Abstract
The financial crisis highlighted the pivotal role that financial intermediaries play in the economy. Recent research has analyzed the differences between traditional and market-based financial intermediaries, noting the greater balance sheet volatility of the former category. Using these volatility differences as a basis, this paper compares the stock market delisting behavior of market-based and traditional financial intermediaries. Using survival analysis, I find that market-based intermediaries carry greater cumulative incidence of stock market delisting due to firm failure and M&A activity relative to traditional intermediaries. Additionally, idiosyncratic risk plays an important role in the survival behavior across these institutional structures. JEL Classifications: G20, G21
Highlights
IntroductionAccording to Adrian and Shin (2010b), since the 1980s, there has been a dramatic shift away from traditional deposit-based financial intermediaries (i.e. standard commercial banks), towards the growth and emergence of market-based intermediaries such as securities broker-dealers and shadow banks (e.g. asset-backed security issuers)
According to Adrian and Shin (2010b), since the 1980s, there has been a dramatic shift away from traditional deposit-based financial intermediaries, towards the growth and emergence of market-based intermediaries such as securities broker-dealers and shadow banks1
In regards to M&A stock market delisting, idiosyncratic risk has a different impact, as it is statistically insignificant with respect to this behavior for traditional intermediaries and displays a negative and statistically significant impact for the market-based intermediaries
Summary
According to Adrian and Shin (2010b), since the 1980s, there has been a dramatic shift away from traditional deposit-based financial intermediaries (i.e. standard commercial banks), towards the growth and emergence of market-based intermediaries such as securities broker-dealers and shadow banks (e.g. asset-backed security issuers). The latter form of institutional structure has been gaining market share with respect to the traditional commercial banking sector over the past thirty years. Since market-based firms, relative to traditional firms, exhibit higher leverage during asset booms and lower leverage during asset busts, these market-based intermediaries have more volatile fluctuations in their balance sheets
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