Greg Nini - Academia.edu (original) (raw)
Papers by Greg Nini
The Review of Financial Studies, Mar 6, 2018
We trace the evolution of extreme illiquidity discounts among Treasury securities during the fina... more We trace the evolution of extreme illiquidity discounts among Treasury securities during the financial crisis, when bond prices fell more than 6% below more liquid but otherwise identical notes. Using high-resolution data on market quality and trader identities and characteristics, we find that the discounts amplify through feedback loops, where cheaper, less-liquid securities flow to longer-horizon investors, thereby increasing their illiquidity and thus their appeal to these investors. The effect of the widened liquidity gap on transactions costs is further amplified by a surge in the price liquidity providers charge for access to their balance sheets in the crisis. (JEL E43, G01, G12, G14)
Journal of Risk and Insurance
In a large sample of private credit agreements of publicly traded firms, nearly all agreements co... more In a large sample of private credit agreements of publicly traded firms, nearly all agreements contain at least a boilerplate provision requiring the borrower to purchase insurance. In about 80 percent of the agreements, the insurance covenant is more explicit. Four additional features of the insurance covenant are quite common: requirements of coverage for specific risks, naming the lender as a loss payee, mandating that any insurance proceeds be used to repay the loan, and explicit permission for the borrower to self‐insure. Credit agreements contain more stringent insurance requirements for borrowers that pose higher credit risk. The insurance requirements are strongly positively correlated with the loan being secured by collateral, which suggests that insurance creates value by protecting lenders from unexpected changes in seniority that might happen following the destruction of collateral. Insurance covenants are an important ingredient of credit agreements designed to create a very safe claim for senior, secured lenders.
Journal of Corporate Finance
The risk of customers affects corporate financial policy by limiting the ability of firms to secu... more The risk of customers affects corporate financial policy by limiting the ability of firms to securitize customer receivables. We find that firms with riskier receivables, based on the credit risk and diversification of the firms' principal customers, have lower financing capacity and lower leverage in their asset-backed securitizations. Because securitizations are designed to create a very safe claim by separating the risk of the securitized assets from the risk of the originating firms, increases in the risk of the receivables directly inhibit originating firms' ability to securitize assets and indirectly inhibit the originating firms' access to external finance. The study highlights a novel link between the financing of supplier firms and the financial health of their customers and shows how an increase in risk can limit access to external capital.
Insurance markets are proving to be a fruitful area for empirical work on contract theory. Since ... more Insurance markets are proving to be a fruitful area for empirical work on contract theory. Since much of the theoretical work on contracts is motivated by moral hazard and adverse selection, insurance seems a natural product on which to study the impact that private information and unobservable actions have on contract terms and performance. While several theoretical papers incorporate repeated contracting over time (see Chiappori, 2000, for a review), empirical research has yet to fully address the repeated nature of insurance contracting (Chiappori and Heckman, 2002, and Cohen, 2002, are exceptions). Many insurance purchases are quite persistent over time (Nini, 2004, documents significant persistence in auto insurance). With short-term contracts and repeated interactions, ex-post moral hazard becomes important as consumers have strategic incentives to prevent the revelation of potentially costly information. This is particularly true for drivers involved in a auto accident: making a claim provides valuable indemnification yet reveals information that may lead to future premium increases.
The Journal of Finance, 2013
Contrary to recent accounts of off-balance sheet securitization by financial firms, we show that ... more Contrary to recent accounts of off-balance sheet securitization by financial firms, we show that asset securitization by nonfinancial firms provides a valuable form of financing to shareholders without harming firms’ debtholders. Using data from firms’ SEC filings, we find that securitization is attractive to firms in the middle of the credit quality distribution, which are the firms with the most to gain. Upon initiation, firms experience positive abnormal stock returns, zero abnormal bond returns, and largely use the securitization proceeds to repay existing debt. Securitization helps minimize financing costs by reducing expected bankruptcy costs and providing access to segmented credit markets.
We study syndicated loans to borrowers from emerging markets, comparing loans funded partially by... more We study syndicated loans to borrowers from emerging markets, comparing loans funded partially by local banks with loans funded entirely by foreign banks. Controlling for the endogeneity of local bank participation, we find that local banks are associated with loans that are larger, longer, cheaper, and less frequently secured. Moreover, local bank participation is a complement to these three loan terms, suggesting that local banks likely possess a comparative advantage in reducing asymmetric information and addressing agency problems. The results offer additional evidence that factors associated with location remain important in the provision of financial services. By extension, the results suggest that foreign capital is not a perfect substitute for local capital, highlighting the need for policy continued at promoting financial development with emerging market economies.
The Review of Financial Studies, Mar 6, 2018
We trace the evolution of extreme illiquidity discounts among Treasury securities during the fina... more We trace the evolution of extreme illiquidity discounts among Treasury securities during the financial crisis, when bond prices fell more than 6% below more liquid but otherwise identical notes. Using high-resolution data on market quality and trader identities and characteristics, we find that the discounts amplify through feedback loops, where cheaper, less-liquid securities flow to longer-horizon investors, thereby increasing their illiquidity and thus their appeal to these investors. The effect of the widened liquidity gap on transactions costs is further amplified by a surge in the price liquidity providers charge for access to their balance sheets in the crisis. (JEL E43, G01, G12, G14)
Journal of Risk and Insurance
In a large sample of private credit agreements of publicly traded firms, nearly all agreements co... more In a large sample of private credit agreements of publicly traded firms, nearly all agreements contain at least a boilerplate provision requiring the borrower to purchase insurance. In about 80 percent of the agreements, the insurance covenant is more explicit. Four additional features of the insurance covenant are quite common: requirements of coverage for specific risks, naming the lender as a loss payee, mandating that any insurance proceeds be used to repay the loan, and explicit permission for the borrower to self‐insure. Credit agreements contain more stringent insurance requirements for borrowers that pose higher credit risk. The insurance requirements are strongly positively correlated with the loan being secured by collateral, which suggests that insurance creates value by protecting lenders from unexpected changes in seniority that might happen following the destruction of collateral. Insurance covenants are an important ingredient of credit agreements designed to create a very safe claim for senior, secured lenders.
Journal of Corporate Finance
The risk of customers affects corporate financial policy by limiting the ability of firms to secu... more The risk of customers affects corporate financial policy by limiting the ability of firms to securitize customer receivables. We find that firms with riskier receivables, based on the credit risk and diversification of the firms' principal customers, have lower financing capacity and lower leverage in their asset-backed securitizations. Because securitizations are designed to create a very safe claim by separating the risk of the securitized assets from the risk of the originating firms, increases in the risk of the receivables directly inhibit originating firms' ability to securitize assets and indirectly inhibit the originating firms' access to external finance. The study highlights a novel link between the financing of supplier firms and the financial health of their customers and shows how an increase in risk can limit access to external capital.
Insurance markets are proving to be a fruitful area for empirical work on contract theory. Since ... more Insurance markets are proving to be a fruitful area for empirical work on contract theory. Since much of the theoretical work on contracts is motivated by moral hazard and adverse selection, insurance seems a natural product on which to study the impact that private information and unobservable actions have on contract terms and performance. While several theoretical papers incorporate repeated contracting over time (see Chiappori, 2000, for a review), empirical research has yet to fully address the repeated nature of insurance contracting (Chiappori and Heckman, 2002, and Cohen, 2002, are exceptions). Many insurance purchases are quite persistent over time (Nini, 2004, documents significant persistence in auto insurance). With short-term contracts and repeated interactions, ex-post moral hazard becomes important as consumers have strategic incentives to prevent the revelation of potentially costly information. This is particularly true for drivers involved in a auto accident: making a claim provides valuable indemnification yet reveals information that may lead to future premium increases.
The Journal of Finance, 2013
Contrary to recent accounts of off-balance sheet securitization by financial firms, we show that ... more Contrary to recent accounts of off-balance sheet securitization by financial firms, we show that asset securitization by nonfinancial firms provides a valuable form of financing to shareholders without harming firms’ debtholders. Using data from firms’ SEC filings, we find that securitization is attractive to firms in the middle of the credit quality distribution, which are the firms with the most to gain. Upon initiation, firms experience positive abnormal stock returns, zero abnormal bond returns, and largely use the securitization proceeds to repay existing debt. Securitization helps minimize financing costs by reducing expected bankruptcy costs and providing access to segmented credit markets.
We study syndicated loans to borrowers from emerging markets, comparing loans funded partially by... more We study syndicated loans to borrowers from emerging markets, comparing loans funded partially by local banks with loans funded entirely by foreign banks. Controlling for the endogeneity of local bank participation, we find that local banks are associated with loans that are larger, longer, cheaper, and less frequently secured. Moreover, local bank participation is a complement to these three loan terms, suggesting that local banks likely possess a comparative advantage in reducing asymmetric information and addressing agency problems. The results offer additional evidence that factors associated with location remain important in the provision of financial services. By extension, the results suggest that foreign capital is not a perfect substitute for local capital, highlighting the need for policy continued at promoting financial development with emerging market economies.