Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2018
  • Working Paper

Bank Risk-Taking and the Real Economy: Evidence from the Housing Boom and Its Aftermath

By: Antonio Falato, Giovanni Favara and David Scharfstein
  • Format:Print
  • | Language:English
ShareBar

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

Risk and Uncertainty; Financial Markets; Investment; Corporate Finance; Banks and Banking

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.
  • Read Now

About The Author

David S. Scharfstein

Finance
→More Publications

More from the Authors

    • April 2022
    • Faculty Research

    Melio: Modernizing Payments for Small Business

    By: David S. Scharfstein, Dean Xu and Danielle Golan
    • 2021
    • Faculty Research

    Racial Disparities in the Paycheck Protection Program

    By: Sergey Chernenko and David S. Scharfstein
    • April 2021 (Revised April 2022)
    • Faculty Research

    Next Insurance: Considering New Markets

    By: David S. Scharfstein, Ishita Sen and Dean Xu
More from the Authors
  • Melio: Modernizing Payments for Small Business By: David S. Scharfstein, Dean Xu and Danielle Golan
  • Racial Disparities in the Paycheck Protection Program By: Sergey Chernenko and David S. Scharfstein
  • Next Insurance: Considering New Markets By: David S. Scharfstein, Ishita Sen and Dean Xu
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College