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Contractual relations between European VC-funds and investors : the impact of reputation and bargaining power on contractual design (2004)

Daniel Schmidt Mark Wahrenburg

The paper explores factors that influence the design of financing contracts between venture capital investors and European venture capital funds. 122 Private Placement Memoranda and 46 Partnership Agreements are investigated in respect to the use of covenant restrictions and compensation schemes. The analysis focuses on the impact of two key factors: the reputation of VC-funds and changes in the overall demand for venture capital services. We find that established funds are more severely restricted by contractual covenants. This contradicts the conventional wisdom which assumes that established market participants care more about their reputation, have less incentive to behave opportunistically and therefore need less covenant restrictions. We also find that managers of established funds are more often obliged to invest own capital alongside with investors money. We interpret this as evidence that established funds have actually less reason to care about their reputation as compared to young funds. One reason for this surprising result could be that managers of established VC funds are older and closer to retirement and therefore put less weight on the effects of their actions on future business opportunities. We also explore the effects of venture capital supply on contract design. Gompers and Lerner (1996) show that VC-funds in the US are able to reduce the number of restrictive covenants in years with high supply of venture capital and interpret this as a result of increased bargaining power by VC-funds. We do not find similar evidence for Europe. Instead, we find that VC-funds receive less base compensation and higher performance related compensation in years with strong capital inflows into the VC industry. This may be interpreted as a signal of overconfidence: Strong investor demand seems to coincide with overoptimistic expectations by fund managers which make them willing to accept higher powered incentive schemes. JEL: G32 Keywords: Venture Capital, Contracting, Limited Partnership, Funds, Principal Agent, Compensation, Covenants, Reputation, Bargaining Power

The impact of business process outsourcing on firm performance and the influence of governance : a long term study in the German banking industry (2007)

Markus Fritsch Andreas Hackethal Mark Wahrenburg Kim Wüllenweber

Does BPO pay off at the firm-level? Although there are several studies which analyze the potential benefits of BPO, there is a virtual absence of research papers on BPO outcomes. Based on an analysis of 137 Business process outsourcing (BPO) ventures at 254 German banks in a period between 1994 and 2005, we found that the outsourcer's financial performance in terms of profitability and cost efficiency was increased significantly compared to industry peers without BPO. The increase stems not from workforce reductions but rather from increased employee productivity. Further, we show how BPO governance ensures BPO success: individually negotiated outsourcing contracts help to improve cost efficiency and profitability measures. Relational governance based on trust has only positive effects on profitability. Keywords: Business Process Outsourcing, firm performance, firm characteristics, banking, German banks, governance JEL Classifications: G21, L14, L21, L24

Syndicated loans, lending relationships and the business cycle (2008)

Sascha Steffen Mark Wahrenburg

The syndicated loan market, as a hybrid between public and private debt markets, comprises financial institutions with access to valuable private information about borrowers as a result of close bank-borrower relationships. In this paper, we seek empirical evidence for the costs of these relationships in a sample of UK syndicated loan contracts for the time period 1996 through 2005. Using detailed financial data for both borrowers (private and public companies) and for financial institutions, we find that undercapitalized banks charge higher loan spreads for loans to opaque borrowers using various measures for borrower opaqueness and controlling for bank, borrower and loan characteristics. We further analyze this hold-up effect over the business cycle and find that it only prevails during recessions. In expansion phases, however, we do not find evidence for banks exploiting their information monopoly. This finding is consistent with theories on bank reputation in bank loan commitments. Ambiguity about borrower financial health, which induces the information monopoly in the first place, also gives banks the discretion to exploit or not exploit informational captured borrowers. Our findings are both statistically and economically significant and robust to alternative bank and macroeconomic risk proxies. We address potential concerns about unobserved borrower heterogeneity exploiting the panel data nature of our sample. Using firm-bank fixed effect regressions, we find supporting evidence for our theoretical framework. JEL Classifications: G14, G21, G22, G23, G24 Keywords: Syndicated loans; Hold-up; Lending relationships; Business cycle

Trading system competition and market-maker competition (2001)

Mark Wahrenburg

Conclusion: As we have demonstrated, the introduction of alternative trading systems may have the undesired side effect of decreasing competition at the market-making level when ATSs use best price guarantees in conjunction with order-preferencing arrangements as often seen in European securities markets these days. If regulators try to intensify trading system competition by recognising or promoting ATSs, they may have to trade off the efficiency gains through intensified competition at the trading system level with a decrease of competition at the market-making level. If one tries to compare both effects in terms of practical importance, there is a clear indication that market-maker competition should be much more important than trading system competition: commissions for using a trading system are an order of magnitude lower than the bid-ask spread in most markets. This poses the question of the raison d'être of ATSs: do these systems exist because they can successfully compete against inefficient and costly trading systems of traditional exchanges? Or are they better described as vehicles to increase market-maker profits by limiting the ex post competition for orders by using order-preferencing arrangements? The model outlined here suggests that the second motive may be a valid reason for founding ATSs. This view is supported by the fact that the owners of ATSs are almost always securities trading firms or banks actively engaged in securities trading. In conversations, some representatives of European ATSs openly admitted that the spread income made by selling the order flow to securities firms is much more important than economies realised in operating a cost-efficient trading system. If the second motive of operating ATSs should be the dominant one, it is still an open question whether customers are worse off after introduction of an ATS and whether regulators should intervene in the competition between traditional exchanges and ATSs. As long as there is free entry into the market-making industry, any profits made on order-preferencing arrangements with ATSs should be competed away, presumably by the usual practice of paying the ATSs for the access to their order flow. Competition between market-makers should therefore ensure that profits are passed over to the operators of ATSs. However, there is competition between ATSs for customer order flow. This competition will ensure that the payments received by market-makers are passed over to brokers and finally reduce the commissions paid by customers for trading stocks. If one follows this view, the gains from monopolisation of the market-making process are passed back to the customer and help to lower the fixed transaction costs of placing orders. Two final remarks on this chain of reasoning are in order. First, it is questionable whether competition on all levels works smoothly and ensures that the extra fee paid by customers for market-making services will in the end flow back to them in the form of lower brokerage costs. Frictions and rigidities in the vertical chain may well leave part of the rents within the securities industry. Second and more important, the argument highlights the importance of understanding the multidimensional nature of transaction costs paid for securities trading services. The overall cost of trading includes brokerage fees, fees and commissions for settlement and related services and finally the spread paid to marketmakers. While fees are an obvious and transparent cost of transacting, many investors have only a limited understanding of the amount of money they pay for market-making services in the form of the bid-ask spread. The shift of trading volume away from traditional exchanges towards ATSs may result in a general shift of transaction costs away from transparent items such as brokerage fees towards non-transparent items such as the spread. Future regulation should ensure that customers have access to all necessary information in order to make an informed decision between trading systems.

The impact of reasons for credit rating announcements in equity and CDS markets (2009)

Björn Imbierowicz Mark Wahrenburg

Over the last four decades the literature on bond rating changes and its effects on security prices increased significantly with almost all studies not controlling for the respective reason for those. We therefore investigate the impact of rating events on the stock and the credit default swap (CDS) market incorporating rating reviews and rating changes together with the reason mentioned by the rating agency. Our results for the general effects are in line with prior findings but conditioning on the respective reason shows that the markets’ anticipation of rating actions is largely driven by events due to changes in firms’ operating performance. Furthermore, we provide empirical evidence for the hypothesis in prior literature that a surprise downgrade does not necessarily have to be bad news for stockholders when wealth is transferred from bondholders, but negative rating actions are always bad news for bondholders. The results additionally reveal increasing rating announcement effects by declining credit quality of firms for both rating reviews and changes. JEL Classification: D82, G14, G20. Keywords: Credit Default Swaps, Credit Ratings, Credit Rating Reasons, Event Study.

Return on investment in higher education : evidence for different subjects, degrees and gender in Germany (2007)

Mark Wahrenburg Martin Weldi

Applying an investment perspective to higher education, the paper presents detailed empirical evidence on the rate of return to higher education and its determinants. Employing a sample of 17,180 higher education graduates derived from the German Labor Force Survey 2004, we show considerable variation in the rates of return to higher education across the different subjects, with some subjects on average not representing attractive private investments from an economic point of view. We find that the decision what to study is worth several hundred thousand Euros. Applying regression analysis, we find gender- and degree-specific return advantages only in certain subjects. Comparing the return of an investment in higher education and the production cost of higher education, we show that more expensive subjects (apart from Medicine) yield a lower return. When considering the cost of study, the overall order of attractiveness of the different forms of education remains stable, but the investment in further subjects is no longer clearly attractive. Keywords: Returns to Education, Human Capital, Higher Education Earnings Capacity. JEL-Classification: I21, I28, J31.

Das Verhalten der Aktienbetreuer und ihre Wirkung auf die Marktliquidität : eine experimentelle Studie (2000)

Duong Nguyen Peter Raupach Mark Wahrenburg

Im Rahmen eines Börsen-Großexperiments anlässlich der Fußball-WM 1998 untersuchen wir den Einfluss von Aktienbetreuern auf die Marktliquidität. Die Marktformen des kontinuierlichen Handels, eines Systems mit einem monopolistischen Aktienbetreuer und mit konkurrierenden Betreuern wurden durch einen Gruppenvergleich unterschiedlich betreuter Aktien analysiert. Die Liquidität wurde mit Hilfe des bid-ask-Spreads und der inversen Markttiefe gemessen, einer Kenngröße zur Charakterisierung der Preis-Mengen-Relation der Liquidität. Wir finden, dass die betreuten Märkte liquider sind als die unbetreuten, und die konkurrierende Betreuung mehr Liquidität generiert als die eines Monopolisten. Nach kursrelevanten Informationsereignissen kehrten die Spreads in den betreuten Märkten schneller zu ihrem normalen Niveau zurück. Durch Rekonstruktion der nichtanonymen Orderbücher konnte der direkte Einfluß der Betreuer auf die Liquidität von den Beiträgen der übrigen Marktteilnehmer separiert werden. Interessanterweise zeigt sich, dass nur ein Teil der Liquiditätsverbesserung mit den Orders der Betreuer erklärt werden kann. Demnach stünden die Liquiditätsbereitstellung durch Betreuer und die der anderen Marktteilnehmer nicht in einer konkurrierenden, sondern komplementären Beziehung zueinander.

Bedeutung erkannt, Potenzial noch nicht genutzt : MBA in deutschen Unternehmen (2007)

Mark Wahrenburg

Raus aus dem Tief beim Bildungsstand (2007)

Mark Wahrenburg

Deutschland zählt im weltweiten Vergleich deutlich weniger Akademiker als andere Länder. Gesucht sind innovative Modelle der Studienfinanzierung.

Vergleichende Analyse alternativer Kreditrisikomodelle (2000)

Mark Wahrenburg Susanne Niethen

In den letzten Jahren wurden verschiedene Modelle entwickelt, um das Ausfallrisiko von Banken unter Berücksichtigung von Portfolioeffekten zu quantifizieren. Bisher hat sich kein Ansatz als allgemein akzeptierter Standard durchsetzen können. Da die Modelle grundlegende konzeptionelle Unterschiede aufweisen und unterschiedliche empirische Inputdaten verwenden, hat die Auswahl eines Kreditrisikomodells unter Umständen einen erheblichen Einfluß auf die Kreditportfoliosteuerung der Bank. In diesem Beitrag soll deshalb geklärt werden, ob die Modelle systematisch abweichende Value-at-Risk-Werte berechnen und worin die Ursachen für auftretende Abweichungen liegen. Zunächst wird gezeigt, daß die bestehenden Kreditrisikomodelle in zwei grundlegende Klassen eingeteilt werden können: Assetwert-basierte Modelle und auf Ausfallraten basierende Modelle. Am Beispiel eines Musterportfolios von Krediten an deutsche Baufirmen werden zwei Vertreter der Modellklassen (CreditMetrics und CreditRisk+) verglichen und der Effekt der unterschiedlichen empirischen Inputparameter auf die Risikoergebnisse abgeschätzt. Die Analyse zeigt erhebliche Unterschiede zwischen den Modellen. Eine Analyse der Abweichungsursachen ergibt allerdings, daß der Grund für die großen Value-at-Risk-Unterschiede in erster Linie in den unterschiedlichen empirischen Inputdaten liegt, welche zu unterschiedlichen impliziten Korrelationsannahmen führen. Es wird gezeigt, wie die Modellparameter gewählt werden müssen, um identische Korrelationen zu erzeugen. Bei konsistenten Korrelationsannahmen stimmen die Ergebnisse beider Modelle weitgehend überein. Keywords: Credit Risk Models, credit risk correlation JEL-Classification: G21

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