Browsing by Author "Sivaramakrishnan, Shiva"

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    Accounting Standards, Capital Regulation and Credit Supply: A Reduced-form and Structural Analysis
    (2023-04-21) Liu, Xiao; Sivaramakrishnan, Shiva
    Prior research has examined how accounting rules and capital regulation each impact bank lending, but few studies have investigated their combined effects. In this dissertation, I propose and test the thesis that bank capitalization and loan-loss reserving jointly affect credit supply during economic downturns. Specifically, I use the Global Financial Crisis as a context to analyze the usability of capital buffers in conjunction with the adequacy of loan-loss reserving. Contrary to conventional wisdom that capital buffers mitigate procyclicality in lending, my analysis reveals that both high and low regulatory capital buffer banks reduced lending during the crisis. More importantly, crisis-lending is inversely related to the size of the buffer for high regulatory buffer banks. This result suggests that these banks likely had higher risk exposures in their loan portfolios prior to the crisis and faced the prospect of greater unexpected losses. Moreover, I show that adequate loan-loss reserving under the prevailing accounting rules (the Incurred Loss method or ICL) reduces pro-cyclicality for both low and high regulatory capital buffer banks. Furthermore, I investigate the efficacy of the new Current Expected Credit Loss (CECL) model. The CECL model was implemented with the intent of inducing banks to set aside sufficient loan-loss reserves. By calibrating a loan portfolio migration model, I find that under CECL, banks hold less capital, earn lower profits, and lend less during both expansion and contraction periods. Additionally, provisions surge more dramatically under CECL following an unanticipated contraction, hindering lending and profitability. These results suggest that lending is more pro-cyclical under CECL than ICL, despite its intended purpose to maintain credit supply and reduce procyclicality.
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    Proprietary Information Disclosure and Corporate Financing
    (2020-04-20) Zufarov, Rustam; Sivaramakrishnan, Shiva
    Accounting theory provides considerable insight into corporate disclosures practices and when managers might voluntarily disclose proprietary information. Yet, empirical evidence concerning when firms choose to credibly disclose such information is sparse. It is challenging in general to assess the proprietary information content of corporate disclosures because (i) firms can disseminate information via many different channels, and (ii) credibility of such disclosures is a serious concern. I propose a methodology that addresses these issues, and test the hypothesis that firms disclose more proprietary information ahead of raising equity capital. Specifically, I measure the extent of proprietary information these firms disclose by the magnitude of the association between a private information-based proxy and stock returns prior to equity offerings. To establish a causal link between equity financing and disclosures, I use a difference-in-differences design around the Securities Offering Reform of 2005 that reduced litigation risks associated with disclosures and relaxed restrictions on forward-looking disclosures. I find that equity-issuing firms disclose more than twice as much proprietary information as non-issuing control firms. This result is robust after controlling for any leakage of private information from insider trading and from analysts' information gathering activities. My findings also suggest that larger equity issuers experience 10 to 23 percent greater drop in underpricing relative to smaller equity issuers in the post-Reform period. Finally, by examining a broad sample of firms issuing equity, debt or relying on internal funds, I find that financing choice shapes firms' proprietary information disclosures. It is also possible that proprietary cost considerations overwhelm these capital market benefits for some firms, inhibiting them from divulging sensitive private information. These firms would have a natural incentive to seek financing via other avenues. Indeed, I find that firms with higher proprietary cost concerns are more likely to raise equity capital via private placements relative to public offerings. Taken together, these results suggest that corporate disclosure policies and financing decisions are interlinked in a significant way.