Enhancing bank transparency: What role for the supervision authority?
We apply a three-tier hierarchical model of regulation, developed along the lines of Laffont and Tirole (1993), to an adverse selection problem in the corporate bond market. The bank brings the bonds to the market and informs the potential buyers about the bond risks; a unique benevolent public auth...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Economists' Association of Vojvodina
2009-01-01
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| Series: | Panoeconomicus |
| Subjects: | |
| Online Access: | http://www.doiserbia.nb.rs/img/doi/1452-595X/2009/1452-595X0904435G.pdf |
| _version_ | 1818147110348914688 |
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| author | Giuli Francesco Manzo Marco |
| author_facet | Giuli Francesco Manzo Marco |
| author_sort | Giuli Francesco |
| collection | DOAJ |
| description | We apply a three-tier hierarchical model of regulation, developed along the lines of Laffont and Tirole (1993), to an adverse selection problem in the corporate bond market. The bank brings the bonds to the market and informs the potential buyers about the bond risks; a unique benevolent public authority aims at maximising investors' welfare. The main goal is to investigate whether this unique authority is able to fully inform the market on a firm's true credit worthiness when banks, in order to recover doubtful credits, favour the placement of bonds issued by levered firms by concealing their true risk. By establishing the necessary conditions that allow optimal sanctions to produce the first best equilibrium, we show that the core problem of adverse selection in the corporate bond market does not lie so much in the benevolence of the delegated monitoring system, but rather in the possibility of affecting and sanctioning a firm's behavior. |
| first_indexed | 2024-12-11T12:30:02Z |
| format | Article |
| id | doaj.art-1dd33e9705364ce3a525b171ba4f7379 |
| institution | Directory Open Access Journal |
| issn | 1452-595X |
| language | English |
| last_indexed | 2024-12-11T12:30:02Z |
| publishDate | 2009-01-01 |
| publisher | Economists' Association of Vojvodina |
| record_format | Article |
| series | Panoeconomicus |
| spelling | doaj.art-1dd33e9705364ce3a525b171ba4f73792022-12-22T01:07:15ZengEconomists' Association of VojvodinaPanoeconomicus1452-595X2009-01-0156443545210.2298/PAN0904435GEnhancing bank transparency: What role for the supervision authority?Giuli FrancescoManzo MarcoWe apply a three-tier hierarchical model of regulation, developed along the lines of Laffont and Tirole (1993), to an adverse selection problem in the corporate bond market. The bank brings the bonds to the market and informs the potential buyers about the bond risks; a unique benevolent public authority aims at maximising investors' welfare. The main goal is to investigate whether this unique authority is able to fully inform the market on a firm's true credit worthiness when banks, in order to recover doubtful credits, favour the placement of bonds issued by levered firms by concealing their true risk. By establishing the necessary conditions that allow optimal sanctions to produce the first best equilibrium, we show that the core problem of adverse selection in the corporate bond market does not lie so much in the benevolence of the delegated monitoring system, but rather in the possibility of affecting and sanctioning a firm's behavior.http://www.doiserbia.nb.rs/img/doi/1452-595X/2009/1452-595X0904435G.pdfcorporate Bondincentivescollusionregulation |
| spellingShingle | Giuli Francesco Manzo Marco Enhancing bank transparency: What role for the supervision authority? Panoeconomicus corporate Bond incentives collusion regulation |
| title | Enhancing bank transparency: What role for the supervision authority? |
| title_full | Enhancing bank transparency: What role for the supervision authority? |
| title_fullStr | Enhancing bank transparency: What role for the supervision authority? |
| title_full_unstemmed | Enhancing bank transparency: What role for the supervision authority? |
| title_short | Enhancing bank transparency: What role for the supervision authority? |
| title_sort | enhancing bank transparency what role for the supervision authority |
| topic | corporate Bond incentives collusion regulation |
| url | http://www.doiserbia.nb.rs/img/doi/1452-595X/2009/1452-595X0904435G.pdf |
| work_keys_str_mv | AT giulifrancesco enhancingbanktransparencywhatroleforthesupervisionauthority AT manzomarco enhancingbanktransparencywhatroleforthesupervisionauthority |