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Alper Kara

Working Papers

  • Chair-CEO generation gap and bank risk-taking(with Yifan Zhou and Philip Molyneux).
    • Abstract: Poor bank governance has disastrous consequences for economies as the 2007-2009 financial crisis has shown. In the aftermath, board diversity is identified as an effective mechanism to enhance bank governance (Capital Requirements Directive IV, 2013). Diversity, creating cognitive conflict between board members, is expected to enhance board’s independence of thought to better perform its monitoring and advising functions. Age is a key demographic measure and Chair-CEO age diversity in non-financial firms leads to better economic outcomes (Goergen et al., 2016). In this paper, we examine whether chair-CEO age dissimilarity can be beneficial for controlling and curbing banks excessive risk-taking behaviour, commonly observed in the pre- crisis period. Using a unique sample of the largest 100 listed banks in Europe between 2005 and 2014, we find that age difference between the chair and the CEO reduces bank risk-taking. A chair-CEO generational gap –defined as a minimum of 20 years’ age difference– has a larger impact in reducing risk-taking.

  • Do Reputable Issuers Provide Better-Quality Securitizations? (with Solomon Y Deku and David Marques-Ibanez).
    • Abstract: ​​We examine the link between issuer reputation and the performance of mortgage-backed securities (MBS) using a sample of 4,247 European MBS issued between 1999 and 2007. We measure performance via credit rating changes and delinquency rates. Controlling for all observable characteristics at issuance, we find that MBS sold by reputable issuers were collateralised by higher quality asset pools with lower delinquency rates and less likely to be downgraded. However, as credit standards declined during the boom period of 2005-2007, asset pools securitised by reputable issuers were of worse quality compared to those of less reputable issuers, suggesting that as a credit cycle evolves reputable institutions have an incentive to cash on their reputation (Benabou and Laroque, 1992). We also find that foreign issuers, who are distant from the origination market, tend to sell lower quality MBS, which are more likely to be downgraded.

  • ​​Issuer reputation in securitization pricing (with Solomon Y Deku and David Marques-Ibanez).
    • ​​Abstract: We assess the certification value of issuer reputation in securitization by examining initial yield spreads of 4,201 mortgage-backed securities (MBS) from fourteen European countries. We find that issuer reputation has a certification value for riskier, difficult to evaluate, MBS and is considered to be more critical by investors when information asymmetries in credit markets intensify. We show that MBS originated by subsidiaries of foreign banks are perceived to be relatively more risky and issuer reputation does not alleviate this risk. We also find that investors require higher yields if there is an indication of rating shopping and when issuers’ pre-securitization loan growth is excessive.

  • The predictive strength of MBS yield spreads during asset bubbles (with Solomon Y Deku).
    • ​​Abstract: We examine whether the predictive power of initial mortgage-backed security (MBS) yield spreads vary with the procyclicality of asset prices.  Using a sample of 4,203 European MBS, we find that initial yield spreads of MBS incorporate more information than credit ratings and predict the future downgrades due to quality deterioration even after conditioning on initial credit ratings. Predictive potency of spreads is higher for the periods of credit and housing bubbles, and for the least risky AAA rated MBS. We also find that initial yield spreads capture the magnitude of the downgrade, and do so more powerfully for the asset bubble periods.

  • Domestic and foreign monetary policy impact on bank and non-financial company stock returns during financial crisis: Evidence from China (with Yifan Zhou, Xiangyi Zhou and Solomon Y Deku).
    • ​​Abstract: We investigate the impact of varying domestic and foreign central bank monetary policy on the stock returns of listed Chinese companies during the period of financial crisis. We find that Chinese listed banks are more sensitive to the effects of the global central banks’ (Fed, ECB and BoE) unconventional policy spillovers as well as the Central Bank of China’s restrictive monetary policy. We also find that stock prices of large non-financial companies are more sensitive to monetary policy shocks. Additionally, the impact of monetary policy on individual stock returns might be conditionally dependent on the firm-level heterogeneity of ownership structure.