Department of Economics
W. P. Carey School of Business
Arizona State University
P.O. Box 873806
Tempe, AZ 85287-3806
Institutional Affiliation: Arizona State University
Information about this author at RePEc
NBER Working Papers and Publications
|December 2018||The Benchmark Inclusion Subsidy|
with Anil K. Kashyap, Jian Li, Anna Pavlova: w25337
We study the impact of evaluating the performance of asset managers relative to a benchmark portfolio on firms’ investment, merger and IPO decisions. We introduce asset managers into an otherwise standard asset pricing model and show that firms that are part of the benchmark are effectively subsidized by the asset managers. This “benchmark inclusion subsidy” arises because asset managers have incentives to hold some of the equity of firms in the benchmark regardless of the risk characteristics of these firms. Contrary to what is usually taught in corporate finance, we show that the value of an investment project is not governed solely by its own cash-flow risk. Instead, because of the benchmark inclusion subsidy, a firm inside the benchmark would accept some projects that an identical one ...
|March 2013||Who Should Pay for Credit Ratings and How?|
with Anil K. Kashyap: w18923
We analyze a model where investors use a credit rating to decide whether to finance a firm. The rating quality depends on unobservable effort exerted by a credit rating agency (CRA). We study optimal compensation schemes for the CRA when a planner, the firm, or investors order the rating. Rating errors are larger when the firm orders it than when investors do (and both produce larger errors than is socially optimal). Investors overuse ratings relative to the firm or planner. A trade-off in providing time-consistent incentives embedded in the optimal compensation structure makes the CRA slow to acknowledge mistakes.
Published: Anil K. Kashyap & Natalia Kovrijnykh, 2016. "Who Should Pay for Credit Ratings and How?," Review of Financial Studies, Society for Financial Studies, vol. 29(2), pages 420-456. citation courtesy of