Abstract: We empirically examine the relationship between monitoring costs within a banking organization and the standardization of credit terms in lending to small businesses. We find that when senior bank managers are away from a branch and monitoring of branch activity is more costly, loan officers at the branch exercise less discretion and standardize contract terms (collateral and credit amount) more. The relationship is also weaker in more competitive credit markets. Our results are consistent with the idea that costs of delegation within banking organizations affect their lending practices and external market discipline interacts with internal monitoring.
Paper nr. 193
Title: GREEN VERSUS CONVENTIONAL CORPORATE DEBT: FROM ISSUANCES TO EMISSIONS
Authors: Juan J. Cortina, Claudio Raddatz, Sergio L. Schmukler, Tomas Williams
Abstract: This paper investigates how firms use green versus conventional debt and the associated firm- and aggregate-level environmental consequences. Employing a dataset of 127,711 global bond and syndicated loan issuances by non-financial firms across 85 countries during 2012-23, the paper documents a sharp rise in green debt issuances relative to conventional issuances since 2018. This increase is particularly pronounced among large firms with high carbon dioxide emissions. Local projections difference-in-differences estimates show that, compared to conventional debt, green bond and loan issuances are systematically followed by sustained reductions in carbon intensity (emissions over income) of up to 50 percent. These reductions correspond to as much as 15 percent of
global annual emissions. Green bonds contribute to reducing emissions by providing financing to large, high-emitting firms, whose improvements in carbon intensity have significant aggregate consequences. Syndicated loans do so by channeling a larger volume of financing to a wider set of firms.
Paper nr. 192
Title: INELASTIC DEMAND MEETS OPTIMAL SUPPLY OF RISKY SOVEREIGN BONDS
Authors: Matias Moretti, Lorenzo Pandolfi, Sergio L. Schmukler, Germán Villegas-Bauer, Tomás Williams
Abstract: We study how investor demand influences government borrowing capacity, default risk, and bond prices. We develop a sovereign debt model with a rich demand structure, featuring investors with asset-allocation mandates. In our framework, bond prices depend not only on government policies and default risk, but also on investor composition and demand elasticity. We estimate this elasticity from bond price responses to the periodic rebalancing of a major emerging markets bond index, which shifts investors? allocations. We calibrate the model using this estimate and show that a downward-sloping demand acts as a disciplining device that mitigates debt dilution by curbing future issuance. This market-based mechanism lowers default risk and allows the government to sustain higher debt. Unlike
standard models, where discipline arises from default penalties, our mechanism operates through investor behavior. This distinction matters for policy: with market discipline in place, fiscal rules have milder effects on borrowing and default risk.
Abstract: This paper presents a model in which the policy rate set by the central bank affects decisions about bank rescue policies when liquidity crises hit the banking system. We highlight a trade-off: maintaining an interest rate ensuring effective control over inflation escalates the costs of rescue interventions. We delve into this trade-off and determine the circumstances under which deviating from the target interest rate, thereby reducing intervention costs, enhances overall welfare. From a normative standpoint, our analysis indicates where liquidity risk is either low or high, the central bank should prioritize achieving the inflation target.
Paper nr. 190
Title: SYSTEMIC BANKING CRISES IN COMPLEX ECONOMIES
Abstract: This paper provides an early warning exercise suggesting that in complex economies, characterized by the production of knowledge-intensive products, systemic banking crises are more frequent, even after considering standard predictors of crises. We relate our findings to standard contributions in development theory linking economic growth to structural transformation of the economy. In this perspective, we argue that while transitioning from a simple to a more complex productive structure can promote economic growth, it can also increase financial instability.
Paper nr. 189
Title: ARE GREEN FIRMS MORE FINANCIALLY CONSTRAINED? THE SENSITIVITY OF INVESTMENT TO CASH FLOW
Authors: Tommaso Oliviero, Sandro Rondinella, Alberto Zazzaro
Abstract: Green investment by private companies is essential to sustainable growth paths in advanced economies.
Whether, and to what extent, investments by green firms are hampered by lack of external finance is an open question. We estimate the sensitivity of investment to internal finance in firms engaging in green innovation, finding that the elasticity of investment to cash flow is four times less for green than for non-green firms. This result is stronger among smaller firms and robust to alternative definitions of ?green firms?. Our findings indicate that green firms are less financially constrained, consistent with the growing perception of the importance of the green transition, which potentially affects financial investors outside the company.
Paper nr. 188
Title: IDENTIFICATION OF STEP AND NZIA TECHNOLOGIES THROUGH TEXT MINING: AN EMPIRICAL ANALYSIS OF PATENT DATA
Authors: Marco Cucculelli, Noemi Giampaoli, Matteo Renghini
Abstract: Assessing the presence and distribution of strategic and net-zero technologies in companies is crucial for European competitiveness. However, due to the complexity and evolving nature of these technology areas, this is a challenging task. This paper presents a process for identifying and mapping strategic and net-zero technologies (as described in the Strategic Technologies for Europe Platform (STEP) and the Net-Zero Industry Act (NZIA)) in European companies. STEP and NZIA technologies are identified using text mining techniques based on the titles and abstracts of patents filed with the EPO and retrieved in PATSTAT for the years 2002 to 2022. The paper describes the classification process of STEP and NZIA technologies based on IPC codes of file patents. The IPC codes were then matched with the patent portfolio of almost 100,000 European companies to determine the company's technological profile and the distribution of these technologies by sector, geographic area, and company characteristics in the European panorama.
Paper nr. 187
Title: INSTITUTIONS AND FINANCIAL CRISES
Authors: Francesco Marchionne, Noemi Giampaoli, Matteo Renghini
Abstract: This paper examines how institutional quality affects the probability of banking and twin crises using a panel of 138 countries from 1996 to 2017. We find that better institutions mitigate the probability of financial distress. Such a shielding effect occurs unambiguously only when a synthetic index is extracted from different proxies of institutional quality aspects. On the contrary, specific measures of institutional quality show some heterogeneities. In particular, dimensions more closely related to regulatory quality and corruption mitigation decrease the probability of financial instability, while measures oriented toward social capital may have null or perverse effects. Financial structure, cultural differences, and international agreements do not affect our findings. Results are robust to several econometric exercises.
Paper nr. 186
Title: FLOODED CREDIT MARKETS: PHYSICAL CLIMATE RISK AND SMALL BUSINESS LENDING
Abstract: We document that banks charge higher interest rates on loans granted to European small and medium-sized firms located in areas at high risk of flooding. The risk premium, at 6.4 basis points on average, rises with loan duration, and in the case of smaller borrowers and local specialised banks. By contrast, at-risk firms that rely heavily on intangible and movable assets do not face a higher cost of credit, reflecting lower vulnerability to physical risk. Realised flood risk increases SMEs? financial vulnerability, as firms in flooded counties are more likely to default on their loans than non-disaster borrowers.
Paper nr. 185
Title: THE STAYING POWER OF FACE-TO-FACE IN THE GLOBAL VENTURE CAPITAL MARKET
Authors: Andrea Bellucci, Alexander Borisov, Gianluca Gucciardi, Alberto Zazzaro
Abstract: Technological advancements and globalization of venture capital (VC) point to a diminishing role
of direct face-to-face (F2F) interactions between VCs and entrepreneurs seeking funding. We show
that ability to conduct such interactions remains an important factor for segments of the VC market,
and especially for its internationalization. Using a sample of VC deals around the world, and the
staggered implementation of travel restrictions across countries in response to the spread of Covid-19
in 2020, we find that investment by foreign VCs in a country drops after it halts inbound travel.
Our analysis of possible channels suggests that information asymmetry between contracting parties
is the main driver of the importance of F2F, while technological constraints on the transmission of
information and cultural differences are less significant.
