Rebel Cole | Florida Atlantic University (original) (raw)

Papers by Rebel Cole

This study examines how the introduction of deposit insurance affects a banking system, using the... more This study examines how the introduction of deposit insurance affects a banking system, using the deposit-insurance scheme introduced into the Russian banking system as a natural experiment. The fundamental research question is whether the introduction of deposit insurance leads to a more effective banking system as evidenced by increased deposit-taking and decreased reliance upon State-owned banks as custodians of retail deposits. We find that banks entering the new deposit-insurance system increased both their level of retail deposits and their ratios of retail deposits to total assets relative to banks that did not enter the new deposit insurance system. We also find that these results hold up in a multivariate panel-data analysis that controls for bank and time random effects. The longer a bank was entered into the deposit insurance system, the greater was its level of deposits and its ratio of deposits to assets. Moreover, this effect was stronger for regional banks and for sma...

In this study, we use data from the World Bank’s Enterprise Surveys of 80 countries over the peri... more In this study, we use data from the World Bank’s Enterprise Surveys of 80 countries over the period from 2006 – 2011 to model the credit-allocation process for SMEs into a sequence of three steps. Based upon these three steps, we classify small businesses into four groups based upon their credit needs. In a first step, we analyze which firms do, and do not, need credit. The “no-need ” firms have received scant attention in the literature even though they typically account for more than half of all small firms. We find that a “no-need ” firm is older and smaller than a firm that needs credit; is more likely to be organized as a corporation and to have an outside auditor; is more likely to be owned by a male and by a foreigner; and is more likely to be located in a small city and in a country with higher GDP per capita and GDP growth. In a second step, we analyze firms who need credit but fail to apply because they feared being turned down or thought that interest rates and collateral...

corporate governance where the State is the controlling block holder:

Federal Reserve Bulletin, 1996

Using newly available data from the Board's 1993 National Survey of Small Business Finances t... more Using newly available data from the Board's 1993 National Survey of Small Business Finances together with data from the 1987 survey, this article analyzes competition between banks and nonbanks in the U.S. market for small business credit. It explores nonbank competition as an explanation for the decline in banks' share of business lending by examining sources of credit used by small firms. It examines both the bank and nonbank shares of the dollar amount of credit to small businesses, including how these shares have changed from 1987 to 1993, and the incidence of small business borrowing, which is defined as the percentage of firms using credit of a certain type or from a particular source. Overall, the results indicate that small businesses obtained a higher percentage of their credit from nonbanks in 1993 than in 1987 but that this difference was small--about 2.0 percentage points.

Federal Reserve Bulletin, 2006

Information on the availability of the SSBF data as well as technical information, data from prev... more Information on the availability of the SSBF data as well as technical information, data from previous surveys, and a bibliography of research using the SSBF are available on the website of the Federal Reserve Board, at www.federalreserve.gov/pubs/oss/oss3/nssbftoc.htm. 3. Interviewing began in mid-2004 and for the most part was completed by year-end. Firms were asked to report balance sheet and income data for the firm's fiscal year that ended between May 1, 2003, and April 30, 2004; other data were reported as of the date of the interview. Results from the 2003 survey are referred to in this article as 2003 data. Further information on the survey's methodology is in appendix A. 4. The organizational forms have different rules about liability and taxes. In sole proprietorships (hereafter, proprietorships) the owners receive all the income from the business and bear full liability for its obligations. Partnerships must have more than one owner. As in proprietorships, the partners receive all the income from the business and, in general, are fully liable for its obligations. Corporations are separate legal entities, and the owners' liability is limited to the amount of their original equity investment. The primary difference A167

SSRN Electronic Journal, 2016

We examine the effects on IPO uncertainty of an alternative going-public mechanismthe two-stage I... more We examine the effects on IPO uncertainty of an alternative going-public mechanismthe two-stage IPO, where a firm first gets quoted on the OTC market, and then upgrades to a national exchange where it first issues public equity. We find that a two-stage IPO firm experiences lower underpricing and return volatility than does a similar traditional IPO firm. We also find that uncertainty decreases significantly between the times of first OTC market quotation and upgrade. We show suggestive evidence that two-stage IPOs with greater disclosure during the first stage experience greater reduction in uncertainty. Our results are robust to controls for the potentially endogenous choice of a two-stage IPO.

SSRN Electronic Journal, 2008

This article examines the role of commercial real estate investments in the banking crisis of 198... more This article examines the role of commercial real estate investments in the banking crisis of 1985-92, an unprecedented period during which more than 1,300 banks failed. Bank failures are fundamentally important because of the unique role played by financial institutions in the provision of business credit. We discover three striking features of banks failing during this period. First, commercial real estate was only a factor in the bank failures of 1988-92. Second, construction loans played a much larger role in bank failures than permanent loans, and the relationship is strongest with construction loans booked during 1983-1985. Third, other ex ante risk measures are systematically related to banking failure throughout the sample period. These results suggest that risk-seeking banks brought about their own demise and commercial real estate, especially construction lending, was one of the vehicles.

SSRN Electronic Journal, 2012

SSRN Electronic Journal, 2012

I analyze changes in lending by U.S. banks to businesses during 1994-2011. I find that lending to... more I analyze changes in lending by U.S. banks to businesses during 1994-2011. I find that lending to businesses and, in particular, to small businesses, declined precipitously following onset of the financial crisis. I also examine the relative changes in business lending by banks that did, and did not, receive TARP funds from the U.S. Treasury, and find that banks receiving capital injections from the TARP failed to increase their small-business lending; instead, these banks decreased their lending by even more than other banks. Finally, I find a strong and significant positive relation between bank capital adequacy and business lending.

SSRN Electronic Journal, 2010

We compare the out-of-sample forecasting accuracy of the time-varying hazard model developed by S... more We compare the out-of-sample forecasting accuracy of the time-varying hazard model developed by Shumway (2001) and the one-period probit model used by Cole and Gunther (1998). Using data on U.S. bank failures from 1985-1 992, we find that, from an econometric perspective, the hazard model is more accurate than the probit model in predicting bank failures, but this improvement in accuracy results from incorporating more recent information in the hazard, but not the probit, model. When we limit both models to the same information set, we find that the one-period probit model is slightly more accurate than the time-varying hazard model. We also find that a parsimonious specification of the one-period probit model fit to data from the 1980s performs surprisingly well in forecasting bank failures during 2009-2010.

SSRN Electronic Journal, 2011

This study examines the determinants of executive compensation using data from two nationally rep... more This study examines the determinants of executive compensation using data from two nationally representative samples of privately held U.S. corporations conducted ten years apart-in 1993 and 2003. We find that: (i) the level of executive pay at privately held firms is higher at larger firms and varies widely by industry, consistent with stylized facts about executive pay at public companies; (ii) inflation-adjusted executive pay has fallen at privately held companies, in contrast with the widely documented run-up in executive pay at large public companies; (iii) the pay-size elasticity is much larger for privately held firms than for the publicly traded firms on which previous research has almost exclusively focused; (iv) executive pay is higher at more complex organizations; (v) organizational form affects taxation, which, in turn, affects executive pay, with executives at C-corporations being paid significantly more than executives at Scorporations; (vi) executive pay is inversely related to CEO ownership; (vii) executive pay is inversely related to financial risk; and (viii) executive pay is related to a number of CEO characteristics, including age, education and gender: executive pay is inversely related to CEO age, positively related to educational, and is significantly lower for female executives.

SSRN Electronic Journal, 2011

This study analyzes differences by gender in the ownership of privately held U.S. firms and exami... more This study analyzes differences by gender in the ownership of privately held U.S. firms and examines the role of gender in the availability of credit. Using data from the nationally representative Surveys of Small Business Finances, which span a period of sixteen years, we document a series of empirical regularities in male-and female-owned firms. Looking at the differences by gender, we find that female-owned firms are 1) significantly smaller, as measured by sales, assets, and employment; 2) younger, as measured by age of the firm; 3) more likely to be organized as proprietorships and less as corporations; 4) more likely to be in retail trade and business services and less likely to be in construction, secondary manufacturing, and wholesale trade; and 5) inclined to have fewer and shorter banking relationships. Moreover, female owners are significantly younger, less experienced, and not as well educated. We also find strong univariate evidence of differences in the availability of credit to male-and female-owned firms. More specifically, female-owned firms are significantly more likely to be creditconstrained because they are more likely to be discouraged from applying for credit, though not more likely to be denied credit when they do apply. However, these differences are rendered insignificant in a multivariate setting, where we control for other firm and owner characteristics.

SSRN Electronic Journal, 2010

In this study, we use panel data from 96 countries over the period 1994-2008 to provide new evide... more In this study, we use panel data from 96 countries over the period 1994-2008 to provide new evidence regarding why bank margins differ across countries. More specifically, we test whether, and, if so, by how much, country-level governance variables and bank-specific factors explain the net-interest margins over time. We find that both bank-specific factors and country-level governance variables are important determinants of the interest margins. We also investigate whether these determinants vary by the level of economic development by splitting our sample into developed and developing countries. We find significant differences in the determinants of margins between developed and developing countries.

SSRN Electronic Journal, 2003

In this study, we examine the wealth effects of regulatory changes intended to improve corporate ... more In this study, we examine the wealth effects of regulatory changes intended to improve corporate governance by protecting minority shareholders from expropriation by controlling shareholders. Using data from publicly traded Chinese firms, we find evidence supportive of three claims: (1) better investor protection results in higher firm valuations (La Porta et al. 2002)); (2) securities-market regulation can create substantial value for minority shareholders in a country with weak judicial enforcement (Glaeser, Johnson and Shleifer (2001)); (3) in a rule-based, civil-law country like China, regulation in the form of simple "bright-line rules" is more effective than in the form of "broad standards" (Black and Kraakman (1996)).

SSRN Electronic Journal, 1995

How quickly do the CAMEL ratings regulators assign to banks during on-site examinations become "s... more How quickly do the CAMEL ratings regulators assign to banks during on-site examinations become "stale"? One measure of the information content of CAMEL ratings is their ability to discriminate between banks that will fail and those that will survive. To assess the accuracy of CAMEL ratings in predicting failure, Rebel Cole and Jeffery Gunther use as a benchmark an offsite monitoring system based on publicly available accounting data. Their findings suggest that, if a bank has not been examined for more than two quarters, off-site monitoring systems usually provide a more accurate indication of survivability than its CAMEL rating. The lower predictive accuracy for CAMEL ratings "older" than two quarters causes the overall accuracy of CAMEL ratings to fall substantially below that of off-site monitoring systems. The higher predictive accuracy of off-site systems derives from both their timeliness-an updated off-site rating is available for every bank in every quarter-and the accuracy of the financial data on which they are based. Cole and Gunther conclude that off-site monitoring systems should continue to play a prominent role in the supervisory process, as a complement to on-site examinations.

SSRN Electronic Journal, 2002

SSRN Electronic Journal, 2014

In this study, we test the predictive power of several alternative measures of bank capital adequ... more In this study, we test the predictive power of several alternative measures of bank capital adequacy in identifying U.S. bank failures during the recent crisis period. We find that an unconventional ratio-the non-performing asset coverage ratio (NPACR)-significantly outperforms Basel-based ratios including the Tier 1 ratio, the Total Capital Ratio, and the Leverage ratio-throughout the crisis period. It also outperforms in predicting failures among "well-capitalized" banks (as defined by the current Prompt Corrective Action guidelines). Based on our results, we argue that NPACR outperforms other ratios in at least five aspects: (i) it aligns capital and credit risks-the two primary risks of bank failures-in one measure; (ii) it is easier to calculate than the Tier 1 and Total Capital ratios, as it requires calculation of no complex risk weights; (iii) it allows one to account for various time period and crosscountry provisioning rules and regimes, including episodes of regulatory forbearance and crosscountry differences; (iv) it removes the incentives of both banks and regulators to mask capital deficiencies by creating/requiring insufficient loan-loss reserves; and (v) it outperforms all other commonly used capital ratios in predicting bank failures. We believe that all the above features of proposed measure promise its effective use in the prompt corrective actions by bank regulators. We also expect that this single and informative measure of bank risk can be efficiently used in empirical banking studies. The results of this study also shed light on regulatory forbearance during the recent banking crisis.

The Journal of Portfolio Management, 2011

In this study, we provide new evidence on the performance measurement and reporting of commercial... more In this study, we provide new evidence on the performance measurement and reporting of commercial real estate returns. We do so by examining the accuracy of commercial-real-estate appraisals that occurred prior to the sale of properties from the NCREIF National Property Index ("NPI") during 1984-2010, a period which spans two up-and-down cycles of the market. We find that, on average, appraisals are more than 12% above, or below, subsequent sales prices that take place two quarters following the appraisal. Even in a portfolio context, allowing for offsetting positive and negative differences, appraisals are off by an average of 4%-5 % of value, even after adjusting for capital appreciation during those two quarters. We also provide new evidence regarding how, and by how much, appraised values lag behind sales prices. We find that appraisals appear to lag the true sales prices, falling significantly below in hot markets and remaining significantly above in cold markets. This new evidence provides guidance to investors, regulators and others about how to interpret real-estate indices like the NPI that are based upon appraised values, in both a rising and falling market. Finally, we find that this "appraisal error" is largely systematic; we can explain more than half of the variation in the signed percentage difference in sales price and appraised value. Hence, appraisal errors are not due solely to property-specific heterogeneity.

The Journal of Finance, 2000

We provide measures of absolute and relative equity agency costs for corporations under different... more We provide measures of absolute and relative equity agency costs for corporations under different ownership and management structures. Our base case is Jensen and Meckling's (1976) zero agency‐cost firm, where the manager is the firm's sole shareholder. We utilize a sample of 1,708 small corporations from the FRB/NSSBF database and find that agency costs (i) are significantly higher when an outsider rather than an insider manages the firm; (ii) are inversely related to the manager's ownership share; (iii) increase with the number of nonmanager shareholders, and (iv) to a lesser extent, are lower with greater monitoring by banks.

Real Estate Economics, 1997

This study uses data on intra‐day transactions to analyze whether real estate investment (REIT) l... more This study uses data on intra‐day transactions to analyze whether real estate investment (REIT) liquidity as measured by the bid‐ask spread changed from 1990 to 1994, a period during which the industry's market capitalization increased from 8.7billionto8.7 billion to 8.7billionto45 billion. REIT percentage spreads (spread as percentage of share price) narrowed significantly, primarily attributable to higher share prices rather than narrower dollar‐value spreads. An empirical model is used to analyze the determinants of percentage spreads. Return variance and share price, not market capitalization are found to be the primary determinants of percentage spreads in both periods. This suggests that the liquidity of REIT securities is similar to that of non‐REIT securities with similar prices and return variance. In addition, percentage spreads are wider for REITs trading on the NASDAQ.

This study examines how the introduction of deposit insurance affects a banking system, using the... more This study examines how the introduction of deposit insurance affects a banking system, using the deposit-insurance scheme introduced into the Russian banking system as a natural experiment. The fundamental research question is whether the introduction of deposit insurance leads to a more effective banking system as evidenced by increased deposit-taking and decreased reliance upon State-owned banks as custodians of retail deposits. We find that banks entering the new deposit-insurance system increased both their level of retail deposits and their ratios of retail deposits to total assets relative to banks that did not enter the new deposit insurance system. We also find that these results hold up in a multivariate panel-data analysis that controls for bank and time random effects. The longer a bank was entered into the deposit insurance system, the greater was its level of deposits and its ratio of deposits to assets. Moreover, this effect was stronger for regional banks and for sma...

In this study, we use data from the World Bank’s Enterprise Surveys of 80 countries over the peri... more In this study, we use data from the World Bank’s Enterprise Surveys of 80 countries over the period from 2006 – 2011 to model the credit-allocation process for SMEs into a sequence of three steps. Based upon these three steps, we classify small businesses into four groups based upon their credit needs. In a first step, we analyze which firms do, and do not, need credit. The “no-need ” firms have received scant attention in the literature even though they typically account for more than half of all small firms. We find that a “no-need ” firm is older and smaller than a firm that needs credit; is more likely to be organized as a corporation and to have an outside auditor; is more likely to be owned by a male and by a foreigner; and is more likely to be located in a small city and in a country with higher GDP per capita and GDP growth. In a second step, we analyze firms who need credit but fail to apply because they feared being turned down or thought that interest rates and collateral...

corporate governance where the State is the controlling block holder:

Federal Reserve Bulletin, 1996

Using newly available data from the Board's 1993 National Survey of Small Business Finances t... more Using newly available data from the Board's 1993 National Survey of Small Business Finances together with data from the 1987 survey, this article analyzes competition between banks and nonbanks in the U.S. market for small business credit. It explores nonbank competition as an explanation for the decline in banks' share of business lending by examining sources of credit used by small firms. It examines both the bank and nonbank shares of the dollar amount of credit to small businesses, including how these shares have changed from 1987 to 1993, and the incidence of small business borrowing, which is defined as the percentage of firms using credit of a certain type or from a particular source. Overall, the results indicate that small businesses obtained a higher percentage of their credit from nonbanks in 1993 than in 1987 but that this difference was small--about 2.0 percentage points.

Federal Reserve Bulletin, 2006

Information on the availability of the SSBF data as well as technical information, data from prev... more Information on the availability of the SSBF data as well as technical information, data from previous surveys, and a bibliography of research using the SSBF are available on the website of the Federal Reserve Board, at www.federalreserve.gov/pubs/oss/oss3/nssbftoc.htm. 3. Interviewing began in mid-2004 and for the most part was completed by year-end. Firms were asked to report balance sheet and income data for the firm's fiscal year that ended between May 1, 2003, and April 30, 2004; other data were reported as of the date of the interview. Results from the 2003 survey are referred to in this article as 2003 data. Further information on the survey's methodology is in appendix A. 4. The organizational forms have different rules about liability and taxes. In sole proprietorships (hereafter, proprietorships) the owners receive all the income from the business and bear full liability for its obligations. Partnerships must have more than one owner. As in proprietorships, the partners receive all the income from the business and, in general, are fully liable for its obligations. Corporations are separate legal entities, and the owners' liability is limited to the amount of their original equity investment. The primary difference A167

SSRN Electronic Journal, 2016

We examine the effects on IPO uncertainty of an alternative going-public mechanismthe two-stage I... more We examine the effects on IPO uncertainty of an alternative going-public mechanismthe two-stage IPO, where a firm first gets quoted on the OTC market, and then upgrades to a national exchange where it first issues public equity. We find that a two-stage IPO firm experiences lower underpricing and return volatility than does a similar traditional IPO firm. We also find that uncertainty decreases significantly between the times of first OTC market quotation and upgrade. We show suggestive evidence that two-stage IPOs with greater disclosure during the first stage experience greater reduction in uncertainty. Our results are robust to controls for the potentially endogenous choice of a two-stage IPO.

SSRN Electronic Journal, 2008

This article examines the role of commercial real estate investments in the banking crisis of 198... more This article examines the role of commercial real estate investments in the banking crisis of 1985-92, an unprecedented period during which more than 1,300 banks failed. Bank failures are fundamentally important because of the unique role played by financial institutions in the provision of business credit. We discover three striking features of banks failing during this period. First, commercial real estate was only a factor in the bank failures of 1988-92. Second, construction loans played a much larger role in bank failures than permanent loans, and the relationship is strongest with construction loans booked during 1983-1985. Third, other ex ante risk measures are systematically related to banking failure throughout the sample period. These results suggest that risk-seeking banks brought about their own demise and commercial real estate, especially construction lending, was one of the vehicles.

SSRN Electronic Journal, 2012

SSRN Electronic Journal, 2012

I analyze changes in lending by U.S. banks to businesses during 1994-2011. I find that lending to... more I analyze changes in lending by U.S. banks to businesses during 1994-2011. I find that lending to businesses and, in particular, to small businesses, declined precipitously following onset of the financial crisis. I also examine the relative changes in business lending by banks that did, and did not, receive TARP funds from the U.S. Treasury, and find that banks receiving capital injections from the TARP failed to increase their small-business lending; instead, these banks decreased their lending by even more than other banks. Finally, I find a strong and significant positive relation between bank capital adequacy and business lending.

SSRN Electronic Journal, 2010

We compare the out-of-sample forecasting accuracy of the time-varying hazard model developed by S... more We compare the out-of-sample forecasting accuracy of the time-varying hazard model developed by Shumway (2001) and the one-period probit model used by Cole and Gunther (1998). Using data on U.S. bank failures from 1985-1 992, we find that, from an econometric perspective, the hazard model is more accurate than the probit model in predicting bank failures, but this improvement in accuracy results from incorporating more recent information in the hazard, but not the probit, model. When we limit both models to the same information set, we find that the one-period probit model is slightly more accurate than the time-varying hazard model. We also find that a parsimonious specification of the one-period probit model fit to data from the 1980s performs surprisingly well in forecasting bank failures during 2009-2010.

SSRN Electronic Journal, 2011

This study examines the determinants of executive compensation using data from two nationally rep... more This study examines the determinants of executive compensation using data from two nationally representative samples of privately held U.S. corporations conducted ten years apart-in 1993 and 2003. We find that: (i) the level of executive pay at privately held firms is higher at larger firms and varies widely by industry, consistent with stylized facts about executive pay at public companies; (ii) inflation-adjusted executive pay has fallen at privately held companies, in contrast with the widely documented run-up in executive pay at large public companies; (iii) the pay-size elasticity is much larger for privately held firms than for the publicly traded firms on which previous research has almost exclusively focused; (iv) executive pay is higher at more complex organizations; (v) organizational form affects taxation, which, in turn, affects executive pay, with executives at C-corporations being paid significantly more than executives at Scorporations; (vi) executive pay is inversely related to CEO ownership; (vii) executive pay is inversely related to financial risk; and (viii) executive pay is related to a number of CEO characteristics, including age, education and gender: executive pay is inversely related to CEO age, positively related to educational, and is significantly lower for female executives.

SSRN Electronic Journal, 2011

This study analyzes differences by gender in the ownership of privately held U.S. firms and exami... more This study analyzes differences by gender in the ownership of privately held U.S. firms and examines the role of gender in the availability of credit. Using data from the nationally representative Surveys of Small Business Finances, which span a period of sixteen years, we document a series of empirical regularities in male-and female-owned firms. Looking at the differences by gender, we find that female-owned firms are 1) significantly smaller, as measured by sales, assets, and employment; 2) younger, as measured by age of the firm; 3) more likely to be organized as proprietorships and less as corporations; 4) more likely to be in retail trade and business services and less likely to be in construction, secondary manufacturing, and wholesale trade; and 5) inclined to have fewer and shorter banking relationships. Moreover, female owners are significantly younger, less experienced, and not as well educated. We also find strong univariate evidence of differences in the availability of credit to male-and female-owned firms. More specifically, female-owned firms are significantly more likely to be creditconstrained because they are more likely to be discouraged from applying for credit, though not more likely to be denied credit when they do apply. However, these differences are rendered insignificant in a multivariate setting, where we control for other firm and owner characteristics.

SSRN Electronic Journal, 2010

In this study, we use panel data from 96 countries over the period 1994-2008 to provide new evide... more In this study, we use panel data from 96 countries over the period 1994-2008 to provide new evidence regarding why bank margins differ across countries. More specifically, we test whether, and, if so, by how much, country-level governance variables and bank-specific factors explain the net-interest margins over time. We find that both bank-specific factors and country-level governance variables are important determinants of the interest margins. We also investigate whether these determinants vary by the level of economic development by splitting our sample into developed and developing countries. We find significant differences in the determinants of margins between developed and developing countries.

SSRN Electronic Journal, 2003

In this study, we examine the wealth effects of regulatory changes intended to improve corporate ... more In this study, we examine the wealth effects of regulatory changes intended to improve corporate governance by protecting minority shareholders from expropriation by controlling shareholders. Using data from publicly traded Chinese firms, we find evidence supportive of three claims: (1) better investor protection results in higher firm valuations (La Porta et al. 2002)); (2) securities-market regulation can create substantial value for minority shareholders in a country with weak judicial enforcement (Glaeser, Johnson and Shleifer (2001)); (3) in a rule-based, civil-law country like China, regulation in the form of simple "bright-line rules" is more effective than in the form of "broad standards" (Black and Kraakman (1996)).

SSRN Electronic Journal, 1995

How quickly do the CAMEL ratings regulators assign to banks during on-site examinations become "s... more How quickly do the CAMEL ratings regulators assign to banks during on-site examinations become "stale"? One measure of the information content of CAMEL ratings is their ability to discriminate between banks that will fail and those that will survive. To assess the accuracy of CAMEL ratings in predicting failure, Rebel Cole and Jeffery Gunther use as a benchmark an offsite monitoring system based on publicly available accounting data. Their findings suggest that, if a bank has not been examined for more than two quarters, off-site monitoring systems usually provide a more accurate indication of survivability than its CAMEL rating. The lower predictive accuracy for CAMEL ratings "older" than two quarters causes the overall accuracy of CAMEL ratings to fall substantially below that of off-site monitoring systems. The higher predictive accuracy of off-site systems derives from both their timeliness-an updated off-site rating is available for every bank in every quarter-and the accuracy of the financial data on which they are based. Cole and Gunther conclude that off-site monitoring systems should continue to play a prominent role in the supervisory process, as a complement to on-site examinations.

SSRN Electronic Journal, 2002

SSRN Electronic Journal, 2014

In this study, we test the predictive power of several alternative measures of bank capital adequ... more In this study, we test the predictive power of several alternative measures of bank capital adequacy in identifying U.S. bank failures during the recent crisis period. We find that an unconventional ratio-the non-performing asset coverage ratio (NPACR)-significantly outperforms Basel-based ratios including the Tier 1 ratio, the Total Capital Ratio, and the Leverage ratio-throughout the crisis period. It also outperforms in predicting failures among "well-capitalized" banks (as defined by the current Prompt Corrective Action guidelines). Based on our results, we argue that NPACR outperforms other ratios in at least five aspects: (i) it aligns capital and credit risks-the two primary risks of bank failures-in one measure; (ii) it is easier to calculate than the Tier 1 and Total Capital ratios, as it requires calculation of no complex risk weights; (iii) it allows one to account for various time period and crosscountry provisioning rules and regimes, including episodes of regulatory forbearance and crosscountry differences; (iv) it removes the incentives of both banks and regulators to mask capital deficiencies by creating/requiring insufficient loan-loss reserves; and (v) it outperforms all other commonly used capital ratios in predicting bank failures. We believe that all the above features of proposed measure promise its effective use in the prompt corrective actions by bank regulators. We also expect that this single and informative measure of bank risk can be efficiently used in empirical banking studies. The results of this study also shed light on regulatory forbearance during the recent banking crisis.

The Journal of Portfolio Management, 2011

In this study, we provide new evidence on the performance measurement and reporting of commercial... more In this study, we provide new evidence on the performance measurement and reporting of commercial real estate returns. We do so by examining the accuracy of commercial-real-estate appraisals that occurred prior to the sale of properties from the NCREIF National Property Index ("NPI") during 1984-2010, a period which spans two up-and-down cycles of the market. We find that, on average, appraisals are more than 12% above, or below, subsequent sales prices that take place two quarters following the appraisal. Even in a portfolio context, allowing for offsetting positive and negative differences, appraisals are off by an average of 4%-5 % of value, even after adjusting for capital appreciation during those two quarters. We also provide new evidence regarding how, and by how much, appraised values lag behind sales prices. We find that appraisals appear to lag the true sales prices, falling significantly below in hot markets and remaining significantly above in cold markets. This new evidence provides guidance to investors, regulators and others about how to interpret real-estate indices like the NPI that are based upon appraised values, in both a rising and falling market. Finally, we find that this "appraisal error" is largely systematic; we can explain more than half of the variation in the signed percentage difference in sales price and appraised value. Hence, appraisal errors are not due solely to property-specific heterogeneity.

The Journal of Finance, 2000

We provide measures of absolute and relative equity agency costs for corporations under different... more We provide measures of absolute and relative equity agency costs for corporations under different ownership and management structures. Our base case is Jensen and Meckling's (1976) zero agency‐cost firm, where the manager is the firm's sole shareholder. We utilize a sample of 1,708 small corporations from the FRB/NSSBF database and find that agency costs (i) are significantly higher when an outsider rather than an insider manages the firm; (ii) are inversely related to the manager's ownership share; (iii) increase with the number of nonmanager shareholders, and (iv) to a lesser extent, are lower with greater monitoring by banks.

Real Estate Economics, 1997

This study uses data on intra‐day transactions to analyze whether real estate investment (REIT) l... more This study uses data on intra‐day transactions to analyze whether real estate investment (REIT) liquidity as measured by the bid‐ask spread changed from 1990 to 1994, a period during which the industry's market capitalization increased from 8.7billionto8.7 billion to 8.7billionto45 billion. REIT percentage spreads (spread as percentage of share price) narrowed significantly, primarily attributable to higher share prices rather than narrower dollar‐value spreads. An empirical model is used to analyze the determinants of percentage spreads. Return variance and share price, not market capitalization are found to be the primary determinants of percentage spreads in both periods. This suggests that the liquidity of REIT securities is similar to that of non‐REIT securities with similar prices and return variance. In addition, percentage spreads are wider for REITs trading on the NASDAQ.