Tag Archives: banks

The Value of Banking Governance Reform in China

By | February 1, 2023

Motivation   Banks collect deposits from households and allocate funds to borrowing firms in the real economy. Banks play two fundamental roles in fund allocation: selecting the best borrower from potential borrowers and monitoring them (Diamond 1984, 1991). The successful fulfillment of those two roles builds on a good bank governance system that aims to protect… Read More »

Banks Have Sticky Preferences for Loan Contract Design: Lender-Side Determinants of Debt Covenant Inclusion

By | June 14, 2021

            Banks develop expertise from their prior lending experience in monitoring borrowers’ financial activities in order to mitigate conflicts of interests between managers and creditors arising from asymmetric information. In loan contracts, covenants have classically been viewed as a method of controlling agency problems by restricting managerial behavior.[1] Covenants can align the interests of the contracting… Read More »