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Real estate is an important asset, but as a direct investment subject to several difficulties. Shares of public open end funds or of real estate stock corporations represent a possible way for an investor to avoid these problems. The focus of this paper is the analysis of inflation risk of European real estate securities. An overview of the institutional frameworks regarding these companies is given. The returns of real estate securities in France, Germany, Switzerland and the United Kingdom are examined for the period 1980:1-1998:12. Besides the classical Fama/Schwert-approach, shortfall risk measurements have been used. In this context, transaction costs in particular have been taken into account.
Past research suggests that international real estate markets show return characteristics and interrelationships with other asset classes, which probably qualify them as an interesting component of national and international asset allocation decisions. However, the special characteristics of real estate assets are quite distinct from that of financial assets, such as stocks and bonds. This is also the case for real estate return distributions. Therefore, the proper integration of real estate markets into asset allocation decisions requires profound understanding of real estate returns' distributional characteristics .
Because of the particular characteristics of real estate, representing real estate markets through reliable a time-series is a complex task. Consequently, reliable real estate indices with a sufficiently long history in major international real estate markets are only scarcely available. Most of the research that has been done on real estate returns was done for the U.K. and U.S., where eligible indices exist. On the other hand, in other important real estate markets, such as Germany, either little or no research has been perfoimed.
In this analysis, the methodology of Maurer, Sebastian and Stephan (2000) for indirectly deriving an appraisal-based index for the German commercial real estate market will be applied. This approach is solely based on publicly available data from German open-ended real estate investment trusts. It could also provide a solution to deriving a reliable real estate time-series for other markets.
We will extend previous analyses for the U.K. and U.S. to provide additional fundamental insights into the return characteristics of the German commercial real estate market. Despite univariate considerations, the main focus is the interrelationships between various international real estate markets, as well as between those respective markets and the international stock and bond markets.
The present paper seeks to study the possible diversification potential by the integration of indirect real estate investments in international portfolios. To this end, monthly index-return time-series in the time-period from January 1985 till December 1998 from real estate investment companies as well as common stocks and bonds in Germany, France, Switzerland, Great Britain and the USA were used. We utilize, due to the critical normal distribution assumption, a mean/lower-partial-moment framework. In order to take into account the influence of the currency risk for international investments the analyses have been undertaken both with as well as without hedging the currency risk. We take the viewpoint of a German as well as that of a US-investor to gain insight into the dependency of the diversification potential on the reference currency of the investor.
The main argument in this paper is that new information and communication technologies (ICT) in the financial industry will increase specialisation and competition within the European financial centre system and thereby lead to a ‘re-bundling’ of functions of the various financial centres. Frankfurt plays an interesting role in this development as it is one of the main development centres for ‘financial technology’. With these technologies, remote access to the Frankfurt stock exchange and inter-bank payment system is now feasible from most European cities. This leads to a reduced need for physical presence, which opens up new possibilities for the financial sector’s spatial organisation. However, as financial production is information- and knowledge-intensive, spatial and other types of proximity between financial actors and clients are still essential in many stages. We examine the value chains of three different products (advisory, lending, trading) with regard to different proximities, in order to identify possible patterns of their spatial (re)organisation. From these findings, inferences are drawn for a ‘new’ role for Frankfurt in the European financial centre system.
Economic theory suggests that a commitment by a firm to increased levels of disclosure should lower the information asymmetry component of the firm’s cost of capital. But whi le the theory is compelling, so far empirical results relating increased levels of disclosure to measurable economic benefits have been mixed. One explanation for the mixed results among studies using data from firms publicly registered in the US is that, under current US reporting standards, the disclosure environment is already rich. In this paper, we study German firms that have switched from the German to an international reporting regime (IAS or US -GAAP), thereby committing themselves to increased le vels of disclosure. We show that proxies for the information asymmetry component of the cost of capital for the switching firms, namely the bid-ask spread and trading volume, behave in the predicted direction compared to firms employing the German reporti ng regime.
Traditional tests of the CAPM following the Fama / MacBeth (1973) procedure are tests of the joint hypotheses that there is a relationship between beta and realized return and that the market risk premium is positive. The conditional test procedure developed by Pettengill / Sundaram / Mathur (1995) allows to independently test the hypothesis of a relation between beta and realized returns. Monte Carlo simulations show that the conditional test reliably identifies this relation. In an empirical examination for the German stock market we find a significant relation between beta and return. Previous studies failed to identify this relationship probably because the average market risk premium in the sample period was close to zero. Our results provide a justification for the use of betas estimated from historical return data by portfolio managers.
This paper provides a detailed empirical analysis of the call auction procedure on the German stock exchanges. The auction is conducted by the Makler whose position resembles that of a NYSE specialist. We use a dataset which contains information about all individual orders for a sample of stocks traded on the Frankfurt Stock Exchange (FSE). This sample allows us to calculate the cost of transacting in a call market and compare them to the costs of transacting in a continuous market. We find that transaction costs for small transactions in the call market are lower than the quoted spread in the order book of the continuous market whereas transaction costs for large transactions are higher than the spread in the continuous market.
We further address the question whether active participation of the Makler is advantageous. On the one hand he may accomodate order imbalances, increase the liquidity of the market and stabilize prices. On the other hand, the discretion in price setting gives him an incentive to manipulate prices. This may increase return volatility. Our dataset identifies the trades the Maklers make for their own accounts. We eliminate these trades and determine the price that would have obtained without their participation. Comparing this hypothetical price series to the actual transaction prices, we find that Makler participation tends to reduce return volatility. A further analysis shows that the actual prices are much closer to the surrounding prices of the continuous trading session than the hypothetical prices that would have obtained without Makler participation. These results indicate that the Maklers provide a valuable service to the market. We further calculate the profits associated with the positions taken by the Maklers and find that, on average, they do not earn profits on the positions they take. Their compensation is thus restricted to the commissions they receive.
This paper studies the incentives of German firms to voluntarily disclose cash flow statements over time. While cash flow statement are mandated under many GAAP regimes, its disclosure has not been mandatory in Germany until recently. Nevertheless, an increasing number of firms provides cash flow statements voluntarily. These firms are likely to be influenced by recommendations of the German accounting profession, IAS 7 as well as the respective standards of other countries. The idea of the paper is to study this influence by looking at the adoption pattern over time and the format of the cash flow statement. It documents the development of voluntary cash flow statement disclosures by German firms with respect to ”milestones” in the evolution of German professional recommendations and respective international standards. The cross-sectional determinants of voluntary and international cash flow statements are analyzed using probit regressions and factor analysis. The results are generally consistent with the idea that capital-market forces drive voluntary cash flow statements that are in line with international reporting practice.
This paper sets out to analyze the influence of different types of venture capitalists on the performance of their portfolio firms around and after IPO. We investigate the hypothesis that different governance structures, objectives, and track records of different types of VCs have a significant impact on their respective IPOs. We explore this hypothesis using a data set embracing all IPOs that have 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 IPO as compared to all other IPOs, and their share prices fluctuate less than those of their counterparts in this period of time. On the contrary, firms backed by public VCs show relative underperformance. The fact that this could occur implies that market participants did not correctly assess the role played by different types of VCs.
Multiple lenders and corporate distress: evidence on debt restructuring : [Version Juli 2002]
(2002)
In the recent theoretical literature on lending risk, the common pool problem in multi-bank relationships has been analyzed extensively. In this paper we address this topic empirically, relying on a unique panel data set that includes detailed credit-fie information on distressed lending relationships in Germany. In particular, it includes information on bank pools, a legal institution aimed at coordinating lender interests in borrower distress. We find that the existence of small bank pools increases the probability of workout success and that coordination costs are positively related to pool size. We identify major determinants of pool formation, in particular the distribution of lending shares among banks, the number of banks, and the severity of the distress shock to the borrower.
This paper studies the impact of the concentration of control, the type of controlling shareholder and the dividend tax preference of the controlling shareholder on dividend policy for a panel of 220 German firms over 1984-2005. While the concentration of control does not have an effect on the dividend payout, there is strong evidence that the type of controlling shareholder matters as family controlled firms have high dividend payouts whereas bank controlled firms have low dividend payouts. However, there is no evidence that the dividend preference of the large shareholder has an impact on the dividend decision. JEL Classification: G32, G35 Keywords: Dividend Policy, Payout Policy, Lintner Dividend Model, Tax Clientele Effects, Corporate Governance
All-over in Europe, unemployment became a growing problem from the mid 1980s to the mid 1990s. Nevertheless, the effects on the economical situation of the unemployed and the whole population are quite different in European countries. In this paper we first give a brief overview over the development of unemployment rates in eight member states of the European Union and over the different reactions to provide the social protection of the unemployed. Therefore we look at the social security expenditures, the level of income replacement for the unemployed and recent social policy reforms concerning them. In the second section of the paper, we examine the development of income distribution and poverty taking different poverty lines into consideration. There is no general pattern neither for the relationship of inequality among the unemployed to the whole economically active population nor for the development from the 80s to the 90s. But one can say that in countries with increasing income inequality also poverty is rising (especially in the UK) and that where inequality among the unemployed is less pronounced the proportions of the poor went down from the mid 80s to the mid 90s (France and Ireland). In nearly all countries the risk of being poor is ernormously high for the unemployed, Denmark is the only exception.
To sum up our findings we come to the following statements. - During the period from 1973 to 1993 inequality of the personal distribution of equivalent pre-government income increased to some extent, as was to be expected given the enormous rise in unemployment. - Inequality of post-government income also increased slightly, but was much lower than inequality of pre-government income due to the equalizing effect of the German tax and transfer system. - In 1993 inequality of pre-government income was higher, and inequality of post-government income was considerably lower in East Germany than in West Germany; the West German tax and transfer system that was transferred to East Germany after reunification - with some additional but temporary minimum regulations - seems to have had a stronger equalizing effect in the East than in the West. - A decomposition into three age groups, the young and the middle-aged group sub-divided further according to whether household members were affected by unemployment, showed that within-groups inequality explained by far more of overall inequality than between-groups inequality. - The relative positions of the two young groups as well as of the middle-aged group with unemployed members deteriorated with respect to their equivalent pre-government and post-government incomes. - During the first period with rising unemployment (1973 to 1978), the development of within-groups inequality and of between-groups inequality contributed to about the same extent to the increase of overall inequality of pre-government income. But this was fully compensated by the tax and transfer system as there were only a negligible change in inequality of equivalent net income and very slight effects of the (four) components of change which nearly compensated each other. - During the last period from 1988 to 1993 the equalizing effect of the German tax and transfer system seems to have weakened, at least in the western part of Germany. The increase in inequality of equivalent net income is mainly due to developments of within group inequalities.
This paper reconsiders the effect of investor sentiment on stock prices. Using survey-based sentiment indicators from Germany and the US we confirm previous findings of predictability at intermediate time horizons. The main contribution of our paper is that we also analyze the immediate price reaction to the publication of sentiment indicators. We find that the sign of the immediate price reaction is the same as that of the predictability at intermediate time horizons. This is consistent with sentiment being related to mispricing but is inconsistent with the alternative explanation that sentiment indicators provide information about future expected returns. JEL Classification: G12, G14 Keywords: Investor Sentiment , Event Study , Return Predictability
Revised version of a paper presented at the Conference "The Distribution of Economic Well-Being in the 1980s - an International Perspective", June 21 - 23, 1993, in Fiskebäckskil, Sweden. This paper sketches changes in the distribution of well-being during the period from 1972 to 1991 against the background of West Germany's economic and demographic development, and compares the distribution of well-being in East Germany before and after reunification. We rely on equivalent income of persons as the main indicator to measure well-being, but we also look at the distribution of gross wage income of workers and employees. Estimates of the Federal Statistical Office referring to the mesolevel of average equivalent income of socio-economic groups as well as various distributional measures computed by us at the micro-level are used to gauge changes of the distribution. The computations are based on two sets of micro-data available to us, the official Income and Consumption Surveys (1973, 1978 and 1983), and the German Socio-economic Panel (1983 to 1990 for West Germany, 1990, 1991 for East Germany). At the meso-level we find substantial changes in the relative welfare positions of the ten socio-economic groups distinguished, but a nearly constant ranking of the groups during the whole period under review. At the micro-level our computations indicate slight increases in the inequality of gross earnings during both decades. The distribution of well-being as measured by equivalent income of persons seems also to have become slightly more unequal during the whole period but the changes are very small, and partly reversed during subperiods. A decomposition of overall inequality by occupational status of the heads of household using the Theil measure shows that more than 80 percent of overall inequality is due to within-group inequality with rising tendency. This result is mitigated a little when dis aggregating the heterogeneous group of not gainfully employed with regard to the main income source of the household.
Did earnings inequality in the Federal Republic of Germany increase from the 1960s to the 1980s?
(1996)
This paper aims to provide a descriptive analysis of the changing patterns of labour market participation, non-participation and unemployment in Great Britain, Sweden and Germany. Since the mid 1970s, most European countries have experienced two parallel developments: on the one hand they have witnessed a huge growth in the proportion of women participating on the labour market. On the other however, they have experienced the return of mass unemployment and a growing insecurity of employment for those in work. In this paper, a typology of work histories is constructed using decade periods. Retrospective and panel data from Germany, Britain and Sweden are then used to compare the effects of different employment and welfare regimes on the proportions of respondents with different types of work histories and how these are combined with unemployment.
This paper fits within a broader research programme concerned with the processes that link labour market precarity and social exclusion. Labour market insecurity manifests itself most directly in the form of unemployment, and other elements in the programme seek to measure the impact of precarity, and unemployment in particular, on poverty and social exclusion in the eight countries covered. One of the principal concerns of the programme is however the extent to which institutional differences across countries with respect to the labour market and social protection are a significant factor mediating the relationship between labour market precarity and social exclusion. This paper focuses on the effectiveness of cash transfers, the central element of social protection systems, in alleviating the effects of unemployment on income poverty. The structures of social protection systems vary greatly across European Union member states, and in many cases have altered significantly in recent years in response to high unemployment (see Hauser et al, 1998). Using data from the mid-1980s and the mid-1990s for six member countries, the paper compares the effectiveness of different systems in lifting or keeping the unemployed out of poverty, and how this has been affected by the way systems have responded to the challenges produced by developments in the labour market in the past decade. The specific role of social insurance-based unemployment-linked transfers versus other cash transfers is also considered, to assess the extent to which social insurance has been able to cope with changes in the labour market over the period. The data come from a variety of national large-scale household surveys. The paper is structured as follows. Section 2 discusses the data and methods to be employed in measuring the impact of cash transfers on poverty risks for the unemployed. Section 3 looks at the overall risks of poverty for the unemployed before and after cash transfers, and how these changed between the mid-1980s and mid-1990s. Section 4 looks at the role of social insurance-based unemployment payments versus other cash transfers. Section 5 examines the extent to which the impact of transfers varies by gender and by duration of unemployment. Section 6 highlights the key patterns identified and what these tell us about the relationship between the type of welfare regime a country operates and effectiveness in alleviating poverty among the unemployed.
This paper analyzes loan pricing when there is multiple banking and borrower distress. Using a unique data set on SME lending collected from major German banks, we can instrument for effective coordination between lenders, carrying out a panel estimation. The analysis allows to distinguish between rents that accrue due to single bank lending, rents that accrue due to relationship lending, and rents that accrue due to the elimination of competition among multiple lenders. We find the relationship lending to have no discernible impact on loan spreads, while both single lending and coordinated multiple lending significantly increase the spread. Thus, contrary to predictions in the literature, multiple lending does not insure the borrower against hold-up. JEL Classification: D74, G21, G33, G34
Demographic change in industrialized nations has been a matter of common interest for some time. The financial implications of an ageing society are also increasingly discussed, particularly with regard to pension systems. The impact of this development on public finances is, however, only gradually being realized and the constitutional framework of public finances in Germany and the European Union just falls short of ignoring it entirely. This paper is a preliminary assessment of the burden of an ageing society under the fiscal law, specifically in respect of prospective entitlements to the public pension system. The first part analyses the provisions of the German constitution on finances (Finanzverfassungsrecht) to identify what rules, if any, exist addressing such (potential) expenditures, which lie in the immediate or very distant future. The second part of the paper analyses the fiscal requirements under European Union law. In the third and final part a few comments on the proposed national pact on stability and the recent moves to amend the German Federal Constitution are presented.
This paper investigates the impact of IT standardization on bank performance based on a panel of 457 German savings banks over the period from 1996 to 2006. We measure IT standardization as the fraction of IT expenses for centralized services over banks' total IT expenses. Bank efficiency, in turn, is measured by traditional accounting performance indicators as well as by cost and profit efficiencies that are estimated by a stochastic frontier approach. Our results suggest that IT standardization is conducive to cost efficiency. The relation is positive and robust for small and medium-sized banks but vanishes for very large banks. Furthermore, our study confirms the often cited computer paradox by showing that total IT expenditures negatively impact cost efficiency and have no influence on bank profits. To the best of our knowledge, this paper is first to empirically explore whether IT standardization enhances efficiency by employing genuine data of banks' IT expenditures. JEL Classification: C23, G21 Keywords: IT standardization, cost and profit efficiency, savings banks
In this paper, we analyze economies of scale for German mutual fund complexes. Using 2002-2005 data of 41 investment management companies, we specify a hedonic translog cost function. Applying a fixed effects regression on a one-way error component model there is clear evidence of significant overall economies of scale. On the level of individual mutual fund complexes we find significant economies of scale for all of the companies in our sample. With regard to cost efficiency, we find that the average mutual fund complexes in all size quartiles deviate considerably from the best practice cost frontier. JEL Classification: G2, L25 Keywords: mutual fund complex, investment management company, cost efficiency, economies of scale, hedonic translog cost function, fixed effects regression, one-way error component model
Der vorliegende Beitrag untersucht, ob der Mehrheitsaktionär einer Gesellschaft im Vorfeld eines Zwangsausschlusses von Minderheitsaktionären (sog. Squeeze-Out) versucht, die Kapitalmarkterwartungen negativ zu beeinflussen. Ein solches "manipulatives" Verhalten wird häufig in der juristischen wie betriebswirtschaftlichen Literatur unterstellt, da der Aktienkurs fü die Abfindungshöhe die Wertuntergrenze bildet. Unsere empirische Untersuchung der Bilanz- und Pressemitteilungspolitik von Squeeze-Out-Unternehmen im Vorfeld der Ankündigung einer solchen Maßnahme am deutschen Kapitalmarkt zeigt, dass in diesem Zeitraum tatsächlich ein signifikanter Anstieg (Rückgang) der im Ton pessimistischen (optimistischen) Pressemitteilungen feststellbar ist. Allerdings zeigt sich weiter, dass die Aktien der Squeeze-Out-Kandidaten bereits im Vorfeld und am Tag der Ankündigung so hohe positive Überrenditen erzielen, dass der von uns quantifizierte kumulierte Effekt der Informationspolitik auf die Börsenbewertung einen insgesamt nur sehr geringen Einfluss ausübt und von anderen Faktoren (z.B. Abfindungsspekulationen) dominiert wird. JEL: M41, M40, G14, K22
Venture capital exit rights
(2009)
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
We merge administrative information from a large German discount brokerage firm with regional data to examine if financial advisors improve portfolio performance. Our data track accounts of 32,751 randomly selected individual customers over 66 months and allow direct comparison of performance across self-managed accounts and accounts run by, or in consultation with, independent financial advisors. In contrast to the picture painted by simple descriptive statistics, econometric analysis that corrects for the endogeneity of the choice of having a financial advisor suggests that advisors are associated with lower total and excess account returns, higher portfolio risk and probabilities of losses, and higher trading frequency and portfolio turnover relative to what account owners of given characteristics tend to achieve on their own. Regression analysis of who uses an IFA suggests that IFAs are matched with richer, older investors rather than with poorer, younger ones.
Opting out of the great inflation: German monetary policy after the break down of Bretton Woods
(2009)
During the turbulent 1970s and 1980s the Bundesbank established an outstanding reputation in the world of central banking. Germany achieved a high degree of domestic stability and provided safe haven for investors in times of turmoil in the international financial system. Eventually the Bundesbank provided the role model for the European Central Bank. Hence, we examine an episode of lasting importance in European monetary history. The purpose of this paper is to highlight how the Bundesbank monetary policy strategy contributed to this success. We analyze the strategy as it was conceived, communicated and refined by the Bundesbank itself. We propose a theoretical framework (following Söderström, 2005) where monetary targeting is interpreted, first and foremost, as a commitment device. In our setting, a monetary target helps anchoring inflation and inflation expectations. We derive an interest rate rule and show empirically that it approximates the way the Bundesbank conducted monetary policy over the period 1975-1998. We compare the Bundesbank´s monetary policy rule with those of the FED and of the Bank of England. We find that the Bundesbank´s policy reaction function was characterized by strong persistence of policy rates as well as a strong response to deviations of inflation from target and to the activity growth gap. In contrast, the response to the level of the output gap was not significant. In our empirical analysis we use real-time data, as available to policy-makers at the time. JEL Classification: E31, E32, E41, E52, E58
In this paper, we examine the impact of mergers among German savings banks on the extent to which these savings banks engage in small business lending. The ongoing consolidation in the banking industry has sparked concerns about the continuous availability of credit to small businesses which has been further fueled by empirical studies that partly confirm a reduction in small business lending in the aftermath of mergers. However, using a proprietary data set of German savings banks we find strong evidence that in Germany merging savings banks do not significantly change the extent to which they lend to small businesses compared to prior to the merger or compared to the contemporaneous lending by non-merging banks. We investigate the merger related effects on small business lending in Germany from a bank-level perspective. Furthermore, we estimate small business lending and its continuous adjustment process simultaneously using recent General Method of Moments (GMM) techniques for panel data as proposed by Arellano and Bond (1991).
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.
The introduction of a common currency as well as the harmonization of rules and regulations in Europe has significantly reduced distance in all its guises. With reduced costs of overcoming space, this emphasizes centripetal forces and it should foster consolidation of financial activity. In a national context, as a rule, this led to the emergence of one financial center. Hence, Europeanization of financial and monetary affairs could foretell the relegation of some European financial hubs such as Frankfurt and Paris to third-rank status. Frankfurt’s financial history is interesting insofar as it has lost (in the 1870s) and regained (mainly in the 1980s) its preeminent place in the German context. Because Europe is still characterized by local pockets of information-sensitive assets as well as a demand for variety the national analogy probably does not hold. There is room in Europe for a number of financial hubs of an international dimension, including Frankfurt.
Acquiring foreign firms far away might be hazardous to your share price: evidence from Germany
(2007)
This paper examines shareholder wealth effects of cross-border acquisitions. In a sample of 155 large acquisitions by German corporations from 1985–2006 international transactions in total do not lead to significant announcement returns. Geography, however, makes a difference: Shareholders of acquiring firms gain 6.5% in cross-border transactions into countries that have a common border with Germany but lose 4.4% in other international transactions. We find proximity to be one of the most important success factors in cross-border mergers and acquisitions, even when we control for firm, deal and country characteristics.
Public employee pension systems throughout the developed world have traditionally been of the pay-as-you-go (PAYGO) defined benefit (DB) variety, where pensioner payments are financed by taxes (contributions) levied on the working generation. But as the number of retirees rises relative to the working-age group, such systems have begun to face financial distress. This trend has been exacerbated in many countries, among them Germany, by high unemployment rates producing further deterioration of the contribution base. In the long run, public sector pension benefits will have to be cut or contributions increased, if the systems are to be maintained. An alternative path sometimes offered to ease the crunch of paying for public employee pensions is to move toward funding: here, plan assets are gradually built up, invested, and enhanced returns devoted to partly defray civil servants’ pension costs. In this study, we evaluate the impact of introducing partial prefunding, paired with a strategic investment policy for the German federal state of Hesse. The analysis assesses the impact of introducing a supplementary tax-sponsored pension fund whose contributions are invested in the capital market and used to relieve the state budget from (some) pension payments. Our model determines the expectation and the Conditional Value-at-Risk of economic pension costs using a stochastic simulation process for pension plan assets. This approach simultaneously determines the optimal contribution rate and asset allocation that controls the expected economic costs of providing the promised pensions, while at the same time controlling investment risk. Specifically, we offer answers to the following questions: 1. How can the plan be designed to control cash-flow shortfall risk, so as to mitigate the potential burden borne by future generations of taxpayers? 2. What is the optimal asset allocation for this fund as it is built up, to generate a maximum return while simultaneously restricting capital market and liability risk? 3. What are reasonable combinations of annual contribution rates and asset allocation to a state-managed pension fund, which will limit costs of providing promised public sector pensions? We anticipate that this research will interest several sorts of policymaker groups. First, focusing on the German case, the state and Federal governments should find it relevant, as these entities face considerable public sector pension liabilities. Second, our findings will also be of interest to other European countries, as most have substantial underfunded defined benefit plans for civil servants. In what follows, we first offer a brief description of the structure of civil servant pensions in Germany, focusing on their benefit formulas, their financing, and the resulting current as well as future plan obligations for taxpayers. Next, we turn to an analysis of the actuarial status of the Hesse civil servants’ pension plan and evaluate how much would have to be contributed to fund this plan in a nonstochastic context. Subsequently we evaluate the asset-liability and decision-making process from the viewpoint of the plan sponsor, to determine sensible plan asset allocation behavior. A final section summarizes findings and implications.
This paper traces the location of foreign banks in Germany from 1949 to 2006. As suggested by new economic geography models we find a ‘u’-shaped concentration of foreign banks in Germany. Only after a competition between several cities, Frankfurt has emerged as the pre-eminent financial centre, triggered by the ‘historical event’ of setting up the German central bank in Frankfurt. After a strong increase, Frankfurt’s share in the location of foreign banks in Germany decreases slowly but significantly since the mid 1980’s. We conclude that there will be a lesser role in Europe for secondtier financial centres in the future.
The present article explores perceptions and cultural constructions of the terms capitalism or capitalistic West among ex-Soviet, highly qualified Jewish migrants from Russia and Ukraine after their emigration to Germany between 1990 and 1996. It seems that migration offers a unique opportunity to migrants to realise knowledge that is normally taken for granted, behaviour schemes and values, and to reflect on them. How do they acquire such presumed capitalist knowledge of the new society and new social world, how do they create it, and with what concrete contents do they connect the illusion about monolithic cultural, economic and political capital, the illusion which contributes to group formation and which serves as action orientation? As my research shows, immigrants try to disparage much of what appeared to them in the Soviet Union as normative, right and appropriate; now they often act by way of categories, which were defined in the previous context as "capitalist" and were interpreted as immoral. Without exact ideas or knowledge about behaviour codes, unspoken norms and silent values from the new society, many immigrants orient themselves towards the opposite of what was counted as morally proper in the origin society. Simultaneously they revive old system through the establishing and development of a Russian language enclave. Nevertheless this enclave is not located in a vacuum of "dusty" memories from the past, but build transnational cross-border space connected and corresponding to the processes of to-day's CIS and with the life of those relatives and friends who still live there, und with whom the emigrants share intensive social networks.
Multiple lenders and corporate distress: evidence on debt restructuring : [Version Juni 2006]
(2006)
In the recent theoretical literature on lending risk, the coordination problem in multi-creditor relationships have been analyzed extensively. We address this topic empirically, relying on a unique panel data set that includes detailed credit-file information on distressed lending relationships in Germany. In particular, it includes information on creditor pools, a legal institution aiming at coordinating lender interests in borrower distress. We report three major findings. First, the existence of creditor pools increases the probability of workout success. Second, the results are consistent with coordination costs being positively related to pool size. Third, major determinants of pool formation are found to be the number of banks, the distribution of lending shares, and the severity of the distress shock.
We study a set of German open-end mutual funds for a time period during which this industry emerged from its infancy. In those years, the distribution channel for mutual funds was dominated by the brick-and-mortar retail networks of the large universal banks. Using monthly observations from 12/1986 through 12/1998, we investigate if cross-sectional return differences across mutual funds affect their market shares. Although such a causal relation has been established in highly competitive markets, such as the United States, the rigid distribution system in place in Germany at the time may have caused retail performance and investment performance to uncouple. In fact, although we observe stark differences in investment performance across mutual funds (and over time), we find no evidence that cross-sectional performance differences affect the market shares of these funds. Klassifikation: G 23
Previous empirical studies of job creation schemes in Germany have shown that the average effects for the participating individuals are negative. However, we find that this is not true for all strata of the population. Identifying individual characteristics that are responsible for the effect heterogeneity and using this information for a better allocation of individuals therefore bears some scope for improving programme efficiency. We present several stratification strategies and discuss the occurring effect heterogeneity. Our findings show that job creation schemes do neither harm nor improve the labour market chances for most of the groups. Exceptions are long-term unemployed men in West and long-term unemployed women in East and West Germany who benefit from participation in terms of higher employment rates. JEL: C13 , J68 , H43
Innovations are a key factor to ensure the competitiveness of establishments as well as to enhance the growth and wealth of nations. But more than any other economic activity, decisions about innovations are plagued by failures of the market mechanism. As a response, public instruments have been implemented to stimulate private innovation activities. The effectiveness of these measures, however, is ambiguous and calls for an empirical evaluation. In this paper we make use of the IAB Establishment Panel and apply various microeconometric methods to estimate the effect of public measures on innovation activities of German establishments. We find that neglecting sample selection due to observable as well as to unobservable characteristics leads to an overestimation of the treatment effect and that there are considerable differences with regard to size class and betweenWest and East German establishments.
Persistently high unemployment, tight government budgets and the growing scepticism regarding the effects of active labour market policies (ALMP) are the basis for a growing interest in evaluating these measures. This paper intends to explain the need for evaluation on the micro- and macroeconomic level, introduce the fundamental evaluation problem and solutions to it, give an overview of the newer developments in evaluation literature and finally take a look on empirical estimations of ALMP effects. JEL Classification: C14, C33, H43, J64, J68
Our study provides evidence on the share price reactions to the announcement of equity issues in Germany, where capital market is characterized by institutional features distinct from the U.S. market. German seasoned equity issues yield a positive market reaction which contrasts to the significant negative abnormal returns reported for the U.S. We provide evidence that these results are due to differences in both issuing characteristics and floatation methods, and in the corporate governance and ownership structures of the two countries. Our study explains much of the empirical puzzle of different market reactions to seemingly similar events across financial markets.
Who knows what when? : The information content of pre-IPO market prices : [Version March/June 2002]
(2002)
To resolve the IPO underpricing puzzle it is essential to analyze who knows what when during the issuing process. In Germany, broker-dealers make a market in IPOs during the subscription period. We examine these pre-issue prices and find that they are highly informative. They are closer to the first price subsequently established on the exchange than both the midpoint of the bookbuilding range and the offer price. The pre-issue prices explain a large part of the underpricing left unexplained by other variables. The results imply that information asymmetries are much lower than the observed variance of underpricing suggests.
Since the beginning of the 1990s, it has been widely expected that the implementation of the European Single Market would lead to a rapid convergence of Europe’s financial systems. In the present paper we will show that at least in the period prior to the introduction of the common currency this expected convergence did not materialise. Our empirical studies on the significance of various institutions within the financial sectors, on the financing patterns of firms in various countries and on the predominant mechanisms of corporate governance, which are summarised and placed in a broader context in this paper, point to few, if any, signs of a convergence at a fundamental or structural level between the German, British and French financial systems. The German financial system continues to appear to be bank-dominated, while the British system still appears to be capital market-dominated. During the period covered by the research, i.e. 1980 – 1998, the French system underwent the most far-reaching changes, and today it is difficult to classify. In our opinion, these findings can be attributed to the effects of strong path dependencies, which are in turn an outgrowth of relationships of complementarity between the individual system components. Projecting what we have observed into the future, the results of our research indicate that one of two alternative paths of development is most likely to materialise: either the differences between the national financial systems will persist, or – possibly as a result of systemic crises – one financial system type will become the dominant model internationally. And if this second path emerges, the Anglo-American, capital market-dominated system could turn out to be the “winner”, because it is better able to withstand and weather crises, but not necessarily because it is more efficient.
In this paper we study the benefits derived from international diversification of stock portfolios from German and Hungarian point of view. In contrast to the German capital market, which is one of the largest in the world, the Hungarian Stock Exchange is an emerging market. The Hungarian stock market is highly volatile, high returns are often accompanied by extremely large risk. Therefore, there is a good potential for Hungarian investors to realize substantial benefits in terms of risk reduction by creating multi-currency portfolios. The paper gives evidence on the above me ntioned benefits for both countries by examining the performance of several ex ante portfolio strategies. In order to control the currency risk, different types of hedging approaches are implemented.
The paper presents an empirical analysis of the alledged transformation of the financial systems in the three major European economies, France, Germany and the UK. Based on a unified data set developed on the basis of national accounts statistics, and employing a new and consistent method of measurement, the following questions are addressed: Is there a common pattern of structural change; do banks lose importance in the process of change; and are the three financial systems becoming more similar? We find that there is neither a general trend towards disintermediation, nor towards a transformation from bank-based to capital market-based financial systems, nor for a loss of importance of banks. Only in the case of France strong signs of transformation as well as signs of a general decline in the role of banks could be found. Thus the three financial systems also do not seem to become more similar. However, there is also a common pattern of change: the intermediation chains are lengthening in all three countries. Nonbank financial intermediaries are taking over a more important role as mobilizers of capital from the non-financial sectors. In combination with the trend towards securitization of bank liabilites, this change increases the funding costs of banks and may put banks under pressure. In the case of France, this change is so pronounced that it might even threaten the stability of the financial system.
This chapter focuses on institutional investors in the German financial markets. Institutional investors are specialized financial intermediaries who collect and manage funds on behalf of small investors toward specific objectives in terms of risk, return and maturity. The major types of institutional investors in Germany are insurance companies and investment funds. We will examine the nature of their businesses, their size and role in the financial sector, the size and the composition of the assets under their management, aspects of financ ial regulation, and features of their asset-liability-management.
What constitutes a financial system in general and the German financial system in particular?
(2003)
This paper is one of the two introductory chapters of the book "The German Financial System". It first discusses two issues that have a general bearing on the entire book, and then provides a broad overview of the German financial system. The first general issue is that of clarifying what we mean by the key term "financial system" and, based on this definition, of showing why the financial system of a country is important and what it might be important for. Obviously, a definition of its subject matter and an explanation of its importance are required at the outset of any book. As we will explain in Section II, we use the term "financial system" in a broad sense which sets it clearly apart from the narrower concept of the "financial sector". The second general issue is that of how financial systems are described and analysed. Obviously, the definition of the object of analysis and the method by which the object is to be analysed are closely related to one another. The remainder of the paper provides a general overview of the German financial system. In addition, it is intended to provide a first indication of how the elements of the German financial system are related to each other, and thus to support our claim from Section II that there is indeed some merit in emphasising the systemic features of financial systems in general and of the German financial system in particular. The chapter concludes by briefly comparing the general characteristics of the German financial system with those of the financial systems of other advanced industrial countries, and taking a brief look at recent developments which might undermine the "systemic" character of the German financial system.
The purpose of this paper is to compare three different index construction methodologies of commercial property investments. We examine for different European countries (i) appraisal-based indices and methods of „unsmoothing“ the corresponding return series, (ii) indices that trace average ex-post transaction prices over time, and (iii) indices based on Real Estate Investment Trust share prices.
Under a new Basel capital accord, bank regulators might use quantitative measures when evaluating the eligibility of internal credit rating systems for the internal ratings based approach. Based on data from Deutsche Bundesbank and using a simulation approach, we find that it is possible to identify strongly inferior rating systems out-of time based on statistics that measure either the quality of ranking borrowers from good to bad, or the quality of individual default probability forecasts. Banks do not significantly improve system quality if they use credit scores instead of ratings, or logistic regression default probability estimates instead of historical data. Banks that are not able to discriminate between high- and low-risk borrowers increase their average capital requirements due to the concavity of the capital requirements function.
Open-end real estate funds (so called “Offene Immobilienfonds”) play a major role in the German market for securitised real estate investments. Such funds are pools of money from many investors, which are invested in real estate by special investment management companies. This study seeks to identify the risk and return profile of this investment vehicle (before and after income taxes), to compare them with those of other major asset classes, and to provide implications for their appropriate role in a mixed-asset portfolio. Addition-ally, an overview of the institutional architecture and role of German open-end real estate funds is given. Empirical evidence suggests that the financial characteristics of open-end real estate funds are in many respects similar to those reported for direct real estate invest-ments. Accordingly, German open-end real estate funds qualify for medium and long-term investment horizons, rather than for shorter holding periods.