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“Underwriting Government Debt Auctions,” Sudip Gupta, Rangarajan K. Sundaram, Suresh Sundaresan (2016)
We examine a novel two-stage mechanism for selling government securities. In Stage 1 (the “underwriting auction”), the aggregate amount of security to be auctioned in Stage 2 is underwritten by bidders via a discriminatory auction. All underwriting auction participants then join the second stage auction in which the security is sold via either a Discriminatory Auction (DA) or a Uniform Price Auction (UPA). Winning first-stage underwriters have dual roles in the second stage, as bidders and as insurers who must absorb any excess security supply. Using proprietary data on government securities auctions in India between 2006 and 2012, we find sharply divergent outcomes when the second-stage auctions are DAs compared to UPAs. We show that the winner's curse risk of unsold inventory is a driver of our results. We find evidence of this channel by exploiting a policy change that induced natural variations in inventory costs dierentially across bidders.
“A Model of Infrastructure Financing,” Viral Acharya and Suresh Sundaresan (2014)
Infrastructure projects often require large investment, can have long gestation periods, and typically involve multiple parties; government, private sector firms and outside investors. Government and private sector firms must expend effort to implement and maintain the projects, may derive private benefits in participating in the project, and may possess only limited information. Moreover, governments' ability to finance infrastructure may be limited by fiscal deficits. These factors and potentially limit the willingness of the outside investors to supply capital. In this paper, we survey the approaches to infrastructure financing that have been developed in different parts of the world and offer a simple theory, which takes into consideration some of the ground realities in infrastructure investment projects. We show that government guarantees (for "bad states") coupled with taxation of project revenues (in "good states") mitigate the double moral hazard problem and leads to greater private sector investments in infrastructure projects.
“Bank Liability Structure,” Suresh Sundaresan, Zhenyu Wang (2014)
Since the fiduciary duty of bank management is to maximize bank value and not social welfare, we analytically solve for the liability structure that maximizes the value of a bank leveraged by deposits and subordinated debt. Our analysis offers a perspective on privately-rational bank capital structure and its interaction with regulatory environment. Absent deposit insurance and regulation, banks use high leverage. The drivers of bank leverage are the low volatility of bank assets and the income from serving deposits, besides corporate taxes. The optimal level of subordinated debt makes its endogenous default coincide with bank run. In response to deposit insurance and regulatory closure, banks increase their value and leverage by expanding deposits, even if they are charged fair insurance premium. They however reduce subordinated debt to keep endogenous default and regulatory closure concurrent. These optimal responses from banks counteract the objective of regulators in lessening expected bankruptcy costs.
Inside the Branch: Productivity, Pro-Sociality, and the Delivery of Microfinance Lending to the Poor
- Bruce Kogut, Sanford C. Bernstein & Co. Professor of Leadership and Ethics
Through surveys, field work observations and interviews with experienced employees of 20 Indian MFIs, the project aims to study and join two questions that are largely under-researched: what are the sources and best practices for high productivity for microfinance lending institutions and what are the performance outcomes from the social services, e.g. educational and health, that these institutions provide in addition to financial services. These questions are critical to improving the efficiency of institutions financing the poor and to proposing a re-orientation in our thinking about social impact in this domain. The research is collaborative with the Centre for Microfinance (CMF) in India, housed within the Institute for Financial Management and Research (IFMR). CMF will be responsible for managing a team of 30 to 40 individuals to conduct and monitor the survey.