Finance Seminar - Peter Koudijs (Rotterdam)

Abstract: Do banks’ reputational concerns improve the quality of opaque, off-balance sheet securities? We study this question in a unique setting with few confounding factors. In the 1760s, Dutch banking partnerships securitized West-Indian plantation-mortgages that were both risky and opaque. High reputation underwriters made better mortgages that, on average, retained at least 17.5 percent more of their value during a subsequent market bust. Effects are attenuated when the managing partner(s) were married into wealth or faced future claims on the partnership. This highlights the importance of the expected fallout from reputational damage and the value of retaining reputation for the future.

Location: Drayton House, B03 Ricardo LT