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David S.
Scharfstein
Harvard Business School Assistant: Peggy Moreland
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Writing and Research on the Credit Crisis Bank Lending During the Financial Crisis of 2008, with Victoria IvashinaThis paper documents that new loans to large borrowers fell by 37% during the peak period of the financial crisis (September-November 2008) relative to the prior three-month period and by 68% relative to the peak of the credit boom (Mar-May 2007). New lending for real investment (such as capital expenditures) fell to the same extent as new lending for restructuring (LBOs, M&A, share repurchases). Banks that have access to deposit financing cut their lending less than banks with less access to deposit financing. In addition, there is a large overhang of revolving credit facilities, which may also have curtailed lending. We document an increase in drawdowns of revolving credit facilities. Many of these drawdowns were undertaken by low credit quality firms concerned about their access to funding. While helpful to these borrowers, they may limit the ability of banks to make other loans. Banks with more revolving lines outstanding relative to deposits reduced their lending more than those with less revolving line exposure.. This Bailout Doesn't Pay Dividends, with Jeremy C. Stein, The New York Times, October 20, 2008. The Bailout is Robbing the Banks, with John C. Coates,The New York Times, February 17, 2009 Lowering the Cost of Bank Recapitalization, with John Coates Forthcoming, Yale Journal of Regulation Efforts to recapitalize banks in the current crisis have to date been focused on government assistance under the TARP, rather than private investment, and on bank holding companies, rather than banks. We describe three alternative or complementary approaches designed to lower the cost of bank recapitalizations by drawing in funds from the private sector and focusing on banks: rights offerings, debt restructurings, and FDIC-assisted bridge banks. Each approach was used in dealing with problem banks in the 1990s; each can be pursued without additional legislation; and each is worth considering now. We also propose two legal changes that would assist bank recapitalization: (1) the Fed should further modestly relax its rules under the Bank Holding Company Act to eliminate the presumption of "control" by investors at the current threshold of 5%, which would permit more capital to be invested in banks by private equity and other institutional investors; and (2) Congress should consider a new statute to streamline the recapitalization of bank holding companies by moving them outside current bankruptcy laws into a new resolution regime similar to the FDIC regime currently used for banks. Testimony before
the Subcommittee on Financial Institutions and Consumer Credit Committee. Hearing on TARP Oversight: Is TARP Working for Main Street? Working Papers
Performance Persistence in
Entrepreneurship with Paul Gompers, Anna Kovner and Josh Lerner, forthcoming in The Journal of Financial Economics
Evidence on the Dark Side of Internal
Capital Markets with Oguzhan Ozbas, forthcoming in The Review of Financial Studies Organizational Scope and
Investment: Evidence from the Drug Development
Strategies and Performance of Biopharmaceutical Firms with Ilan Guedj
Entrepreneurship in Equilibrium with Denis Gromb Venture capital investment cycles: The
impact of public markets, with
Paul Gompers, Anna Kovner and Josh Lerner, Journal of Financial
Economics, January 2008 Entrepreneurial Spawning: Public
Corporations and the Genesis of New Ventures, 1986-1999, with
Paul Gompers and Josh Lerner, Journal of Finance, April 2005
Learning About Internal Capital Markets from Corporate Spinoffs,
with Robert Gertner and Eric Powers, Journal of Finance, December 2002
Do Firm Boundaries Matter?,
with Sendhil Mullainathan, American Economic Review, May 2002
The Dark Side of Internal
Capital Markets: Divisional Rent-Seeking and Inefficient Investment,
with Jeremy Stein, Journal of Finance, December 2000
Herd Behavior and Investment: Reply,
with Jeremy C. Stein, American Economic Review, June 2000
Corporate Finance, the Theory of the Firm, and Organizations,
with Patrick Bolton, The Journal of Economic Perspectives, Autumn,
1998
Optimal Debt Structure and the Number of Creditors,
with Patrick Bolton, The Journal of Political Economy, February, 1996
Capital-Market Imperfections and Countercyclical Markups:
Theory and Evidence
, with Judith Chevalier, The American Economic Review, September, 1996
Liquidity Constraints and the Cyclical Behavior of Markups,
with Judith A. Chevalier, The American Economic Review, May, 1995
Anatomy of Financial Distress: An Examination of Junk-Bond Issuers, with Paul Asquith & Robert Gertner, The Quarterly Journal of Economics, August, 1994
Internal Versus External Capital Markets, with Robert H. Gertner & Jeremy C. Stein,
The Quarterly Journal of Economics, November, 1994
Risk Management: Coordinating Corporate Investment and Financing Policies,
with Kenneth A. Froot & Jeremy C. Stein, The Journal of Finance,
December, 1993
Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation,
with Kenneth A. Froot & Jeremy C. Stein, The Journal of Finance, September, 1992
Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial
Groups, with Takeo Hoshi & Anil Kashyap, The Quarterly Journal of Economics, February, 1991
A Theory of Workouts and the Effects of Reorganization Law,
with Robert Gertner, The Journal of Finance, September, 1991
Shareholder-Value Maximization and Product-Market Competition,
with Julio J. Rotemberg, The Review of Financial Studies, 1990
A Theory of Predation Based on Agency Problems in Financial Contracting,
with Patrick Bolton, The American Economic Review, March, 1990
Herd Behavior and Investment, with Jeremy C. Stein, The American Economic Review, June 1990
LDC Debt: Forgiveness, Indexation, and Investment
Incentives,
with Kenneth A. Froot & Jeremy C. Stein, The Journal of Finance, December, 1989
The Disciplinary Role of Takeovers, The Review of Economic Studies, April, 1988
Simultaneous Signalling to the Capital and Product Markets,
with Robert Gernter & Robert Gibbons, The RAND Journal of Economics, Summer, 1988
Product-Market Competition and Managerial Slack,
The RAND Journal of Economics, Spring, 1988
Testing in Models of Asymmetric
Information, with Barry Nalebuff, The Review of Economic Studies,
April, 1987
A Policy to Prevent Rational Test-Market Predation,
The RAND Journal of Economics, Summer, 1984
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