Publications
Publications
- 2018
Bank Risk-Taking and the Real Economy: Evidence from the Housing Boom and Its Aftermath
By: Antonio Falato, Giovanni Favara and David Scharfstein
Abstract
We present evidence that pressure to maximize short-term stock prices and earnings leads banks to increase risk. We start by showing that banks increase risk when they transition from private to public ownership through a public listing or an acquisition. The increase in risk is greater than for a control group of banks that intended but failed to transition from private to public ownership, a result that is robust to using a plausibly exogenous instrument for failed transitions. The increase in risk is also greater than for a control group of banks that were acquired but did not change their listing status. We establish that pressure to maximize short-term stock prices helps to explain these findings by showing that the increase in risk is larger for newly public banks that are more focused on short-term stock prices and performance.
Keywords
Citation
Falato, Antonio, Giovanni Favara, and David Scharfstein. "Bank Risk-Taking and the Real Economy: Evidence from the Housing Boom and Its Aftermath." Working Paper.