Paolo Volpin | City, University of London (original) (raw)

Papers by Paolo Volpin

We present a model of securitization where issuers of structured bonds choose coarse and opaque r... more We present a model of securitization where issuers of structured bonds choose coarse and opaque ratings to enhance the liquidity of their primary market, at the cost of reducing secondary market liquidity. The degree of transparency chosen by issuers is ine¢ ciently low if the social cost of secondary market illiquidity exceeds the private one, providing a rationale for regulating the transparency of rating agencies. The model also shows that when issuers choose transparent ratings they may optimally choose to restrain the issue size, or tranche the issue so as to sell the more information-sensitive tranche to sophisticated investors only. JEL classi…cation: D82, G21, G18. Acknowledgments: We thank Denis Gromb and Dimitri Vayanos for providing insightful comments. The Paul Woolley Centre for the Study of Capital Market Dysfunctionality (LSE) provided a congenial environment for the …rst draft of this paper.

In a general equilibrium economy with uninsurable aggregate liquidity shocks, we show that public... more In a general equilibrium economy with uninsurable aggregate liquidity shocks, we show that public information may trigger allocative inefficiency and liquidity crises. Entrepreneurs do not internalize the negative impact of their investment decisions on the equilibrium risk of liquidity shortage. A more informative public signal decreases the risk of a liquidity shock, but increases the risk of capital rationing conditional on a liquidity shock. In equilibrium, information quality has a non-monotonic effect on expected returns on investment and social welfare. An increase in the quality of public information has redistributive effects on welfare as entrepreneurs gain and financiers lose. Investment restrictions and targeted disclosure of information achieve constrained efficiency as competitive market equilibrium.

Review of Financial Studies, 2014

ABSTRACT This paper exploits intertemporal variations in employment protection across countries a... more ABSTRACT This paper exploits intertemporal variations in employment protection across countries and finds that rigidities in labor markets are an important determinant of firms' capital structure decisions. Over the 1985–2007 period, we find that reforms increasing employment protection are associated with a 187 basis point reduction in leverage. We interpret this finding to suggest that employment protection increases operating leverage, crowding out financial leverage. This result does not appear to be due to pretreatment differences between treated and control firms, omitted variables, unobserved changes in regional economic conditions, and reverse causality. Heterogeneous treatment effects are consistent with our economic intuition.

SSRN Electronic Journal, 2000

ABSTRACT We examine how mark-to-market accounting affects investment decisions in an agency model... more ABSTRACT We examine how mark-to-market accounting affects investment decisions in an agency model with reputation concerns. Disclosing the current market value of a firm's assets can serve as a disciplining device because the information contained in the market prices provides a benchmark against which the agent's actions can be evaluated. However, the fact that market prices are informative about which decision the agent should take can have a perverse effect: the agent may prefer to hide relevant but contradictory private information whose revelation would damage his reputation. Surprisingly, this effect makes mark-to-market accounting less desirable as market prices become more informative.

SSRN Electronic Journal, 2000

ABSTRACT In this paper we study the political and economic determinants of US states' cho... more ABSTRACT In this paper we study the political and economic determinants of US states' choices of homestead exemptions. We develop a political economy model in which homestead exemptions are ex-post beneficial to borrowers who default (because they shield some of their wealth from creditors) but ex-ante costly to all borrowers (because they increase borrowing costs). Assuming that state residents vote on homestead exemptions, we predict that states with higher levels of income inequality adopt higher levels of homestead exemptions. We test this prediction for three sample periods: cross-sectional data for 1975 and for 1860, and panel data over the 1978-2005 period. Across these three samples, we find evidence consistent with the prediction of the model. Our findings are robust to controls for other differences across states, including state�fixed effects (in the panel regressions).

SSRN Electronic Journal, 2000

ABSTRACT This paper examines the effect of labor regulation on firms' choice of debt. Usi... more ABSTRACT This paper examines the effect of labor regulation on firms' choice of debt. Using firm-level data from 21 countries over the 1985-2004 period, we employ a difference-in-differences methodology that exploits inter-temporal variations in employment laws across countries. We find that firms reduce their use of debt following legal changes that increase employment protection. We interpret this result as evidence that an increase in labor protection increases the cost of debt, causing operating leverage to crowd out financial leverage. We also find that the negative effect of labor protection on leverage is more pronounced for sectors that rely more on labor, that require more hiring and firing, and that have fewer tangible assets. In terms of real activities, we show that increases in employment protection impact negatively firms' investment and growth, particularly in sectors that are more dependent on external capital. This finding indicates that the enactment of employment friendly legislation reduces the supply of debt or, put differently, stronger labor protection restricts firms' access to capital.

Review of Financial Studies, 2012