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Going for Broke: Bank Reputation and the Performance of Opaque Securities

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  • ABE DE JONG
  • TIM KOOIJMANS
  • PETER KOUDIJS

Abstract

Can banks’ reputational concerns improve the quality of opaque, off‐balance sheet securities, such as mortgage‐backed securities? We study this question in a uniquely parsimonious setting. In the 1760s, Dutch banking partnerships securitized West‐Indian plantation mortgages that were risky and opaque. High‐reputation banks originated better mortgages and issued securities that, on average, retained 17.5% more of their value during a market collapse. Reputational effects are attenuated when the managing partners were married into wealth or received a large share of profits in the short term, suggesting that bank reputation only works if bankers are personally exposed to (long‐run) reputational losses.

Suggested Citation

  • Abe De Jong & Tim Kooijmans & Peter Koudijs, 2025. "Going for Broke: Bank Reputation and the Performance of Opaque Securities," Journal of Finance, American Finance Association, vol. 80(6), pages 3263-3312, December.
    • Handle: RePEc:bla:jfinan:v:80:y:2025:i:6:p:3263-3312
    DOI: 10.1111/jofi.13503
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