NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Armen Hovakimian

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

Working Papers

May 2012Variation in Systemic Risk at US Banks During 1974-2010
with Edward J. Kane, Luc Laeven: w18043
This paper proposes a theoretically sound and easy-to-implement way to measure the systemic risk of financial institutions using publicly available accounting and stock market data. The measure models credit risk of banks as a put option on bank assets, a tradition that originated with Merton (1974). We extend his contribution by expressing the value of banking-sector losses from systemic default risk as the value of a put option written on a portfolio of aggregate bank assets whose exercise price equals the face value of aggregate bank debt. We conceive of an individual bank’s systemic risk as its contribution to the value of this potential sector-wide put on the financial safety net. To track the interaction of private and governmental sources of systemic risk during and in advance of su...
August 2011Are Corporate Default Probabilities Consistent with the Static Tradeoff Theory?
with Ayla Kayhan, Sheridan Titman: w17290
Default probability plays a central role in the static tradeoff theory of capital structure. We directly test this theory by regressing the probability of default on proxies for costs and benefits of debt. Contrary to predictions of the theory, firms with higher bankruptcy costs, i.e., smaller firms and firms with lower asset tangibility, choose capital structures with higher bankruptcy risk. Further analysis suggests that the capital structures of smaller firms with lower asset tangibility, which tend to have less access to capital markets, are more sensitive to negative profitability and equity value shocks, making them more susceptible to bankruptcy risk.

Published: Armen Hovakimian & Ayla Kayhan & Sheridan Titman, 2012. "Are Corporate Default Probabilities Consistent with the Static Trade-off Theory?," Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 315-340. citation courtesy of

November 2002How Country and Safety-Net Characteristics Affect Bank Risk-Shifting
with Edward J. Kane, Luc Laeven: w9322
Risk-shifting occurs when creditors or guarantors are exposed to loss without receiving adequate compensation. This paper seeks to measure and compare how well authorities in 56 countries controlled bank risk shifting during the 1990s. Although significant risk shifting occurs on average, substantial variation exists in the effectiveness of risk control across countries. We find that the tendency for explicit deposit insurance to exacerbate risk shifting is tempered by incorporating loss-control features such as risk-sensitive premiums, coverage limits, and coinsurance. Introducing explicit deposit insurance has had adverse effects in environments that are low in political and economic freedom and high in corruption.

Published: Hovakimian, Armen, Edward J. Kane and Luc Laeven. "How Country And Safety-Net Characteristics Affect Bank Risk-Shifting," Journal of Financial Services Research, 2003, v23(3,Jun), 177-204. citation courtesy of

August 1996Risk-Shifting by Federally Insured Commercial Banks
with Edward J. Kane: w5711
Mispriced and misadministered deposit insurance imparts risk-shifting incentives to U.S. banks. Regulators are expected to monitor and discipline increases in bank risk exposure that would transfer wealth from the FDIC to bank stockholders. This paper assesses the success regulators had in controlling risk-shifting by U.S. banks during 1985-1994. In contrast to single-equation estimates developed from the option model by others, our simultaneous-equation evidence indicates that regulators failed to prevent large U.S. banks from shifting risk to the FDIC. Moreover, at the margin, banks that are undercapitalized shifted risk more effectively than other sample banks.

Published: (Under new title: Changing Effectiveness of Capital Regulation at U.S. Commercial Banks, 1985-1994) Journal of Finance, Vol. 55 (February 2000): 451-461.

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us