Latest documents http://publikationen.ub.uni-frankfurt.de/index/index/ Wed, 19 Sep 2012 10:33:42 +0200 Wed, 19 Sep 2012 10:33:42 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/25951 We analyze the implications of the governance structure in academic faculties for their recruitment decisions when competing for new researchers. The value to individual members through social interaction within the faculty depends on the average status of their fellow members. In recruitment decisions, incumbent members trade off the effect of entry on average faculty status against alternative uses of the recruitment budget if no entry takes place. We show that the best candidates join the best faculties but that they receive lower wages than some lesser ranking candidates. We also study the allocation of surplus created by the entry of a new faculty member and show that faculties with symmetric status distributions maximize their joint surplus under majority voting. Jens Prüfer; Uwe Walz article http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/25951 Wed, 19 Sep 2012 10:33:42 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/24057 We investigate the decisions of listed firms to go private once again. We start by revealing that while a significant number of firms which go public is VC-backed, an overproportional share of these VC-backed firms go private later on (they stay on the exchange for an average of 8.5 years). We interpret this very robust pattern such that IPOs of VC-backed firms are to a large extent a temporary rather than a permanent feature of the corporate governance of these firms. We investigate various potential hypotheses why VCs actually seem to be able to bring marginal firms to the exchange by relating the going-private decisions to various characteristics of the IPO market as well as to VC characteristics. We find strong support for the certification ability of VCs: more experienced and reputable VCs are more able to bring marginal firms to public exchanges via an IPOs. These marginal firms backed-by more reputable and experienced VCs are more likely to go private later on. Hence, our analysis suggests that IPOs backed by experienced VCs are most likely to be a temporary rather than the final stage in the life of the portfolio firm. We find no support that reputable VCs underprice their IPO-exits more implying that they have no need to leave more money on the table to take the marginal firms public. Andrej Gill; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/24057 Wed, 21 Mar 2012 16:32:21 +0100 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/20477 We investigate the incentives for vertical or horizontal integration in the financial security service industry, consisting of trading, clearing and settlement. We thereby focus on firms’ decisions but also look on the implications of these decisions on competition and welfare. Our analysis shows that the incentives for vertical integration crucially depend on industry as well as market characteristics. A more pronounced demand for liquidity clearly favors vertical integration whereas deeper financial integration increases the incentives to undertake vertical integration only if the efficiency gains associated with vertical integration are sufficiently large. Furthermore, we show that market forces can suffer from a coordination problem that end in vertically integrated structures that are not in the best interest of the firms. We believe this problem can be addressed by policy measures such as the TARGET2-Securities program. Furthermore, we use our framework to discuss major industry trends and policy initiatives. Keywords: Vertical Integration , Horizontal Integration , Competition , Trading , Settlement JEL Classification: G15, L13, L22 Steffen Juranek; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/20477 Tue, 14 Dec 2010 17:48:59 +0100 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6601 We highlight the implications of combining underwriting services and lending for the choice of underwriters and for competition in the underwriting business. We show that cross-selling can increase underwriters’ incentives, and we explain three phenomena: first, that cross-selling is important for universal banks to enter the investment banking business; second, that cross-selling is particularly attractive for highly leveraged borrowers; third, that less-than-market rates are no prerequisite for cross-selling to benefit a bank’s clients. In our model, cross-selling reduces rents in the underwriting business. JEL Classification: G21, G24, D49 Christian Laux; Uwe Walz article http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6601 Wed, 17 Jun 2009 14:45:10 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6279 Diese Arbeit analysiert die wesentlichen Elemente der Vertragsstrukturen in der Venture Capital-Industrie. Aufbauend auf einem sehr umfangreichen und detaillierten Datensatz, der die Verträge zwischen Venture Capital-Investoren und deren Portfoliounternehmen abbildet, werden die Kontroll-, Entscheidungs- und Vetorechte einer detaillierten Analyse unterzogen. Dabei zeigt sich eine klare Tendenz in der Entwicklung der Vertragsstrukturen in Deutschland hin zu angelsächsisch strukturierten Verträgen. Dies beinhaltet unter anderem eine verstärkte Verwendung von Kontroll- und Entscheidungsrechten aber auch ein breiteres Spektrum dieser Rechte. Außerdem finden wir eine klare Interaktionen zwischen Kontrollrechten, Cash-Flow Rechten und Liquidationsrechten. Insbesondere ist zu betonen, dass Cash-Flow und Kontrollrechte einerseits und Stimmrechte und Aufsichtsratsanteile andererseits separat alloziiert werden und viele Kontrollrechte als Komplemente und nicht als Substitute zueinander aufgefasst werden müssen. JEL Classification: G24, G32, D86, D80, G34 Carsten Bienz; Julia Hirsch; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6279 Thu, 16 Apr 2009 15:27:42 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6278 Suppliers play a major role in innovation processes. We analyze ownership allocations and the choice of R&D technology in vertical R&D cooperations. Given incomplete contracts on the R&D outcome, there is a tradeoff between R&D specifically designed towards a manufacturer (increasing investment productivity) and a general technology (hold-up reduction). We find that the market solution yields the specific technology in too few cases. More intense product market competition shifts optimal ownership towards the supplier. The use of exit clauses increases the gains from the collaboration. JEL Classification: L22, L24, O31, O32 Patrick Herbst; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6278 Thu, 16 Apr 2009 15:24:29 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6277 Theorists argue that exit rights can mitigate hold-up problems in venture capital. Using a hand-collected data-set of venture capital contracts from Germany we show that exit rights are included more frequently in venture capital contracts when a hold-up problem associated with the venture capitalist's exit decision is likely. Examples include drag-along and tag-along rights. Additionally, we find that almost all exit rights are allocated to the venture capitalist rather than to the entrepreneur. In addition, we show that besides the basic hold-up mechanism there are other mechanisms such as ex-ante bargaining power and the degree of pledgeable income that drive the allocation of exit rights. JEL Classification: G24, G34, D80 Carsten Bienz; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6277 Thu, 16 Apr 2009 14:59:48 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/1630 Informational economies of scope between lending and underwriting are a mixed blessing for universal banks. While they can reduce the cost of raising capital for a firm, they also reduce incentives in the underwriting business. We show that tying lending and underwriting helps to overcome this dilemma. First, risky debt in tied deals works as a bond to increase underwriting incentives. Second, with limitations on contracting, tying reduces the underwriting rents as the additional incentives from debt can substitute for monetary incentives. In addition, reducing the yield on the tied debt is a means to pay for the rent in the underwriting business and to transfer informational benefits to the client. Thus, tying is a double edged sword for universal banks. It helps to compete against specialized investment banks, but it can reduce the rent to be earned in investment banking when universal banks compete against each other. We derive several empirical predictions regarding the characteristics of tied deals. JEL Classification: G21, G24, D49 Christian Laux; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/1630 Fri, 23 Feb 2007 12:59:56 +0100 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/2632 We model the impact of bank mergers on loan competition, reserve holdings and aggregate liquidity. A merger changes the distribution of liquidity shocks and creates an internal money market, leading to financial cost efficiencies and more precise estimates of liquidity needs. The merged banks may increase their reserve holdings through an internalization effect or decrease them because of a diversification effect. The merger also affects loan market competition, which in turn modifies the distribution of bank sizes and aggregate liquidity needs. Mergers among large banks tend to increase aggregate liquidity needs and thus the public provision of liquidity through monetary operations of the central bank. JEL Classification: G24, G32, G34 Julia Hirsch; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/2632 Mon, 12 Jun 2006 14:38:07 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4422 We analyze governance with a dataset on investments of venture capitalists in 3848 portfolio firms in 39 countries from North and South America, Europe and Asia spanning 1971-2003. We find that cross-country differences in Legality have a significant impact on the governance structure of investments in the VC industry: better laws facilitate faster deal screening and deal origination, a higher probability of syndication and a lower probability of potentially harmful co-investment, and facilitate board representation of the investor. We also show better laws reduce the probability that the investor requires periodic cash flows prior to exit, which is in conjunction with an increased probability of investment in high-tech companies. Klassifikation: G24, G31, G32. April 2004 . Douglas Cumming; Daniel Schmidt; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4422 Mon, 13 Jun 2005 09:36:02 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4431 We study the returns the venture capital and private equity investment from 221 venture capital and private equity funds that are part of 72 venture capital and private equity firms, 5040 entrepreneurial firms (3826 venture capital and 1214 private equity), and spanning 32 years (1971 - 2003) and 39 countries from North and South America, Europe and Asia. We make use of four main categories of variables to proxy for value-added activities and risks that explain venture capital and private equity returns: market and legal environment, VC characteristics, entrepreneurial firm characteristics, and the characteristics and structure of the investment. We show Heckman sample selection issues in regards to both unrealized and partially realized investments are important to consider for analysing the determinants of realized returns. We further compare the actual unrealized returns, as reported to investment managers, to the predicted unrealized returns based on the estimates of realized returns from the sample selection models. We show there exists significant systematic biases in the reporting of unrealized investments to institutional investors depending on the level of the earnings aggressiveness and disclosure indices in a country, as well as proxies for the degree of information asymmetry between investment managers and venture capital and private equity fund managers. Klassifikation: G24, G28, G31, G32, G35 . March 2004. Uwe Walz; Douglas Cumming workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4431 Mon, 13 Jun 2005 09:30:07 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4438 This paper aims to analyze the impact of different types of venture capitalists on the performance of their portfolio firms around and after the IPO. We thereby investigate the hypothesis that different governance structures, objectives and track record of different types of VCs have a significant impact on their respective IPOs. We explore this hypothesis by using a data set embracing all IPOs which occurred on Germany's Neuer Markt. Our main finding is that significant differences among the different VCs exist. Firms backed by independent VCs perform significantly better two years after the IPO compared to all other IPOs and their share prices fluctuate less than those of their counterparts in this period of time. Obviously, independent VCs, which concentrated mainly on growth stocks (low book-to-market ratio) and large firms (high market value), were able to add value by leading to less post-IPO idiosyncratic risk and more return (after controlling for all other effects). On the contrary, firms backed by public VCs (being small and having a high book-to-market ratio) showed relative underperformance. Klassifikation: G10, G14, G24 . 29th January 2004 . Tereza Tykvová; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4438 Mon, 13 Jun 2005 09:29:18 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4496 This paper investigates the financial contracting behavior of German venture capitalists against the results of recent theoretical work on the design of venture capital contracts, especially with regard to the use of convertible securities. First, we identify a special feature of the German market, namely that public-private partnership agencies require significantly lower returns than private and young venture capitalists. The latter are most likely to follow their North-American counterpart by refinancing themselves with closed-end funds. Second, with regard to financing practices it is shown that the use of convertibles, relative to other instruments, is influenced by the anticipated severity of agency problems. Klassifikation: C24; G24; G32 Andreas Bascha; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4496 Mon, 13 Jun 2005 09:09:27 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4495 We analyze the desinvestment decision of venture capitalists in the course of an IPO of their portfolio firms. The capital market learns of the project quality only in the period following the IPO. Venture capitalists with high-quality firms face a trade-off between immediately selling their stake in the venture at a price below the true value and having to wait until the true value is revealed. We show that the dilemma may be resolved via a reputation-acquiring mechanism in a repeated game set-up. Thereby, we can explain, e.g., the advent of "hot-issue market behavior" involving early disinvestments and a high degree of price uncertainty. Furthermore, we provide a new rationale for underpricing. Young venture capitalists may use underpricing as a device for credibly committing themselves to acquiring reputation. Klassifikation: G24, G14, D82 Werner Neus; Uwe Walz workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4495 Mon, 13 Jun 2005 09:09:09 +0200