A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
Institutional Affiliation: Tulane University
NBER Working Papers and Publications
|November 2019||Nonbank Lending|
with Sergey Chernenko, Isil Erel: w26458
We provide novel systematic evidence on the extent and terms of direct lending by nonbank financial institutions, and explore whether banks are still special in lending to informationally opaque firms. Analyzing hand-collected data for a random sample of publicly-traded middle-market firms during the 2010-2015 period, we show that nonbank lending is widespread, with 32% of all loans being extended by nonbanks. Nonbank borrowers are less profitable, more levered, and more volatile than bank borrowers. Firms with a small negative EBITDA are 34% more likely to borrow from a nonbank than firms with a small positive EBITDA. While nonbank lenders are less likely to monitor by including financial covenants, they are more likely to align incentives through the use of warrants. Controlling for firm...
|January 2019||Securities laws and the choice between loans and bonds for highly levered firms|
with René M. Stulz: w25467
In contrast to bonds, levered loans do not require SEC registration. We show that this distinction plays an important role in firms’ choice between funding through loans and bonds and helps understand why the market share of cov-lite loans has increased so much. Compared to cov-heavy loans, cov-lite loans are close substitutes for bonds in that they have similar covenants, have tighter bid-ask spreads, have more trading, and are more likely to be used to refinance bonds than cov-heavy loans. SEC-reporting firms that borrow using cov-lite loans are more likely to deregister subsequently. Non-reporting firms are more likely to borrow through highly levered loans than through bonds, even though maturities, amounts, covenants, and ratings are similar between the two sources of funding. As expe...
|March 2016||Why Does Fast Loan Growth Predict Poor Performance for Banks?|
with Rüdiger Fahlenbrach, René M. Stulz: w22089
From 1973 to 2014, the common stock of U.S. banks with loan growth in the top quartile of banks over a three-year period significantly underperforms the common stock of banks with loan growth in the bottom quartile over the next three years. The benchmark-adjusted cumulative difference in performance over three years exceeds twelve percentage points. The high growth banks also have significantly higher crash risk over the three-year period. This poor performance is explained by fast loan growth as asset growth separate from loan growth is not followed by poor performance. These banks reserve less for loan losses when their loans grow quickly than other banks. Subsequently, they have a lower return on assets and increase their loan loss reserves. The poorer performance of the fast growing b...
Published: Rüdiger Fahlenbrach & Robert Prilmeier & René M. Stulz, 2018. "Why Does Fast Loan Growth Predict Poor Performance for Banks?," The Review of Financial Studies, vol 31(3), pages 1014-1063. citation courtesy of
|May 2011||This Time Is the Same: Using Bank Performance in 1998 to Explain Bank Performance During the Recent Financial Crisis|
with Rüdiger Fahlenbrach, René M. Stulz: w17038
We investigate whether a bank's performance during the 1998 crisis, which was viewed at the time as the most dramatic crisis since the Great Depression, predicts its performance during the recent financial crisis. One hypothesis is that a bank that has an especially poor experience in a crisis learns and adapts, so that it performs better in the next crisis. Another hypothesis is that a bank's poor experience in a crisis is tied to aspects of its business model that are persistent, so that its past performance during one crisis forecasts poor performance during another crisis. We show that banks that performed worse during the 1998 crisis did so as well during the recent financial crisis. This effect is economically important. In particular, it is economically as important as the leverage ...
Published: RÃ¼diger Fahlenbrach & Robert Prilmeier & RenÃ© M. Stulz, 2012. "This Time Is the Same: Using Bank Performance in 1998 to Explain Bank Performance during the Recent Financial Crisis," Journal of Finance, American Finance Association, vol. 67(6), pages 2139-2185, December. citation courtesy of