Working Paper

02 December 2020

Risk Mitigating versus Risk Shifting: Evidence from Banks Security Trading in Crises

We show that risk mitigating incentives dominate risk shifting incentives in fragile banks. Risk shifting could be particularly severe in banking since it is the most opaque industry and banks are one of the most leveraged corporations...

José-Luis Peydró | Andrea Polo | Enrico Sette
01 September 2015

Caught between Scylla and Charybdis? Regulating Bank Leverage When There is Rent Seeking and Risk Shifting

We develop a theory of optimal bank leverage in which the benefit of debt in inducing loan monitoring is balanced against the benefit of equity in attenuating risk-shifting. However, faced with socially-costly correlated bank...

Viral Acharya | Hamid Mehran | Anjan Thakor
01 February 2005

What Role of Legal Systems in Financial Intermediation? Theory and Evidence

We develop a theory and empirical test of how the legal system affects the relationship between venture capitalists and entrepreneurs. The theory uses a double moral hazard framework to show how optimal contracts and investor actions...

Laura Bottazzi | Marco Da Rin | Thomas Hellmann