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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.
Broad, long-term financial and economic datasets are a scarce resource, in particular in the European context. In this paper, we present an approach for an extensible, i.e. adaptable to future changes in technologies and sources, data model that may constitute a basis for digitized and structured long- term, historical datasets. The data model covers specific peculiarities of historical financial and economic data and is flexible enough to reach out for data of different types (quantitative as well as qualitative) from different historical sources, hence achieving extensibility. Furthermore, based on historical German company and stock market data, we discuss a relational implementation of this approach.
This paper analyzes the influence Leveraged Buyouts (LBOs) have on the operating performance of the LBO target companies’ direct competitors. A unique and hand-collected data set on LBOs in the United States in the period 1985-2009 allows us to analyze the effects different restructuring activities as part of the LBO have on the competitors’ revenues. These restructuring activities include changes to leverage, governance, or operating business, as well as M&A activities of the LBO target company. We find that although LBOs itself have a negative influence on competitors’ revenue growth, some restructuring mechanisms might actually benefit competing companies.
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
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
This paper aims to analyze the effects of financial constraints and the financial crisis on the financing and investment policies of newly founded firms. Thereby, the analysis adds important new insights on a crucial segment of the economy. We make use of a large and comprehensive data set of French firms founded in the years 2004-2006, i.e. well before the financial crisis. Our panel data analysis shows that the global financial crisis imposed a shock (mostly demand-driven) on the financing as well as on the investments of these firms. Moreover, we find that financially constrained firms use less external debt financing and invest smaller amounts. They also rely on less trade credit. With regard to bank financing, newly founded firms which are more financially constrained accumulate less bank debt and repay initial bank debt slower than their non-financially constraint counterparts. Finally, we find that financially constrained firms are affected to a smaller degree by the financial crisis than their less financially constrained counterparts.
Little evidence exists on the financing decisions of newly founded firms or on the financing dynamics of these firms over their life cycle. We aim to help filling this gap by investigating the financing dynamics of 2,456 French manufacturing firms founded between 2004 and 2006 through their legally required and reported financial statements. Because we observe significant heterogeneity in the financing decision in the firms' founding year, we focus on analyzing whether these differences widen, persist, or converge by using different convergence concepts. We identify a persistence-cum-convergence pattern. We find the existence of ß-convergence (implying that e.g. firms with lower initial levels of debt accumulate more debt over time) but not of σ-convergence (i.e. we observe an increase in the cross-sectional dispersion of the financing structure). We also show that the dynamics of financing matter for the growth path of the firms.
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
We analyze the impact of decreases in available lending resources on quantitative and qualita- tive dimensions of firms’ patenting activities. We thereby make use of the European Banking Authority?s capital exercise to carve out the causal effect of bank lending on firm innovation. In order to do so we combine various datasets to derive information on firms’ financials, their patenting behaviors, as well as their relationships with their lenders. Building on this self- generated dataset, we provide support for the “less finance, less innovation” view. At the same time, we show that lower available financial resources for firms lead to improvement in the qualitative dimensions of their patents. Hence, we carve out a “less finance, less but better innovation” pattern.
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