O. Emre Ergungor |

Senior Research Economist


O. Emre Ergungor, Senior Research Economist

Emre Ergungor is a senior research economist in the Research Department of the Federal Reserve Bank of Cleveland. His research focuses on financial intermediation, information economics, housing policy, and credit access of low-moderate income households.

Born in Istanbul, Turkey, Dr. Ergungor earned his bachelor’s degree in mechanical engineering from Bogazici University and his M.B.A. from Koc University, both in Istanbul. He earned his Ph.D. in finance from the University of Michigan in 2000 and joined the bank in September of the same year.

  • Fed Publications
  • Other Publications
  • Work in Progress
Title Date Publication Author(s) Type

 

2013-17 ; Nelson Oliver; Economic Commentary
Abstract: One problem low-income communities may face in trying to revitalize is dealing with a high share of residents who are returning home after serving prison terms. Returning citizens often concentrate in low-income areas, and they typically lack the education and skills needed to find jobs. This Commentary reviews these and other barriers to employment, estimates the degree of unemployment, and describes some solutions emerging for this population.

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February, 2013 Federal Reserve Bank of Cleveland,working paper no. 13-01 ; Jean Burson; John B Carlson; Patricia Waiwood; Working Papers
Abstract: States' unfunded pension obligations to their current and retired employees have exploded in recent years to levels that are estimated to be between $750 billion and $4.4 trillion. In theory, this massive debt should have implications for states' ability to meet their financial obligations and a measurable impact on funding costs. Yet, we find no evidence that municipal bond markets are pricing the risks to states' fiscal health arising from these large obligations.

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2013-03 ; Economic Commentary
Abstract: More than 20 years ago Sweden suffered a severe financial crisis that brought unemployment to an all-time high. To this day the unemployment rate has not returned to where it was before the crisis. Economists say that if the U.S. is anything like Sweden, our full recovery may still be a long way off. Sweden is like the U.S. in many ways, but the roots of its labor market troubles appear to be very different from ours.

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2012-05 ; Economic Commentary
Abstract:

ETFs are one of the most successful financial innovations of the last few decades. As a new, rapidly growing, and increasingly complex financial instrument, ETFs might raise concerns about the risk they pose to financial stability. While they do not seem to pose a threat at this time, ETFs did expose a weakness in U.S. stock markets during the Flash Crash of 2010: the fragmented nature of trading, which can leave some markets very shallow.


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January, 2012 Federal Reserve Bank of Cleveland, working paper no. 12-03 ; Lisa A Nelson; Working Papers
Abstract: Legislation aimed at stabilizing housing markets since the recession has focused on providing funding to acquire and remediate foreclosed and abandoned homes or providing financial assistance and incentives to purchase homes. Cuyahoga County has received over $100 million in such funds since 2008. We investigate the impact of these funds on vacancy rates. We examine neighborhoods in Cuyahoga County where National Stabilization Program dollars were spent and find that the program helped reduce vacancies in neighborhoods where properties were primarily purchased for consumption purposes.

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2011-13 ; Stephanie Moulton; Economic Commentary
Abstract: Bank branches have been disappearing in some major metropolitan areas, as their populations and economic activity decline. Our research suggests that brick-and-mortar branches provide tangible benefits to consumers, especially in low- and moderate-income neighborhoods. When branches are located in these areas, borrowers living there default less and have greater access to credit.

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August, 2011 Federal Reserve Bank of Cleveland, working paper no. 11-15 ; Stephanie Moulton; Working Papers
Abstract: We evaluate the effects of the lending institution and soft information on mortgage loan performance for low-income homebuyers. We find that even after controlling for bank selection, those who receive a loan from a local bank are significantly less likely to become delinquent or default than other bank or nonbank borrowers, suggesting an information effect. These effects are most pronounced for higher-risk borrowers, who likely benefit more from informational advantages of local banks. These findings support previous research on small business lending and provide additional explanation for observed differences in mortgage loan performance between bank and nonbank lenders.

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June, 2011 Federal Reserve Bank of Cleveland, working paper no. 11-14 ; Leonardo Madureira; Nandkumar Nayar; Ajai K Singh; Working Papers
Abstract: This paper examines disclosures by sell-side analysts when their institution has a lending relationship with the firms being covered. Lending-affiliated analysts' earnings forecasts are found to be more accurate relative to forecasts by other analysts but this differential accuracy manifests itself only after the advent of the loan. Despite this increased earnings forecast accuracy, lending-affiliated analysts exhibit undue optimism in their brokerage recommendations and forecasts of long term growth. The optimism exists both before and after the lending commences. The evidence suggests that any insights into the covered firm via the lending relationship are employed by bank analysts in a selective manner. They appear unwilling to compromise on disclosures where ex post accuracy is clearly revealed, possibly to preserve their own personal reputation. However, they are overly optimistic on other disclosures where resolution is less readily verifiable, possibly to promote their lending client's financial standing.

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2011-06 ; Saeed Zaman; Economic Commentary
Abstract: Knowing whether buying a home is a better financial move for a family than renting requires a consideration of costs and options that people often neglect to factor in. One aspect of the calculation that is almost always overlooked is uncertainty—the fact that no matter how good one’s estimates of the future are, the future can turn out differently than projected. Incorporating uncertainty into the rent-or-buy calculation gives potential homebuyers information that can improve their decisions. While incorporating uncertainty is complicated, it’s made easier with the Cleveland Fed’s online calculator.

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March, 2011 Vol. 2, No. 1 ; Thomas J Fitzpatrick; Forefront
Abstract: In the City of Cleveland, 8.2 percent of the housing stock sits vacant or abandoned, according to the U.S. Postal Service.

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2011-03 ; Economic Commentary
Abstract: Though some programs that were created to promote homeownership in the United States, like Fannie Mae and Freddie Mac, have been harshly criticized in the wake of the housing crisis, we are likely to continue to provide some form of taxpayer-funded assistance to those who would become homeowners. Historically, assistance has taken the form of either interest rate or down-payment subsidies, but recent research suggests that down-payment subsidies are much more effective. They create successful homeowners—homeowners who keep their homes—at a lower cost.

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November, 2010 Federal Reserve Bank of Cleveland working paper, no. 10-21 ; Working Papers
Abstract: This paper examines the impact of interest-rate and down-payment subsidies on default rates and losses given default, and finds that down-payment subsidies create successful homeowners at a lower cost than interest-rate subsidies.

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April, 2010 Vol. 1, No. 2 ; Forefront
Abstract: The Community Reinvestment Act helped end the practice of redlining. But 33 years after its introduction, it may be time to consider whether the CRA needs a twenty-first century overhaul.

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February 2009 Federal Reserve Bank of Cleveland, Economic Commentary ; Kent Cherny; Economic Commentary
Abstract: The current financial crisis is a painful reminder that the developed world is not yet immune to these devastating shocks. But while we haven’t learned to prevent them, we have learned some lessons about what is necessary to contain them once they begin and to limit the damage that follows. As policymakers worldwide focus on resolving the current financial crisis, they might look to Sweden as a useful model for effective strategies.

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July 2008 Federal Reserve Bank of Cleveland, Economic Commentary ; Economic Commentary
Abstract: Like the now government-owned Fannie Mae and Freddie Mac, large investment banks helped create funds to finance new mortgages by issuing securities backed by pools of existing mortgages. But private firms have abandoned these instruments, and with them a large source of mortgage funds has disappeared. Four large investment banks plan to create a new U.S. market for an old instrument, hoping to bring liquidity back to the mortgage market.

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May 2008 ; Ian Hathaway; Economic Commentary
Abstract: The market for student loans may differ in some respects from other financial markets, but private lenders are the primary source of funds. As in other markets, the incentive to lend those funds comes from the ability to make a profit. But recent turmoil in financial markets is affecting all of the factors that contribute to the profitability of student loans, leading to speculation that the availability of such loans will fall.

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December, 2007 Federal Reserve Bank of Cleveland, Working Paper no. 0724 ; Working Papers
Abstract: Whether mortgages are originated mostly by depository institutions regulated by the Federal agencies or by less-regulated lenders does not seem to affect the foreclosure filing rate in Ohio's counties. What seems to matter is whether the lenders have a physical presence in the market, in which case, foreclosure rates are lower.

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September 1, 2007 Federal Reserve Bank of Cleveland, Economic Commentary ; Economic Commentary
Abstract: As a result of the subprime mortgage mess, prepayment penalties are under close scrutiny. While these, like other kinds of contract terms, can be abused, there are good reasons for why they exist. In principle, they serve to extend credit to a greater number of borrowers.

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June 2007 Federal Reserve Bank of Cleveland, Policy Discussion Paper, no. 21 ; Policy Discussion Papers
Abstract: Sweden was one of the Scandinavian countries experiencing a severe financial crisis In the late 1980s and early 1990s. This paper reviews the policy choices and external factors that pushed the country's financial system over the edge and then examines the steps the government took to make its resolution of the crisis one of the most successful in the past 30 years.

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January 15, 2007 Federal Reserve Bank of Cleveland, Economic Commentary ; Economic Commentary
Abstract: Until recently, homeowners had no way to protect the value of their homes against losses that could result from housing market downturns. With the derivatives contracts introduced by the CME last year, homeowners now have some means of protection, and new and better products are more likely to follow from them.

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December, 2006 Federal Reserve Bank of Cleveland, Working Paper no. 0617 ; Working Papers
Abstract: Relationship lending theory suggests that lenders in close proximity to their borrowers might be the most efficient providers of screening and monitoring services, because the cost of collecting information declines with distance. The author presents evidence that ties bank branch presence to borrower performance in the low-income housing market, which provides support for this theory.

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October 1, 2006 Federal Reserve Bank of Cleveland, Economic Commentary ; James B Thomson; Economic Commentary
Abstract: Once Wal-Mart announced its intention to acquire an industrial loan company, a public furor arose that has brought a lot of attention to a type of institution that has existed for quite some time, but was not widely recognized outside of banking circles. What are ILCs and why have they become so controversial lately?

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December, 2005 Federal Reserve Bank of Cleveland, working paper no. 05-15 ; C.N.V. Krishnan; Ajai K Singh; Allan A Zebedee; Working Papers
Abstract: Seasoned equity offers made by undercapitalized banks (labeled involuntary offers) could be different from other seasoned equity offers because the issuer is presumably under regulatory duress to make up the shortfall in required capital. For this reason, involuntary offers may exhibit limited managerial opportunism. When a firm issues seasoned equity, investment bankers gather information about the issuer in the period between the registration of the offer and its issue date. The information gathered during the bookbuilding process gets reflected in the offer price discount on the issue date. We find that the offer price discount appears to convey more information to investors on the issue date for the voluntary issuers. However, we find that both types of issues show signs of market timing, and that investors react negatively to both types of issuance announcements. Our results are robust to several checks.

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February 2005 Federal Reserve Bank of Cleveland, Policy Discussion Paper, no. 9 ; James B Thomson; Policy Discussion Papers
Abstract: Systemic banking crises can have devastating effects on the economies of developing or industrialized countries. This Policy Discussion Paper reviews the factors that weaken banking systems and make them more susceptible to crises.

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April 1, 2004 Federal Reserve Bank of Cleveland, Economic Commentary ; Economic Commentary
Abstract: In recent years, there has been increasing pressure on U.S. corporations to distribute earnings to shareholders in the form of dividends. This Commentary explains that dividends are important, but investors can err by reading too much into them.

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August 15, 2003 Federal Reserve Bank of Cleveland, Economic Commentary ; Economic Commentary
Abstract: Obscure just 20 years ago, loan portfolio securitization by private and government-sponsored enterprises is a $5 trillion business today. This Commentary explains the reasons behind the spectacular growth of asset-backed securities.

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May 1, 2003 Federal Reserve Bank of Cleveland, Economic Commentary ; Joseph G Haubrich; Economic Commentary
Abstract: Information problems pervade the economy. This Commentary describes the challenges they create and the clever solutions markets find to overcome them.

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January, 2003 Federal Reserve Bank of Cleveland, Working Paper no. 0305 ; Working Papers
Abstract: This paper investigates how the structure of a financial system?whether it is bank or market oriented? affects economic growth. In contrast to earlier research, which indicates that the financial system?s structure is irrelevant for growth, I find that countries grow faster when they have flexible judicial system and more market-oriented financial systems.

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February 1, 2002 Federal Reserve Bank of Cleveland, Economic Commentary ; Economic Commentary
Abstract: In some countries, banks are firms’ key source of financing. In others, firms look mainly to credit markets to meet their financial needs. Why should this be so? New research suggests that a country’s legal tradition strongly influences which financial system becomes dominant there.

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January, 2002 Federal Reserve Bank of Cleveland, Working Paper no. 0203 ; Working Papers
Abstract: This paper investigates the performance of community banks as small business (relationship) lenders. Theory suggests that competition reduces the benefits of bank-borrower relationships, making small business loans more risky and less profitable. In support of this theory, the evidence indicates that community banks? performance deteriorates with increasing small business lending. Policies that encourage community banks to engage in more aggressive small business lending may lessen the soudness of these institutions.

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September 2001 Federal Reserve Bank of Cleveland, Economic Review, vol. 37, no. 3, pp. 2-19 ; Economic Review
Abstract: A loan commitment is an agreement by which a bank promises to lend to a customer at prespecified terms while retaining the right to renege on its promise if the borrower's creditworthiness deteriorates. The contract also specifies the various fees that must be paid over the life of the commitment. Loan commitments are widely used in the economy. As their use has spread, a rich literature has evolved to explain why they exist, how they are priced, and how they affect the risk of the bank and the deposit insurer. This article summarizes what we have learned on these issues. Its main insight is that loan commitments are an optimal tool for risk sharing and for resolving informational problems. The author also points out some issues that the current literature leaves unexplained.

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January, 2001 Federal Reserve Bank of Cleveland, Working Paper no. 0101R ; Working Papers
Abstract: Why are common-law countries market-dominated and civil-law countries bank-dominated? This paper provides an explanation tied to legal traditions. Civil-law courts have been less effective in resolving conflicts than common-law courts because civil-law judges traditionally refrain from interpreting the codes and creating new rules. In a civil-law environment, where potential conflicts between borrowers and individual lenders inhibit the development of markets because the courts are unable to penalize defrauding borrowers, I show that banks can induce borrowers to honor their obligations by threatening to withhold services that only banks can provide. In other words, banks emerge as the primary contract enforcers in economies where courts are imperfect.

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January, 2000 Federal Reserve Bank of Cleveland, Working Paper no. 0013 ; Working Papers
Abstract: Despite the numerous benefits of loan commitments, only 79% of the commercial and industrial loans are made under commitment. I show that two factors limit the use of loan commitments. First, because banks commit themselves to lend, they carry costly liquidity reserves to meet their obligations. Due to liquidity costs, the interest rate on commitment loans is high relative to spot loans. Second, high interest rates trigger moral hazard. If the bank expects a profitable relationship in the future, it can absorb a portion of the liquidity costs to reduce the interest rate and attenuate moral hazard. If not, the borrower cannot get a loan commitment.

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Title Date Publication Author(s) Type

 

February, 2009 ; Kent Cherny; Press Release
Abstract: As policymakers worldwide focus on resolving the current financial crisis, they might look to Sweden as a useful model for effective financial crisis resolution, according to a study released today by the Federal Reserve Bank of Cleveland.

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under fourth review Journal of Financial Intermediation ; C.N.V. Krishnan; Ajai K Singh; Allan A Zebedee; Journal Article
Abstract: Seasoned equity offers made by undercapitalized banks (labeled involuntary offers) could be different from other seasoned equity offers because the issuer is presumably under regulatory duress to make up the shortfall in required capital. For this reason, involuntary offers may exhibit limited managerial opportunism. When a firm issues seasoned equity, investment bankers gather information about the issuer in the period between the registration of the offer and its issue date. The information gathered during the book-building process gets reflected in the offer price discount on the issue date. We find that the offer price discount appears to convey more information to investors on the issue date for the voluntary issuers. However, we find that both types of issues show signs of market timing, and that investors react negatively to both types of issuance announcements. Our results are robust to several checks. (This paper has appeared as Federal Reserve Bank of Cleveland, Working Paper, no. 05-15.)

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forthcoming International Review of Economics and Finance ; Journal Article
Abstract: This paper investigates how the structure of a financial system--whether it is bank or market oriented--affects economic growth. In contrast to earlier research, which indicates that the financial system's structure is irrelevant for growth, I find that countries grow faster when they have flexible judicial system and more market-oriented financial systems. (This paper has appeared before as Federal Reserve Bank of Cleveland, Working Papers, no. 03-05)

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Systemic Banking Crises Part I--Underlying Causes of Banking System Collapse

 

2006 Research in Finance, vol. 28 ; James B Thomson; Journal Article

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Systemic Banking Crises II--Time-Consistent Crisis Resolution Policies

 

2006 Research in Finance, vol. 28 ; James B Thomson; Journal Article

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The Profitability of Bank-Borrower Relationships

 

2005 Journal of Financial Intermediation, vol. 14, pp. 485-512. ; Journal Article
Abstract: This paper investigates the performance of community banks as small business (relationship) lenders. Theory suggests that competition reduces the benefits of bank-borrower relationships, making small business loans more risky and less profitable. In support of this theory, the evidence indicates that community banks' performance deteriorates with increasing small business lending. Policies that encourage community banks to engage in more aggressive small business lending may lessen the soundness of these institutions. (This paper has appeared as Federal Reserve Bank of Cleveland, Working Paper, no. 02-03--"Community banks as small business lenders: the tough road ahead".)

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Market- vs. Bank-Based Financial Systems: Do Rights and Regulations Really Matter?

 

December 2004 Journal of Banking and Finance, v. 28, no. 12, p. 2869-2887 ; Journal Article
Abstract: Revised March 2002: Why are common-law countries market-dominated and civil-law countries bank-dominated? This paper provides an explanation tied to legal traditions. Civil-law courts have been less effective in resolving conflicts than common-law courts because civil-law judges traditionally refrain from interpreting the codes and creating new rules. In a civil-law environment, where potential conflicts between borrowers and individual lenders inhibit the development of markets because the courts are unable to penalize defrauding borrowers, I show that banks can induce borrowers to honor their obligations by threatening to withhold services that only banks can provide. In other words, banks emerge as the primary contract enforcers in economies where courts are imperfect.(This paper has appeared before as Federal Reserve Bank of Cleveland, working paper no. 01-01R.

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Title Date Publication Author(s) Type
Arm's-Length Mortgage Lending in Information Sensitive Neighborhoods

 

March, 2007 Unpublished manuscript ; Unpublished manuscript
Abstract: The motivation for this paper comes from recent developments in Cuyahoga County. The county asked banks to sign a document that says they won’t make predatory loans. Given the ambiguity of the term "predatory," the banks refused and instead of originating loans, they started purchasing them from other lenders (they can thus satisfy the CRA requirements). Since I argued in earlier papers that it is important for bankers to get their hands dirty in areas that may depend on soft information creation, the switch from originations to purchases may represent to a switch from relationship to arms-length lending. If so, this should lower credit access and increase post-lending problems such as foreclosures. Note that if the markets were friction-free, it would not matter whether institutions originate the loans themselves or purchase them from other lenders who would turn around and make new loans.

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The Information Content of Banking Relationships

 

January, 2007 Unpublished manuscript ; Nandkumar Nayar; Ajai K Singh; Unpublished manuscript
Abstract: The GLB Act of 1999 formally tore down the firewalls between investment and commercial banking. In this study, we will examine how information flows between commercial banking and investment banking arms of BHCs. It is well-established that banks obtain proprietary information during lending relationships. We will compare the precision of analysts' earnings forecasts when the analyst's investment bank has a lending relationship with the borrower through its commercial banking arm and when it does not; second, we will compare market reaction to analyst recommendations when the analyst's bank has a lending relationship with the firm; third, we will test whether a commercial lending relationship has any impact on the investment bank's choice of firms its analysts will follow. A comparison of pre- and post-GLB period should also tell us how effective the firewalls were in the first place and whether their removal had a significant impact on the information content of analysts' forecasts and recommendations.

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December, 2006 Federal Reserve Bank of Cleveland, Working Paper no. 0616 ; Working Papers
Abstract: Banks specialize in lending to informationally opaque borrowers by collecting soft information about them. Some researchers claim that this process requires a physical presence in the market to lower information collection costs. The author provides evidence in support of this argument in the mortgage market for low-income borrowers. Mortgage originations increase and interest spreads decline when there is a bank branch located in a low-to-moderate income neighborhood.

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December, 2004 Federal Reserve Bank of Cleveland Working Paper no. 0414 ; C.N.V. Krishnan; Ajai K Singh; Allan A Zebedee; Working Papers
Abstract: Recent research has shown that for industrial and utilities' seasoned equity offers (SEOs) the offer price discount is informative and has significant price effects. We examine whether the offer price discount for SEOs made by undercapitalized banks is different from those made by banks that were already overcapitalized prior to issue announcement. The former are labeled "involuntary" issues, and the latter "voluntary." Voluntary issues are likely made by opportunistic managers at times when their stock is overvalued. Prior research has argued and provided evidence suggesting that for involuntary issues, such timing discretion may be limited. However, we find no significant differences in the issue-date discount, and in issue-date abnormal returns between the two types of issues. We find that trading volume increases dramatically at the offer date, stays at abnormally high levels over a 60-day post-issue period, and is accompanied by a positive abnormal return in the post-offer period for both types of issues. The post-issue long-run returns are positive for both types of issues. Inconsistent with prior research, we do not find a significant difference even in the announcement date returns of the involuntary and voluntary issues. It appears that the market does not perceive the voluntary and involuntary issuers to be different.

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