought to ameliorate firms' liquidity constraints - a phenomenon frequently measured by liquidity sensitivity of investment. Using German firms during the formative years of universal banking (1903-1913), this paper shows that, even controlling for selection bias, investment is more sensitive to internal liquidity for bank-networked firms than unattached firms. The firm exhibiting the greatest liquidity sensitivity, however, faced no apparent liquidity constraint. The findings yielded two implications: they support recent research rejecting a linear relationship between liquidity sensitivity and financing constraints, and they suggest that relationship banking provides no consistent lessening of firms' liquidity sensitivity. (Reprinted by permission of the publisher.)

Banking Institutions, Depository Credit Intermediation, Germany, Banks (Finance), Investments, Liquidity (Finance), Industrial development, Industrialization

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Assessing goodness-of-fit of asset pricing models: the distribution of the maximal R squared

Article Abstract:

The development of asset pricing models that rely on instrumental variables together with the increased availability of easily-accessible economic time-series have renewed interest in predicting security returns. Evaluating the significance of these new research findings, however, is no easy task. Because these asset pricing theory tests are not independent, classical methods of assessing goodness-of-fit are inappropriate. This study investigates the distribution of the maximal R squared when k of m regressors are used to predict security returns. We provide a simple procedure that adjusts critical R squared values to account for selecting variables by searching among potential regressors. (Reprinted by permission of the publisher.)

Models, Assets (Accounting), Distribution (Probability theory), Goodness-of-fit tests

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Syndicate size, spreads, and market power during the introduction of shelf registration

Article Abstract:

The introduction of shelf registration in 1982 is used to examine the extent of price-taking behavior among investment banks. Changes in underwriting syndicates are compared with the concomitant adjustment in underwriting spreads and management fees. The evidence is consistent with higher organizing costs and-or market power in the underwriting syndicate. Evidence on the components of the spreads and syndicate composition during the introduction of shelf registration is also presented. (Reprinted by permission of the publisher.)

Syndicates (Finance)

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