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The Finance Group at the University of Amsterdam organizes in cooperation with the Amsterdam Center for Corporate Finance, CIFRA and the Journal of Financial Intermediation, the 2001 JFI Symposium: CORPORATE FINANCE WITH BLURRING BOUNDARIES BETWEEN BANKS AND FINANCIAL MARKETS The Netherlands
	Thursday, January 18, 2001
	09.15	Welcome Arnoud W.A. Boot , University of Amsterdam
	Session I: Scale-Scope Issues in Banking Chair: Stuart Greenbaum, Washington University
	09:30 - 10:30	"Where Do Merger Gains Come From? Bank Mergers from the Perspective of Insiders and Outsiders" Michael Ryngaert, Joel Houston and Chris James (University of Florida) Abstract Traditional studies of mergers between publicly traded banks fail to find conclusive evidence that bank mergers create value. We update this research by analyzing a sample of the largest bank mergers between 1985-1996. For a subset of this sample we obtain management estimates of cost savings and revenue enhancements. We find that more recent mergers appear to result in positive revaluations of the combined values of bidder and target stocks. The revaluations are positively related to the present value of the merger related earnings increases estimated by management, with the bulk of the revaluation being attributable to estimated cost savings and not revenue enhancements. The stock market revaluations, however, are not as large as the present value of management's estimated merger related gains. This may be attributable to a variety of factors including management overestimating revenue gains and underestimating (or not reporting) likely revenue losses attributable to mergers and management's tendency to occasionally exaggerate net cost savings arising from the mergers. This conclusion is reinforced by analyst's reports concerning the mergers in our sample. Discussant: Robert DeYoung, Federal Reserve Bank of Chicago
	10.30 - 11.00	Coffee
	11.00 - 12.00	"Does Distance Still Matter? The Information Revolution in Small Business Lending" Raghuram G. Rajan (University of Chicago) and Mitch Petersen (Northwestern University) Abstract The distance between small firms and their lenders in the United States is increasing. Not only are firms choosing more distant lenders, they are also communicating with them in more impersonal ways. After documenting these systematic changes, we demonstrate that they do not stem from small firms locating differently, from consolidation in the banking industry, or from biases in the sample. Instead, they seem correlated with improvements in bank productivity. We conjecture that greater, and more timely, availability of borrower credit records, as well as the greater ease of processing these may explain the increased lending at a distance. Consistent with such an explanation, distant firms no longer have to be observably the highest quality credits, suggesting that a wider & nbsp; cross-section of firms can now obtain funding from a particular lender. these findings, we believe, are direct evidence that there has been substantial development of financial sector, even in areas such as small business lending that have not been directly influenced by the growth in public markets. From a policy perspective, that small firms now obtain wider access to financing suggests the consolidation of banking services may not raise as strong anti-trust concerns as in the past. Discussant: Xavier Freixas, Universitat Pompeu Fabra
	12.00 - 14.00	Lunch
	14.00 - 15.00	"The Effects of Geographic Expansion on Bank Efficiency" Allen N. Berger (Board of Governors of the FED, Washington) and Robert DeYoung (Federal Reserve Bank of Chicago) Abstract We assess the effects of geographic expansion on bank efficiency using cost and profit efficiencies estimated for over 7,000 U.S. banks for the period from 1993 to 1998. We find both positive and negative links between geographic scope and bank efficiency. Parent financial organizations exercise some control over the efficiency of their affiliates, although this control tends to dissipate with the distance to the affiliate. However, on average, distance-related efficiency effects tend to be modest, and our results suggest that some efficient parent organizations can export efficient practices to their affiliates and overwhelm any effects of distance. The results imply there may be no particular optimal geographic scope for banking organizations - some may operate efficiently within a single region, while others may operate efficiently on a nationwide or international basis. Discussant: Steven Ongena, Tilburg University
	Session II: Optimal Bankruptcy Law Reform Chair:  Marco Pagano, CSEF, Universita di Salerno, CEPR
	15.00 - 16.00	"An Incomplete Contracts Approach to Corporate Bankruptcy" Erik Berglof (SITE, Stockholm), Gerard Roland (Ecare, Brussels) and Ernst-Ludwig von Thadden (DEEP, Lausanne) Abstract This paper integrates the problem of designing corporate bankruptcy rules into a theory of optimal debt structure. We show that, in an incomplete contract framework, having multiple creditors increases a firm's debt capacity while increasing, instead of decreasing, its incentives to default strategically. The optimal debt contract involves giving creditors claims that are jointly inconsistent in case of default. Bankruptcy rules, therefore, are a necessary part of the overall financing contract, to make claims consistent and to prevent a value reducing run for the assets of the firm. Discussant: Sudipto Bhattacharya, London School of Economics
	16.00 - 16.30	Tea
	16.30 - 17.30	"The Dynamics in Possession Financing: Bankruptcy Resolution and the Role of Prior Lenders" Sandeep Dahiya (Georgetown University), Kose John (New York University), Manju Puri (Stanford University) and Gabriel Ramirez (Virginia Commonwealth University) Abstract Debtor in Possession (DIP) financing is a unique form of financing that is allowed to firms filing under Chapter 11 of the US Bankruptcy Code. The legal provisions confer enhanced seniority on this financing, hence DIP financiers are often viewed as purely asset-based lenders primarily concerned with the event of liquidation. Using a large sample of bankruptcy filings, we find evidence of a larger informational-based role for DIP financing. The firms receiving DIP financing are more likely to emerge successfully and are also quicker to emerge from bankruptcy than the firms that do not receive such financing. Further, we find that relationships are important. In particular, when a prior lender is also the DIP lender, it is more likely to finance smaller firms and these firms are also much quicker to emerge from bankruptcy than the firms that secure DIP financing, which is strengthened when it is combined with a prior lending relationship with the firm. Discussant: Jan Pieter Krahnen (Goethe Universitat Frankfurt)
	17.30	Cocktails
	18.30	Dinner
	Friday, January 19, 2001
	Session III: Choices Across Funding Sources Chair: Staffan Viotti (Riksbanken, Stockholm)
		"Financial Contracting and the Choice between Private Placement and Publicly Offered Bonds" Simon Kwan (Federal Reserve Bank of San Francisco) and Willard Carleton (University of Arizona) Abstract Private placement bonds have advantages over publicly issued bonds in controlling agency conflicts between borrowers and lenders due to direct monitoring, flexible contract design, and the relative ease in contract renegotiation. Our data show that private placements ate more likely to have restrictive covenants and are more likely to be issued by smaller and riskier borrowers. We find private placements and public issues to be priced differently, reflecting the differences in liquidity concerns and financial contracting between the two markets. Our evidence suggests that in raising debt capital, firms self-select the bond type to minimize financing costs and agency costs. Discussant: Gabriella Chiesa, Universita di Bologna
	10.00 - 11.00	"Choice of Financing Source and International Bond and Syndicated Loan Markets" Neil Esho, Yung Lam and Ian G. Sharpe (University of New South Wales, Sydney, Australia) Abstract This paper examines the determinants of incremental debt financing decisions made by large Asian firms from ten countries over the period 1989-1998. We extend the existing literature by examining the debt choice decision in the context of international bond and syndicated lending markets, and by using a sample of firms drawn from countries with no or limited access to domestic debt markets. Our results suggest that floatation costs, agency costs and renegotiation and liquidation risk affect the choice between obtaining a syndicated bank loan or making a public issue in either Eurobond of foreign bond markets. Using an ordered Logit model, we also examine whether funding choice differs across the respective bond markets, but find no evidence to support the separate treatment of Eurobonds and foreign bonds. Our results are stable over time, but suggest significant differences exist between Japanese firms and firms from the remaining nine Asian countries. A final issue which arises when using incremental financing data, is the appropriate treatment of firms which are frequent issues in the same market. We show data "aggregation" of multiple issuers can substantially affect results. Discussant: Mitch Petersen, Northwestern University
	11.00 - 11.30	Coffee
	11.30 - 12.30	"Stage Financing and the Role of Convertible Debt" Francesca Cornelli (London Business School)and Oved Yosha (Tel Aviv University) Abstract Venture capital financing is characterized by extensive use of convertible debt and stage financing. We show why convertible debt is better than a simple mixture of debt and equity in stage financing situations. When the venture capitalist retains the option to abandon the project, the entrepreneur has an incentive to engage in "window dressing" or short-termism, i.e. to bias positively the short term performance of the project in order to reduce the probability that the project will be liquidated. With a straight debt-equity contract, the entrepreneur will always engage in signal manipulation. With a convertible debt contract, such behavior reduces the likelihood of liquidation, but increases the probability that the venture capitalist will convert debt into equity, reducing the entrepreneur's profits. Therefore, with an appropriately designed convertible debt contract, the entrepreneur will not engage in short termistic signal manipulation. Discussant: Anjolein Schmeits, Washington University
	12.30 - 14.00	Lunch
	14.00 - 15.00	"Effects of Assets Securitization on Seller Claimants" Hugh Thomas (The Chinese University of Hong Kong) Abstract This study investigates 1416 securitizations over 15 years to analyze changes in risk and wealth of debt and equity claimants on financial and non-financial asset sellers. Average losses to equity holders found among mortgage backed securities (MBS) issuers are explained historically. Securitizers with actively traded bonds enjoy substantial and significant shareholder wealth gains, which are greater the poorer the creditworthiness of the seller. Although no average significant wealth transfer occurs from bondholders to shareholders, such transfer does occur among infrequent issuers. Asset Backed Securities (ABS) issuers evidence wealth transfer from bondholders to equity holders among lower rated bond issuers. Discussant: Thomas Gehrig, Universitat Freiburg
	Session IV: Political Economy of Finance Chair:  Giovanna Nicodano, Universita di Torino
	15.00 - 16.15	"The Political Economy of Corporate Governance" Marco Pagano (CSEF, Universita di Salerno, CEPR) and Paolo F. Volpin (Harvard University) Abstract The paper analyzes the political decision that determines the degree of investor protection. We show that, in some circumstances, legal rules result from a political agreement between entrepreneurs and workers in which low investor protection is exchanged for high employment protection. The feasibility of this "corporatist" agreement depends on the distribution of wealth and on technological factors. In contrast, "non-corporatist" countries will feature high investor protection and low employment protection. The main prediction is that employment and investor protection is negatively correlated across countries. The model also predicts that the frequency of mergers and acquisitions is negatively correlated with employment protection. Both predictions are consistent with OECD evidence. Discussants: Anjan V. Thakor, University of Michigan, and Enrico Perotti, University of Amsterdam
	16.15 - 16.45	Tea
	Session V: Theory Meets Practice
	16.45 - 17.30	"Market Microstructure:  A Practitioner's Guide" Ananth Madhavan (ITG, Inc. New York)
	17.30	Cocktails
	18.30	Dinner
	Saturday, January 20, 2001
	Session VI: The Integration and Transparency of Financial Markets Chair:  Ulrich Hege, Institut d'Analisi Economica
	09.30 - 10.30	"Price Discovery in Europe" Bruno Biais (Universite de Toulouse) and Isabelle Martinez (Universite de Toulouse) Abstract This paper analyzes the formation of opening prices in the English, French and German stock markets. To quantify the degree of informational efficiency of opening prices quoted in these markets and analyze their information processing role, we run unbiasedness regressions using opening and closing prices for firms of these countries, quoted at least on two of these markets, between July 1998 and January 2000. Our results suggest that, while there is some informational integration at the European level, the three major European Bourses are not fully informationally integrated. Local exchanges seem to be better able to quote local stocks than foreign exchanges, and investors in Paris and London do not seem to pay enough attention to prices set previously in the other European marketplaces. Discussant: William Christie, Vanderbilt University
	10.30 - 11.00	Coffee
	11.00 - 12.00	"Should Securities Markets be Transparent?" Ananth Madhaven (ITG, Inc. New York), David Porter (University of Wisconsin) and Daniel Weaver (Baruch College, New York) Abstract Should securities markets be more transparent? Market transparency refers to the ability of market participants to observe information about the trading process. An especially important aspect of transparency concerns the effect of widely publicizing information about investors' latent demand present in the limit order book. This topic lies at the heart of controversial debates about floor versus automated trading systems, the informational advantages of market makers, and inter-market competition between trading systems. We analyze the effects of greater transparency using transaction level-data from the Toronto Stock Exchange (TSE) before and after the limit order book was publicly disseminated for stocks traded both on the traditional floor and on an automated limit-order book system. This natural experiment allows us to isolate the effects of transparency while controlling for stock-specific factors and for type (floor or automated) of trading system. Contrary to popular belief, transparency has detrimental effects on liquidity. In particular, execution costs and volatility increased after the limit order book was displayed publicly. This finding is consistent with a model where transparency increases the value to momentum traders of free options provided by standing limit orders. We show that the reduction in liquidity is associated with significant declines in stock prices. Discussant: Thierry Foucault, HEC
	12.15	Adjourn