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The paper provides novel insights on the effect of a firm’s risk management objective on the optimal design of risk transfer instruments. I analyze the interrelation between the structure of the optimal insurance contract and the firm’s objective to minimize the required equity it has to hold to accommodate losses in the presence of multiple risks and moral hazard. In contrast to the case of risk aversion and moral hazard, the optimal insurance contract involves a joint deductible on aggregate losses in the present setting.
Im Normalfall, in dem Vorstand und Aufsichtsrat den Jahresabschluß feststellen (vgl. § 172 AktG), können sie einen Teil des Jahresüberschusses, höchstens jedoch die Hälfte, in „andere Gewinnrücklagen“1 einstellen (§ 58 Abs. 2 S. 1 AktG). Die Satzung kann Vorstand und Aufsichtsrat zur Einstellung eines größeren oder kleineren Teils des Jahresüberschusses ermächtigen; allerdings darf die Verwaltung aufgrund einer solchen Satzungsbestimmung keine Beträge in andere Gewinnrücklagen einstellen, wenn die anderen Gewinnrücklagen die Hälfte des Grundkapitals übersteigen oder soweit sie nach der Einstellung die Hälfte übersteigen würden (§ 58 Abs. 2 S. 2, 3 AktG). Nach § 58 Abs. 3 AktG kann die Hauptversammlung sodann in ihrem Beschluß über die Verwendung des Bilanzgewinns (vgl. § 174 AktG) weitere Beträge in Gewinnrücklagen einstellen oder als Gewinn vortragen. Im Folgenden werden nach einer Sichtung wirtschaftswissenschaftlicher Erwägungen zu Thesaurierung und Ausschüttung (unten II.) die Pflichten und die Kontrolle der Entscheidungen über die Gewinnverwendung von Vorstand und Aufsichtsrat einerseits (unten III.) und der Hauptversammlung andererseits (unten IV.) erörtert. V. faßt die Ergebnisse zusammen. Die besonderen Rechtsfragen, die sich bei Rücklagenbildung in abhängigen Gesellschaften ergeben, werden nicht behandelt.
Der Referentenentwurf eines Gesetzes zur Umsetzung der Aktionärsrechterichtlinie (ARUG), der am 6. Mai 2008 der Öffentlichkeit zugeleitet wurde, bringt einige lang erwartete und vorab in der Literatur viel diskutierte Neuerungen des Aktiengesetzes. Anlass für den Entwurf ist die Umsetzung der Richtlinie 2007/36/EG vom 11. Juli 2007 über die Ausübung bestimmter Rechte von Aktionären in börsennotierten Gesellschaften (sog. Aktionärsrechterichtlinie).2 Dem Ziel der Richtlinie folgend soll die grenzüberschreitende Ausübung von Aktionärsrechten erleichtert werden; dies betrifft vor allem die Möglichkeiten der Online-Teilnahme an der Hauptversammlung und die Kommunikation mit den Aktionären im Vorfeld der Hauptversammlung. Darüber hinaus wird die Richtlinienumsetzung vom deutschen Gesetzgeber zum Anlass genommen, das Aktienrecht noch in einigen weiteren Punkten zu ändern. So wird das Depotstimmrecht der Kreditinstitute weiter dereguliert und die Festsetzung eines Mindestbetrages bei Wandelschuldverschreibungen ermöglicht. Die Werthaltigkeitsprüfung bei Sacheinlagen im Rahmen von Gründungen und Kapitalerhöhungen wird eingeschränkt; damit werden einige Optionen der durch die Richtlinie 2006/68/EG3 geänderten Kapitalrichtlinie4 umgesetzt. Ein besonderer Schwerpunkt des Referentenentwurfs liegt auf der Konkretisierung der aktien-, umwandlungs- und konzernrechtlichen Freigabeverfahren, durch welche missbräuchliche Aktionärsklagen weiter eingedämmt werden sollen.
In meinem Vortrag habe ich mich mit den eher technischen Bestimmungen des Referentenentwurfs des Schuldverschreibungsgesetzes zu den Anforderungen an die Beschlüsse der Gläubigerversammlung und vor allem mit ihrer gerichtlichen Kontrolle zu befassen. Diese technischen Fragen lassen sich freilich nicht ganz von den Fragen trennen, die Gegenstand der Referate zu den Befugnissen der Gläubigerversammlung und zu den Anleihebedingungen sind. Ich werde mir also gewisse Grenzüberschreitungen insbesondere auf die Gebiete der zu diesen Themen speziell vorgesehenen Referate zuschulden kommen lassen und bitte hierfür schon jetzt um Nachsicht. Mit Anmerkungen versehene Fassung eines Vortrags auf dem Seminar des Deutschen Aktieninstituts „Die Novellierung des Schuldverschreibungsrechts“ am 16. 9. 2008. Die Vortragsform ist beibehalten.
This paper explores the role of trade integration—or openness—for monetary policy transmission in a medium-scale New Keynesian model. Allowing for strategic complementarities in price-setting, we highlight a new dimension of the exchange rate channel by which monetary policy directly impacts domestic inflation. Although the strength of this effect increases with economic openness, it also requires that import prices respond to exchange rate changes. In this case domestic producers find it optimal to adjust their prices to exchange rate changes which alter the domestic currency price of their foreign competitors. We pin down key parameters of the model by matching impulse responses obtained from a vector autoregression on U.S. time series relative to an aggregate of industrialized countries. While we find evidence for strong complementarities, exchange rate pass-through is limited. Openness has therefore little bearing on monetary transmission in the estimated model.
The popular Nelson-Siegel (1987) yield curve is routinely fit to cross sections of intra-country bond yields, and Diebold and Li (2006) have recently proposed a dynamized version. In this paper we extend Diebold-Li to a global context, modeling a potentially large set of country yield curves in a framework that allows for both global and country-specific factors. In an empirical analysis of term structures of government bond yields for the Germany, Japan, the U.K. and the U.S., we find that global yield factors do indeed exist and are economically important, generally explaining significant fractions of country yield curve dynamics, with interesting differences across countries.
Measuring financial asset return and volatilty spillovers, with application to global equity markets
(2008)
We provide a simple and intuitive measure of interdependence of asset returns and/or volatilities. In particular, we formulate and examine precise and separate measures of return spillovers and volatility spillovers. Our framework facilitates study of both non-crisis and crisis episodes, including trends and bursts in spillovers, and both turn out to be empirically important. In particular, in an analysis of nineteen global equity markets from the early 1990s to the present, we find striking evidence of divergent behavior in the dynamics of return spillovers vs. volatility spillovers: Return spillovers display a gently increasing trend but no bursts, whereas volatility spillovers display no trend but clear bursts.
Increasingly, individuals are in charge of their own financial security and are confronted with ever more complex financial instruments. However, there is evidence that many individuals are not well-equipped to make sound saving decisions. This paper demonstrates widespread financial illiteracy among the U.S. population, particularly among specific demographic groups. Those with low education, women, African-Americans, and Hispanics display particularly low levels of literacy. Financial literacy impacts financial decision-making. Failure to plan for retirement, lack of participation in the stock market, and poor borrowing behavior can all be linked to ignorance of basic financial concepts. While financial education programs can result in improved saving behavior and financial decision-making, much can be done to improve these programs’ effectiveness.
Die politische Steuerung des Krankenhaussektors hat sich in den vergangenen anderthalb Jahrzehnten nachhaltig verändert. Das Gesundheitsstrukturgesetz von 1992 markiert einen gesundheitspolitischen Paradigmenwechsel, mit dem verstärkt wettbewerbliche Steuerungsinstrumente in das Gesundheitswesen eingeführt wurden. Auch im stationären Sektor ersetzen bzw. ergänzen wettbewerbliche Instrumente korporatistische Arrangements. Die Gegenüberstellung der politischen Steuerung des Krankenhaussektors vor 1992 mit der Situation nach der Gesundheitsreform 2007 verdeutlicht, dass auf den Feldern Leistungserbringung, Vergütung und Qualitätssicherung sukzessive ein neues Steuerungsmodell entstanden ist. Dieses zeichnet sich durch eine gewachsene Komplexität, eine Zunahme von Steuerungsaktivitäten und eine Neujustierung des Verhältnisses staatlicher bzw. korporatistischer Steuerung einerseits und wettbewerblicher Steuerung andererseits aus. Dort, wo es um allokative Entscheidungen geht, werden korporatistische Elemente durch wettbewerbliche ersetzt. Auf anderen Regulierungsfelder bleibt der Korporatismus dagegen erhalten. Der Staat als „architect of political order“ (Anderson) hat diese Transformation herbeigeführt, sieht sich allerdings zunehmend mit dem Widerspruch zwischen einer bedarfsorientierten Krankenhausplanung und Investitionsfinanzierung auf Landesebene und einer Leistungsverteilung über den Wettbewerb konfrontiert.
Der Prozess der europäischen Integration wirkt zunehmend auf die Gestaltung der Gesundheitssysteme der Mitgliedstaaten ein. Die von der Kommission und dem EuGH vorangetriebene Anwendung des europäischen Binnenmarkt- und Wettbewerbsrechts auf die Gesundheitspolitik hat zur Folge, dass marktlichen Steuerungsprinzipien ein Primat gegenüber staatlicher und korporatistischer Regulierung eingeräumt wird. Die gesundheitspolitische Gestaltungskompetenz liegt bei den Mitgliedstaaten, diese haben jedoch die „vier Freiheiten“ bzw. das europäische Wettbewerbsrecht zu beachten. Das Prinzip der Solidarität spielt in den europäischen Verträgen dagegen nur eine untergeordnete Rolle. Solidarität erscheint im europäischen Diskurs als ein Wert, der für die Europäische Union einen wichtigen Bezugspunkt darstellt, ohne dass er eine rechtlich verbindliche Form erhalten hat. Im Resultat entscheidet daher die Auslegung des Solidaritätsprinzips durch den Gerichtshof darüber, ob solidarische Elemente in der nationalen Gesundheitspolitik mit dem europäischen Recht vereinbar sind. Dieser Mechanismus beruht nicht auf demokratisch organisierten Meinungs- und Willensbildungsprozessen, sondern ist Gegenstand schwer prognostizierbarer richterlicher Interpretationskunst.
The impact of European integration on the German system of pharmaceutical product authorization
(2008)
The European Union has evolved since 1965 into an influential political player in the regulation of pharmaceutical safety standards. The objective of establishing a single European market for pharmaceuticals makes it necessary for member-states to adopt uniform safety standards and marketing authorization procedures. This article investigates the impact of the European integration process on the German marketing authorization system for pharmaceuticals. The analysis shows that the main focal points and objectives of European regulation of pharmaceutical safety have shifted since 1965. The initial phase saw the introduction of uniform European safety standards as a result of which Germany was obliged to undertake “catch-up” modernization. From the mid-1970s, these standards were extended and specified in greater detail. Since the mid-1990s, a process of reorientation has been under way. The formation of the European Agency for the Evaluation of Medicinal Products (EMEA) and the growing importance of the European authorization procedure, combined with intensified global competition on pharmaceutical markets, are exerting indirect pressure for EU member-states to adjust their medicines policies. Consequently, over the past few years Germany has been engaged in a competition-oriented reorganization of its pharmaceutical product authorization system the outcome of which will be to give higher priority to economic interests.
This paper discusses the implications of transnational media production and diasporic networks for the cultural politics of migrant minorities. How are fields of cultural politics transformed if Hirschmann’s famous options ‘exit’ and ‘voice’ are no longer constituting mutually exclusive responses to dissent within a nation-state, but modes of action that can combine and build upon each other in the context of migration and diasporic media activism? Two case studies are discussed in more detail, relating to Alevi amateur television production in Germany and to a Kurdish satellite television station that reaches out to a diaspora across Europe and the Middle East. Keywords: migrant media, transnationalism, Alevis, Kurds, Turkey, Germany
After the pioneering German “Aktiengesetz” of 1965 and the Brazilian “Lei das Sociedades Anónimas” of 1976, Portugal has become the third country in the world to enact a specific regulation on groups of companies. The Code of Commercial Companies (“Código das Sociedades Comerciais”, abbreviately hereinafter CSC), enacted in 1986, contains a unitary set of rules regulating the relationships between companies, in general, and the groups of companies, in particular (arts. 481° to 508°-E CSC). With this set of rules, the Portuguese legislator has dealt with one of the major topics of modern Company Law. While this branch of law is traditionally conceived as the law of the individual company, modern economic reality is characterized by the massive emergence of large-scale enterprise networks, where parts of a whole business are allocated and insulated in several legally independent companies submitted to an unified economic direction. As Tom HADDEN put it: “Company lawyers still write and talk as if the single independent company, with its shareholders, directors and employees, was the norm. In reality, the individual company ceased to be the most significant form of organization in the 1920s and 1930s. The commercial world is now dominated both nationally and internationally by complex groups of companies”. This trend, which is now observable in any of the largest economies in the world, holds also true for small markets such as Portugal. Although Portuguese economy is still dominated by small and medium-sized enterprises, the organizational structure of the group has always been extremely common. During the 70s, it was estimated that the seven largest groups of companies owned about 50% of the equity capital of all domestic enterprises and were alone responsible for 3/4 of the internal national product. Such a trend has continued and even highlighted in the next decades, surviving to different political and economic scenarios: during the 80s, due to the process of state nationalization of these groups, an enormous public group with more than one thousand controlled companies has been created (“IPE - Instituto de Participações do Estado”); and during the 90s until today, thanks to the reprivatisation movement and the opening of our national market, we assisted to the re-emergence of some large private groups, composed of several hundred subsidiaries each, some of which are listed in foreign stock exchange markets (e.g., in the banking sector, “BCP – Banco Comercial Português”, in the industrial area, “SONAE”, and in the media and communication area, “Portugal-Telecom”).
The market reaction to legal shocks and their antidotes : lessons from the sovereign debt market
(2008)
This Article examines the market reaction to a series of legal events concerning the judicial interpretation of the pari passu clause in sovereign debt instruments. More generally, the Article provides insights into the reactions of investors (predominantly financial institutions), issuers (sovereigns), and those who draft bond covenants (lawyers), to unanticipated changes in the judicial interpretation of certain covenant terms.
Reform of the securities class action is once again the subject of national debate. The impetus for this debate is the reports of three different groups – The Committee on Capital Market Regulation, The Commission on the Regulation of U.S. Capital Markets In the 21st Century, and McKinsey & Company. Each of the reports focuses on a single theme: how the contemporary regulatory culture places U.S. capital markets at a competitive disadvantage to foreign markets. While multiple regulatory forces are targeted by each report’s call for reform, each of the reports singles out securities class actions as one of the prime villains that place U.S. capital markets at a competitive disadvantage. The reports’ recommendations range from insignificant changes to drastic curtailments of private class actions. Surprisingly, these current-day cries echo calls for reform heeded by Congress in the not too distant past. Major reform of the securities class action occurred with the Private Securities Litigation Reform Act of 1995.5 Among the PSLRA’s contributions is the introduction of procedures by which the court chooses from among competing petitioners a lead plaintiff for the class. The statute commands that the petitioner with the largest financial loss suffered as a consequence of the defendant’s alleged misrepresentation is presumed to be the most adequate plaintiff. Thus, the lead plaintiff provision supplants the traditional “first to file” rule for selecting the suit’s plaintiff with a mechanism that seeks to harness to the plaintiff’s economic self interest to the suits’ prosecution. Also, by eliminating the race to be the first to file, the lead plaintiff provision seeks to avoid “hair trigger” filings by overly eager plaintiffs’ counsel which Congress believed too frequently gave rise to incomplete and insubstantially pled causes of action. The PSLRA also introduced for securities class actions a heightened pleading requirement8 as well as a bar to the plaintiff obtaining any discovery prior to the district court disposing of the defendants’ motions to dismiss. By introducing the requirement that allegations involving fraud must be plead not only with particularity, but also that the pled facts must establish a “strong inference” of fraud, the PSLRA cast aside, albeit only for securities actions, the much lower notice pleading requirement that has been a fixture of American civil procedure for decades. Substantive changes to the law were also introduced by the PSLRA. With few exceptions, joint and several liability was replaced by proportionate liability so that a particular defendant’s liability is capped by that defendant’s relative degree of fault. Similarly, contribution rights among co-violators are also based on proportionate fault of each defendant. Three years after the PSLRA, Congress returned to the topic again by enacting the Securities Litigation Uniform Standards Act;13 this provision was prompted by aggressive efforts of plaintiff lawyers to bypass the limitations, most notably the bar to discovery and higher pleading requirement, of the PSLRA by bringing suit in state court. Post-SLUSA, securities fraud class actions are exclusively the domain of the federal court. In this paper, we examine the impact of the PSLRA and more particularly the impact the type of lead plaintiff on the size of settlements in securities fraud class actions. We thus provide insight into whether the type of plaintiff that heads the class action impacts the overall outcome of the case. Furthermore, we explore possible indicia that may explain why some suits settle for extremely small sums – small relative to the “provable losses” suffered by the class, small relative to the asset size of the defendantcompany, and small relative to other settlements in our sample. This evidence bears heavily on the debate over “strike suits.” Part I of this paper sets forth the contemporary debate surrounding the need for further reforms of securities class actions. In this section, we set forth the insights advanced in three prominent reports focused on the competitiveness of U.S. capital markets. In Part II we first provide descriptive statistics of our extensive data set, and thenuse multivariate regression analysis to explore the underlying relationships. In Part III, we closely examine small settlements for clues to whether they reflect evidence of strike suits. We conclude in Part IV with a set of policy recommendations based on our analysis of the data. Our goals in this paper are more modest than the Committee Report, the Chamber Report and the McKinsey Report, each of which called for wide-ranging reforms: we focus on how the PSLRA changed securities fraud settlements so as to determine whether the reforms it introduced accomplished at least some of the Act’s important goals. If the PSLRA was successful, and we think it was, then one must be somewhat skeptical of the need for further cutbacks in private securities class action so soon after the Act was passed.
Research with Keynesian-style models has emphasized the importance of the output gap for policies aimed at controlling inflation while declaring monetary aggregates largely irrelevant. Critics, however, have argued that these models need to be modified to account for observed money growth and inflation trends, and that monetary trends may serve as a useful cross-check for monetary policy. We identify an important source of monetary trends in form of persistent central bank misperceptions regarding potential output. Simulations with historical output gap estimates indicate that such misperceptions may induce persistent errors in monetary policy and sustained trends in money growth and inflation. If interest rate prescriptions derived from Keynesian-style models are augmented with a cross-check against money-based estimates of trend inflation, inflation control is improved substantially.
We investigate, using the 2002 US Health and Retirement Study, the factors influencing individuals’ insecurity and expectations about terrorism, and study the effects these last have on households’ portfolio choices and spending patterns. We find that females, the religiously devout, those equipped with a better memory, the less educated, and those living close to where the events of September 2001 took place worry a lot about their safety. In addition, fear of terrorism discourages households from investing in stocks, mostly through the high levels of insecurity felt by females. Insecurity due to terrorism also makes single men less likely to own a business. Finally, we find evidence of expenditure shifting away from recreational activities that can potentially leave one exposed to a terrorist attack and towards goods that might help one cope with the consequences of terrorism materially (increased use of car and spending on the house) or psychologically (spending on personal care products by females in couples).
Do we measure what we get?
(2008)
Performance measures shall enhance the performance of companies by directing the attention of decision makers towards the achievement of organizational goals. Therefore, goal congruence is regarded in literature as a major factor in the quality of such measures. As reality is affected by many variables, in practice one has tried to achieve a high degree of goal congruence by incorporating an increasing number of these variables into performance measures. However, a goal congruent measure does not lead automatically to superior decisions, because decision makers’ restricted cognitive abilities can counteract the intended effects. This paper addresses the interplay between goal congruence and complexity of performance measures considering cognitively-restricted decision makers. Two types of decision quality are derived which allow a differentiated view on the influence of this interplay on decision quality and learning. The simulation experiments based on this differentiation provide results which allow a critical reflection on costs and benefits of goal congruence and the assumptions regarding the goal congruence of incentive systems.
This paper is one of the first to analyse political influence on state-owned savings banks in a developed country with an established financial market: Germany. Combining a large dataset with financial and operating figures of all 457 German savings banks from 1994 to 2006 and information on over 1,250 local elections during this period we investigate the change in business behavior around elections. We find strong indications for political inflence: the probability that savings banks close branches, lay-off employees or engage in merger activities is significantly reduced around elections. At the same time they tend to increase their extraordinary spendings, which include support for social and cultural events in the area, on average by over 15%. Finally, we find that savings banks extend significantly more loans to their corporate and private customers in the run-up to an election. In further analyses, we show that the magnitude of political influence depends on bank specific, economical and political circumstances in the city or county: political influence seems to be facilitated by weak political majorities and profitable banks. Banks in economically weak areas seem to be less prone to political influence.
The "quiet life hypothesis (QLH)" posits that banks enjoy the advantages of market power in terms of foregone revenues or cost savings. We suggest a unified approach to measure competition and efficiency simultaneously to test this hypothesis. We estimate bank-specific Lerner indices as measures of competition and test if cost and profit efficiency are negatively related to market power in the case of German savings banks.We find that both market power and average revenues declined among these banks between 1996 and 2006. While we find clear evidence supporting the QLH, estimated effects of the QLH are small from an economical perspective.
Motivated by the recent discussion of the declining importance of deposits as banks´ major source of funding we investigate which factors determine funding costs at local banks. Using a panel data set of more than 800 German local savings and cooperative banks for the period from 1998 to 2004 we show that funding costs are not only driven by the relative share of comparatively cheap deposits of bank´s liabilities but among other factors especially by the size of the bank. In our empirical analysis we find strong and robust evidence that, ceteris paribus, smaller banks exhibit lower funding costs than larger banks suggesting that small banks are able to attract deposits more cheaply than their larger counterparts. We argue that this is the case because smaller banks interact more personally with customers, operate in customers´ geographic proximity and have longer and stronger relationships than larger banks and, hence, are able to charge higher prices for their services. Our finding of a strong influence of bank size on funding costs is also in an in- ternational context of great interest as mergers among small local banks - the key driver of bank growth - are a recent phenomenon not only in European banking that is expected to continue in the future. At the same time, net interest income remains by far the most important source of revenue for most local banks, accounting for approximately 70% of total operating revenues in the case of German local banks. The influence of size on funding costs is of strong economic relevance: our results suggest that an increase in size by 50%, for example, from EUR 500 million in total assets to EUR 750 million (exemplary for M&A transactions among local banks) increases funding costs, ceteris paribus, by approximately 18 basis points which relates to approx. 7% of banks´ average net interest margin.
We argue for incorporating the financial economics of market microstructure into the financial econometrics of asset return volatility estimation. In particular, we use market microstructure theory to derive the cross-correlation function between latent returns and market microstructure noise, which feature prominently in the recent volatility literature. The cross-correlation at zero displacement is typically negative, and cross-correlations at nonzero displacements are positive and decay geometrically. If market makers are sufficiently risk averse, however, the cross-correlation pattern is inverted. Our results are useful for assessing the validity of the frequently-assumed independence of latent price and microstructure noise, for explaining observed cross-correlation patterns, for predicting as-yet undiscovered patterns, and for making informed conjectures as to improved volatility estimation methods.
We document significant and robust empirical relationships in cross-country panel data between government size or social expenditure on the one hand, and trade and financial development indicators on the other. Across countries, deeper economic integration is associated with more intense government redistribution, but more developed financial markets weaken that relationship. Over time, controlling for country-specific effects, public social expenditure appears to be eroded by globalization trends where financial market development can more easily substitute for it.
Central counterparties (CCPs) have increasingly become a cornerstone of financial markets infrastructure. We present a model where trades are time-critical, liquidity is limited and there is limited enforcement of trades. We show a CCP novating trades implements efficient trading behaviour. It is optimal for the CCP to face default losses to achieve the efficient level of trade. To cover these losses, the CCP optimally uses margin calls, and, as the default problem becomes more severe, also requires default funds and then imposes position limits.
n the last few years, many of the world’s largest financial exchanges have converted from mutual, not-for-profit organizations to publicly-traded, for-profit firms. In most cases, these exchanges have substantial responsibilities with respect to enforcing various regulations that protect investors from dishonest agents. We examine how the incentives to enforce such regulations change as an exchange converts from mutual to for-profit status. In contrast to oft-stated concerns, we find that, in many circumstances, an exchange that maximizes shareholder (rather than member) income has a greater incentive to aggressively enforce these types of regulations.
The execution, clearing, and settlement of financial transactions are all subject to substantial scale and scope economies which make each of these complementary functions a natural monopoly. Integration of trade, execution, and settlement in an exchange improves efficiency by economizing on transactions costs. When scope economies in clearing are more extensive than those in execution, integration is more costly, and efficient organization involves a trade-off of scope economies and transactions costs. A properly organized clearing cooperative can eliminate double marginalization problems and exploit scope economies, but can result in opportunism and underinvestment. Moreover, a clearing cooperative may exercise market power. Vertical integration and tying can foreclose entry, but foreclosure can be efficient because market power rents attract excessive entry. Integration of trading and post-trade services is the modal form of organization in financial markets, which is consistent with the hypothesis that transactional efficiencies explain organizational arrangements in these markets.
This paper considers a trading game in which sequentially arriving liquidity traders either opt for a market order or for a limit order. One class of traders is considered to have an extended trading horizon, implying their impatience is linked to their trading orientation. More specifically, sellers are considered to have a trading horizon of two periods, whereas buyers only have a single-period trading scope (the extended buyer-horizon case is completely symmetric). Clearly, as the life span of their submitted limit orders is longer, this setting implies sellers are granted a natural advantage in supplying liquidity. This benefit is hampered, however, by the direct competition arising between consecutively arriving sellers. Closed-form characterizations for the order submission strategies are obtained when solving for the equilibrium of this dynamic game. These allow to examine how these forces affect traders´ order placement decisions. Further, the analysis yields insight into the dynamic process of price formation and into the market clearing process of a non-intermediated, order driven market.
Central counterparties
(2008)
Central counterparties (CCPs) have increasingly become a cornerstone of financial markets infrastructure. We present a model where trades are time-critical, liquidity is limited and there is limited enforcement of trades. We show a CCP novating trades implements efficient trading behaviour. It is optimal for the CCP to face default losses to achieve the efficient level of trade. To cover these losses, the CCP optimally uses margin calls, and, as the default problem becomes more severe, also requires default funds and then imposes position limits.
Algorithmic trading has sharply increased over the past decade. Equity market liquidity has improved as well. Are the two trends related? For a recent five-year panel of New York Stock Exchange (NYSE) stocks, we use a normalized measure of electronic message traffic (order submissions, cancellations, and executions) as a proxy for algorithmic trading, and we trace the associations between liquidity and message traffic. Based on within-stock variation, we find that algorithmic trading and liquidity are positively related. To sort out causality, we use the start of autoquoting on the NYSE as an exogenous instrument for algorithmic trading. Previously, specialists were responsible for manually disseminating the inside quote. As stocks were phased in gradually during early 2003, the manual quote was replaced by a new automated quote whenever there was a change to the NYSE limit order book. This market structure change provides quicker feedback to traders and algorithms and results in more message traffic. For large-cap stocks in particular, quoted and effective spreads narrow under autoquote and adverse selection declines, indicating that algorithmic trading does causally improve liquidity.
We consider a multi-period rational expectations model in which risk-averse investors differ in their information on past transaction prices (the ticker). Some investors (insiders) observe prices in real-time whereas other investors (outsiders) observe prices with a delay. As prices are informative about the asset payoff, insiders get a strictly larger expected utility than outsiders. Yet, information acquisition by one investor exerts a negative externality on other investors. Thus, investors’ average welfare is maximal when access to price information is rationed. We show that a market for price information can implement the fraction of insiders that maximizes investors’ average welfare. This market features a high price to curb excessive acquisition of ticker information. We also show that informational efficiency is greater when the dissemination of ticker information is broader and more timely.
We find and describe four futures markets where the bid-ask spread is bid down to the fixed price tick size practically all the time, and which match counterparties using a pro-rata rule. These four markets´ offered depths at the quotes on average exceed mean market order size by two orders of magnitude, and their order cancellation rates (the probability of any given offered lot being cancelled) are significantly over 96 per cent. We develop a simple theoretical model to ex- plain these facts, where strategic complementarities in the choice of limit order size cause traders to risk overtrading by submitting over-sized limit orders, most of which they expect to cancel.
This paper analyzes liquidity in an order driven market. We only investigate the best limits in the limit order book, but also take into account the book behind these inside prices. When subsequent prices are close to the best ones and depth at them is substantial, larger orders can be executed without an extensive price impact and without deterring liquidity. We develop and estimate several econometric models, based on depth and prices in the book, as well as on the slopes of the limit order book. The dynamics of different dimensions of liquidity are analyzed: prices, depth at and beyond the best prices, as well as resiliency, i.e. how fast the different liquidity measures recover after a liquidity shock. Our results show a somewhat less favorable image of liquidity than often found in the literature. After a liquidity shock (in the spread or depth or in the book beyond the best limits), several dimension of liquidity deteriorate at the same time. Not only does the inside spread increase, and depth at the best prices decrease, also the difference between subsequent bid and ask prices may become larger and depth provided at them decreases. The impacts are both econometrically and economically significant. Also, our findings point to an interaction between different measures of liquidity, between liquidity at the best prices and beyond in the book, and between ask and bid side of the market.
Previous evidence suggests that less liquid stocks entail higher average returns. Using NYSE data, we present evidence that both the sensitivity of returns to liquidity and liquidity premia have significantly declined over the past four decades to levels that we cannot statistically distinguish from zero. Furthermore, the profitability of trading strategies based on buying illiquid stocks and selling illiquid stocks has declined over the past four decades, rendering such strategies virtually unprofitable. Our results are robust to several conventional liquidity measures related to volume. When using liquidity measure that is not related to volume, we find just weak evidence of a liquidity premium even in the early periods of our sample. The gradual introduction and proliferation of index funds and exchange traded funds is a possible explanation for these results.
This paper addresses and resolves the issue of microstructure noise when measuring the relative importance of home and U.S. market in the price discovery process of Canadian interlisted stocks. In order to avoid large bounds for information shares, previous studies applying the Cholesky decomposition within the Hasbrouck (1995) framework had to rely on high frequency data. However, due to the considerable amount of microstructure noise inherent in return data at very high frequencies, these estimators are distorted. We offer a modified approach that identifies unique information shares based on distributional assumptions and thereby enables us to control for microstructure noise. Our results indicate that the role of the U.S. market in the price discovery process of Canadian interlisted stocks has been underestimated so far. Moreover, we suggest that rather than stock specific factors, market characteristics determine information shares.
Innovative automated execution strategies like Algorithmic Trading gain significant market share on electronic market venues worldwide, although their impact on market outcome has not been investigated in depth yet. In order to assess the impact of such concepts, e.g. effects on the price formation or the volatility of prices, a simulation environment is presented that provides stylized implementations of algorithmic trading behavior and allows for modeling latency. As simulations allow for reproducing exactly the same basic situation, an assessment of the impact of algorithmic trading models can be conducted by comparing different simulation runs including and excluding a trader constituting an algorithmic trading model in its trading behavior. By this means the impact of Algorithmic Trading on different characteristics of market outcome can be assessed. The results indicate that large volumes to execute by the algorithmic trader have an increasing impact on market prices. On the other hand, lower latency appears to lower market volatility.
Macro announcements change the equilibrium riskfree rate. We find that treasury prices reflect part of the impact instantaneously, but intermediaries rely on their customer order flow in the 15 minutes after the announcement to discover the full impact. We show that this customer flow informativeness is strongest at times when analyst forecasts of macro variables are highly dispersed. We study 30 year treasury futures to identify the customer flow. We further show that intermediaries appear to benefit from privately recognizing informed customer flow, as, in the cross-section, their own-account trade profitability correlates with access to customer orders, controlling for volatility, competition, and the announcement surprise. These results suggest that intermediaries learn about equilibrium riskfree rates through customer orders.
We report evidence that the presence of hidden liquidity is associated with greater liquidity in the order books, greater trading volume, and smaller price impact. Limit and market order submission behavior changes when hidden liquidity is present consistent with at least some traders being able to detect hidden liquidity. We estimate a model of liquidity provision that allows us to measure variations in the marginal and total payoffs from liquidity provision in states with and without hidden liquidity. Our estimates of the expected surplus to providers of visible and hidden liquidity are positive and typically of the order of one-half to one basis points per trade. The positive liquidity provider surpluses combined with the increased trading volume when hidden liquidity is present are both consistent with liquidity externalities.
CONTENTS Preamble 1. Concept and Drivers of Globalization 1.0 A Brief Historical Perspective 1.1 Concept of Globalization 1.2 Economic Globalization 1.3 Drivers of Economic Globalization 2. Globalization and Markets 2.1 The Free Market System 2.2 Markets and the Solution of Economic Problems 2.3 African Markets and “Getting the Prices Right”. 2.4 Implications of the Imperfect Market System 2.5 Government’s Inevitable Role 2.6 The International Environment/Markets 3. Globalization and Trade Liberalisation 3.1 The Experience of the Developing Countries 3.2 Nigeria’s Experience with Trade Liberalisation 4. Global Economic Integration and Sub-Saharan Africa 4.1 Global Economic Integration 4.2 Africa’s Integration with the World Economy 4.3 The Benefits of Economic Globalization and Sub-Saharan Africa 4.4 Why has Africa Lagged? 5. Nigeria and the Global Economy 5.1 Openness of the Economy and Integration with the World Economy 5.2 Globalization and Nigeria’s Trade 5.3 Globalization and Foreign Capital Flows to Nigeria 5.4 Foreign Capital Flows and Debt Accumulation 5.5 Globalization, Growth and Development 6. Appropriate Policy Responses and Lessons 7. Concluding Remarks 8. Appreciation 9. Annex 10. References
The single most important policy-induced innovation in the international financial system since the collapse of the Bretton-Woods regime is the institution of the European Monetary Union. This paper provides an account of how the process of financial integration has promoted financial development in the euro area. It starts by defining financial integration and how to measure it, analyzes the barriers that can prevent it and the effects of their removal on financial markets, and assesses whether the euro area has actually become more integrated. It then explores to which extent these changes in financial markets have influenced the performance of the euro-area economy, that is, its growth and investment, as well as its ability to adjust to shocks and to allow risk-sharing. The paper concludes analyzing further steps that are required to consolidate financial integration and enhance the future stability of financial markets.
We study the relation between cognitive abilities and stockholding using the recent Survey of Health, Ageing and Retirement in Europe (SHARE), which has detailed data on wealth and portfolio composition of individuals aged 50+ in 11 European countries and three indicators of cognitive abilities: mathematical, verbal fluency, and recall skills. We find that the propensity to invest in stocks is strongly associated with cognitive abilities, for both direct stock market participation and indirect participation through mutual funds and retirement accounts. Since the decision to invest in less information-intensive assets (such as bonds) is less strongly related to cognitive abilities, we conclude that the association between cognitive abilities and stockholding is driven by information constraints, rather than by features of preferences or psychological traits.
We investigate whether information sharing among banks has affected credit market performance in the transition countries of Eastern Europe and the former Soviet Union, using a large sample of firm-level data. Our estimates show that information sharing is associated with improved availability and lower cost of credit to firms. This correlation is stronger for opaque firms than transparent ones and stronger in countries with weak legal environments than in those with strong legal environments. In cross-sectional estimates, we control for variation in country-level aggregate variables that may affect credit, by examining the differential impact of information sharing across firm types. In panel estimates, we also control for the presence of unobserved heterogeneity at the firm level, as well as for changes in macroeconomic variables and the legal environment.
Der Regierungsentwurf des ARUG : Inhalt und wesentliche Änderungen gegenüber dem Referentenentwurf
(2008)
Der Entwurf eines Gesetzes zur Umsetzung der Aktionärsrechterichtlinie (ARUG) enthält viel mehr als nur die Umsetzung der Richtlinie über die Ausübung bestimmter Rechte von Aktionären in börsennotierten Gesellschaften (sog. Aktionärsrechterichtlinie), die bis 3. August 2009 zu erfolgen hat. Der jetzt vorliegende ARUG-Entwurf widmet sich drei weiteren Regelungskomplexen. In einem zweiten Schwerpunkt sollen für den Bereich der Kapitalaufbringung durch Sacheinlagen Deregulierungsoptionen aus der Änderung der Kapitalrichtlinie genutzt werden. In einem dritten Komplex wendet sich der Entwurf der Deregulierung des Vollmachtsstimmrechts der Banken zu. Hier werden ganz neue Handlungsalternativen eröffnet. Und ein letztes bedeutendes Ziel des Entwurfs ist die Eindämmung missbräuchlicher Aktionärsklagen. Der ARUG-Entwurf ist im Mai 2008 der Öffentlichkeit als Referentenentwurf vorgestellt worden. Die Bundestagswahl 2009 naht und der Entwurf darf nicht der Diskontinuität zum Opfer fallen. Deshalb ist der Regierungsentwurf unter Hochdruck vorbereitet worden. Das Kabinett hat ihn am 5. November verabschiedet. Damit hat das Gesetz eine gute Chance, zum 1. November 2009 in Kraft zu treten. ...
Inhalt: 1. Gesellschaftsrecht als neues Rechtgebiet für die Rechtsordnungen der GUS: 1 2. Besonderheiten der AG in den Staaten der GUS 4 3. Ausgewählte Probleme des Aktienrechts 6 a. Corporate Governance 6 b. Haftung der Organe 7 c. Aktionärsrechte, vor allem Auskunftsrechte 9 d. Große Geschäfte – krupnie sdelki 10 e. Verträge mit Interessiertheit 12 4. Reform des Aktienrechts 13 a. Entscheidung der interparlamentarischen Versammlung 13 b. Grundlagen des neuen Konzeptes zu einem Modell-Aktiengesetz 14 c. Vorschläge des Konzeptes zu oben erwähnten Problemen 17 Zusammenfassung 19 Zusammenfassung: Allein die kurze Schilderung der Entwicklung des Gesellschaftsrechts in den GUS-Staaten zeigt die Notwendigkeit der Reformen auf diesem Gebiet. Wichtig ist, dass die Länder, die traditionell zur kontinental-europäischen Rechtsfamilie gehören, im Rahmen dieser Familie bleiben. Die kritiklose und bedingungslose Übernahme der Institute der Common-Law-Tradition hat für zahlreiche Irritationen und Verwirrungen gesorgt. Die Korrektur dieser Missentwicklungen kann als große Herausforderung der Reform des Aktienrechts der Staaten der GUS bezeichnet werden.
Zur Offenlegung von Abfindungszahlungen und Pensionszusagen an ein ausgeschiedenes Vorstandsmitglied
(2008)
Abfindungszahlungen und Pensionszusagen gehören zu den besonders umstrittenen Bestandteilen der Vorstandsvergütung. Der deutsche Gesetzgeber ist mit dem Gesetz über die Offenlegung von Vorstandsvergütungen (VorstOG) der internationalen Entwicklung gefolgt. Bereits Ziff. 4.2.4 DCGK a.F. hatte die individualisierte Offenlegung der Bezüge aktueller Vorstandsmitglieder empfohlen. In Frankreich wurde bereits 2001 die Pflicht zur Offenlegung von Vorstandsgehältern in den Art. L. 225-102-1 des Code de commerce aufgenommen. Aktuell beschäftigt sich das französische Parlament mit dem Gesetz „Croissance, emploi et pouvoir d’achat: modernisation de l’économie“, das bei Vereinbarungen von Abfindungen einen Hauptversammlungsbeschluss notwendig machen würde. In England sind die Bezüge der „Directors“ in einem Remuneration Report offenzulegen (Sec. 420 CA 2006). Vorreiter auf dem Gebiet der Offenlegungspflicht waren die Vereinigten Staaten, die seit 1992 eine individualisierte Offenlegung vorschreiben. Auch die Europäische Kommission hat sich für die Pflicht zur individualisierten Offenlegung ausgesprochen. Im Mittelpunkt der Diskussion steht insbesondere die Frage der Offenlegung der Abfindungs- und Pensionszusagen. Scheidet ein Vorstandsmitglied vorzeitig aus, hat es grundsätzlich einen Vergütungsanspruch bis zur Beendigung seines Anstellungsvertrags, außer wenn der Aufsichtsrat ihm aus wichtigem Grund gekündigt hat. In der Regel werden aber mit dem Vorstandsmitglied Abfindungsvereinbarungen getroffen. Neben den Abfindungsvereinbarungen spielen auch die Pensions- und Versorgungszusagen in der Praxis eine wichtige Rolle. Mit Blick auf den Wortlaut des § 285 HGB stellt sich, auch zwei Jahre nach Inkrafttreten des VorstOG, immer noch die Frage, ob bei börsennotierten Aktiengesellschaften die Abfindungszahlungen und Pensionszusagen individualisiert oder nur aggregiert offenzulegen sind. Fraglich ist zum einen, wie eine vereinbarte Abfindungszahlung im Lagebericht bei der Angabe der Vorstandsbezüge zu behandeln ist, wenn ein Vorstandsmitglied vorzeitig ausscheidet (III.). Zum anderen stellt sich die Frage, wie Pensionszusagen darzustellen sind (IV.). Bevor auf diese beiden Fragen eingegangen werden kann, soll kurz der gesetzliche Rahmen der Offenlegungspflicht skizziert werden (II.). ...
In this paper, we investigate how bank mergers affect bank revenues and present empirical evidence that mergers among banks have a substantial and persistent negative impact on merging banks’ revenues. We refer to merger related negative effects on banks’ revenues as dissynergies and suggest that they are a result of organizational diseconomies, the loss of customers and the temporary distraction of management from day-to-day operations by effecting the merger. For our analyses we draw on a proprietary data set with detailed financials of all 457 regional savings banks in Germany, which have been involved in 212 mergers between 1994 and 2006. We find that the negative impact of a merger on net operating revenues amounts to 3% of pro-forma consolidated banks’ operating profits and persists not only for the year of the merger but for up to four years post-merger. Only thereafter mergers exhibit a significantly superior performance compared to their respective pre-merger performance or the performance of their non-merging peers. The magnitude and persistence of merger related revenue dissynergies highlight their economic relevance. Previous research on post-merger performance mainly focuses on the effects from mergers on banks’ (cost) efficiency and profitability but fails to provide clear and consistent results. We are the first, to our knowledge, to examine the post-merger performance of banks’ net operating revenues and to empirically verify significant negative implications of mergers for banks’ net operating revenues. We propose that our finding of negative merger related effects on banks’ operating revenues is the reason why previous research fails to show merger related gains.
This paper discusses the so-called commercial approach to microfinance under economic and ethical aspects. It first shows how microfinance has developed from a purely welfare-oriented activity to a commercially relevant line of banking business. The background of this stunning success is the – almost universal – adoption of the so-called commercial approach to microfinance in the course of the last decade. As the author argues, this commercial approach is the only sound approach to adopt if one wanted microfinance to have any social and developmental impact, and therefore the wide-spread “moralistic” criticism of the commercial approach, which has again and again been expressed in the 1990s, is ill-placed from an economic and an ethical perspective. However, some recent events in microfinance raise doubts as to whether the commercial approach has not, in a number of cases, gone too far. The evident example for such a development is the Mexican microfinance institution Compartamos, which recently undertook a financially extremely successful IPO. As it seems, some microfinance institutions have by now become so radically commercial that all of those social and development considerations, which have traditionally motivated work in the field of microfinance, seem to have lost their importance. Thus there is a conflict between commercial and developmental aspirations. However, this conflict is not inevitable. The paper concludes by showing that, and how, a microfinance institution can try to combine using the strengths of the capital market and at the same time maintaining its developmental focus and importance.