• Working Paper

    • The Impact of Organizational Downsizing on Loan Officer Specialization and Credit Defaults

      Joint work with Peter-Hendrik Ingermann

      Abstract: This paper studies how organizational downsizing in a bank affects loan officer specialization and the credit default risk of small‑ and medium-sized enterprises. We exploit a wave of early loan officer retirements as a quasi-natural experiment, in which the resulting borrower reallocations changed the industry specialization levels of the remaining loan officers. In a difference-in-differences analysis excluding all reallocated borrowers, we find that a negative shock to loan officer specialization causes an increase in default rates due to an inferior production of default risk information and excessive loan growth. A positive shock to loan officer specialization generates opposite effects.

      Available at SSRN

    • Knowledge Illusion in Decisions under Risk: The Impact of Perceived Expertise on Probability Weighting

      Joint work with Maren Baars

      Abstract: Although risky decisions are affected by perceived expertise regarding the source of risk, current decision-making models assume that an individual’s attitude towards risk does not vary across different sources. A decision maker’s processing of known probabilities and the resulting degree of probability weighting should therefore be unique. This paper provides evidence that challenges this assumption. We conduct an experiment involving different gambles, i.e., risky games where objective probabilities are known, no further information-based advantages exist, and outcomes are independent of knowledge. Even though all probabilities are explicitly provided, we find that individuals engage in less severe probability weighting if they perceive their level of expertise regarding a gamble to be higher. This result suggests that individuals are subject to knowledge illusion in decisions under risk, constituting source-dependent risk attitudes. We furthermore document that knowledge illusion typically increases the attractiveness of risky prospects, yielding new insights into puzzling investor behavior observed in equity markets. Managerial and policy implications are discussed.

      Available at SSRN

    • Ambiguity Aversion as Distaste for Epistemic Uncertainty

      Joint work with Craig Fox and David Tannenbaum
    • Coinsurance Effects in Corporate Finance: An Integrated Analysis on the Role of Financial Constraints

      Joint work with Christian Rose

      Abstract: We examine how coinsurance induced by diversification affects a firm’s cost of capital and its capital structure, depending on its level of financial constraint. Our coinsurance measure explicitly captures the default risk connectedness across a firm’s business segments and hence considers the necessary condition for coinsurance to exist. Firms with higher coinsurance display a lower cost of debt or higher leverage, with the chosen trade-off predictably varying with a firm’s financial constraint. Furthermore, coinsured firms with intermediate financial constraints exhibit a lower cost of equity and a lower weighted average cost of capital. The opposite holds for highly constrained firms.

      Available at SSRN

    • Cost of Debt in Lending Relationships: Evidence from Small- and Medium-Sized Enterprises

      Joint work with Peter-Hendrik Ingermann
    • Depositor Behavior during a Financial Crisis: What determines the Decision to withdraw?

      Joint work with Norber Sträter, Andreas Pfingsten, and Markus Cornelißen