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Institute
103
The theoretical derivation of credit market segmentation as the result of a free market process
(2003)
Information asymmetries make it difficult for banks to assess accurately whether specific entrepreneurs are able and/or willing to repay their loans. This leads to implicit interest rate ceilings, i.e. banks "refuse" to increase their interest rates beyond this ceiling as this would lower their net returns. Although the maximum interest rate increases as the size of enterprises decreases, such ceilings nonetheless constrain the banks’ ability to set interest rates at a level that would enable them to cover costs. If transaction costs are high, the total costs associated with granting small and medium-sized loans will exceed the maximum average return which the banks can earn by issuing such loans. For this reason, banks do not lend to small and medium-sized enterprises, and, as a consequence, these businesses have no access to formal sector loans. Because micro and small enterprises have a very high RoI, it is worthwhile for them to rely on expensive informal loans to finance their operations, at least until they reach a certain size. Once they have reached this size, however, it does not make economic sense for them to continue taking out informal credits, and thus they face a growth constraint imposed by the credit market. Medium-sized enterprises earn a lower RoI than small ones, which is why borrowing in the informal credit market is not a worthwhile option for them. Moreover, they do not have access to credit from formal financial institutions, and are thus excluded from obtaining any kind of financing in either of the two credit markets. As the result of free, unregulated market forces we get a stable equilibrium in which the credit market is segmented into an informal (small loan) segment, a formal (large loan) segment and, in between, a "non-market" (medium loan) segment.
102
Open source projects produce goods or standards that do not allow for the appropriation of private returns by those who contribute to their production. In this paper we analyze why programmers will nevertheless invest their time and effort to code open source software. We argue that the particular way in which open source projects are managed and especially how contributions are attributed to individual agents, allows the best programmers to create a signal that more mediocre programmers cannot achieve. Through setting themselves apart they can turn this signal into monetary rewards that correspond to their superior capabilities. With this incentive they will forgo the immediate rewards they could earn in software companies producing proprietary software by restricting the access to the source code of their product. Whenever institutional arrangements are in place that enable the acquisition of such a signal and the subsequent substitution into monetary rewards, the contribution to open source projects and the resulting public good is a feasible outcome that can be explained by standard economic theory.
102 r
Open source projects produce goods or standards that do not allow for the appropriation of private returns by those who contribute to their production. In this paper we analyze why programmers will nevertheless invest their time and effort to code open source software. We argue that the particular way in which open source projects are managed and especially how contributions are attributed to individual agents, allows the best programmers to create a signal that more mediocre programmers cannot achieve. Through setting themselves apart they can turn this signal into monetary rewards that correspond to their superior capabilities. With this incentive they will forgo the immediate rewards they could earn in software companies producing proprietary software by restricting the access to the source code of their product. Whenever institutional arrangements are in place that enable the acquisition of such a signal and the subsequent substitution into monetary rewards, the contribution to open source projects and the resulting public good is a feasible outcome that can be explained by standard economic theory.
101
Eine Beteiligung des Managements an Gewinngrößen spielt eine wichtige Rolle bei der Ausrichtung von Managemententscheidungen auf die Ziele der Unternehmenseigentümer. Dieser Beitrag zeigt auf, unter welchen Gewinnermittlungsregeln ein Agent zu optimalen Investitionsentscheidungen motiviert wird, wenn er an den Residualgewinnen beteiligt wird. Dieser Beitrag beschäftigt sich insbesondere mit der Frage, ob zum Zwecke einer optimalen Investitionssteuerung, Fertigerzeugnisse zu Vollkosten oder zu Teilkosten bewertet werden sollen. Vor diesem Hintergrund werden ebenfalls verschiedene Wertansätze für Forderungen auf ihre Anreizwirkungen untersucht.
100
Untersuchungsgegenstand ist der empirische Gehalt der ökonomischen Theorie eines Hedgings auf Unternehmensebene. In den USA wurde die Hedging-Theorie in einer Reihe von empirischen Studien aufgegriffen. Die Befunde sind zumeist konsistent mit dem Erklärungsansatz von Froot/Scharfstein/Stein (1993), wonach eine Verringerung der Cashflow-Volatilität – unter der Annahme steigender Außenfinanzierungskosten – zu einer Reduzierung von Unterinvestitionskosten führt. Bei deutschen Unternehmen besitzt dieser Ansatz bemerkenswerterweise jedoch nur einen geringen Erklärungsgehalt. Die Ergebnisunterschiede können auf unterschiedliche Kapitalmarktverhältnisse zurückgeführt werden: Die unterstellten steigenden Kosten der Außenfinanzierung besitzen für deutsche Unternehmen aufgrund der Dominanz des Bezugsrechtsverfahrens sowie der Rolle der Hausbank als Mechanismus zur Überwindung von Informationsproblemen eine vergleichsweise geringere Bedeutung. Die Managerinteressen erweisen sich bei deutschen Unternehmen als eine wesentliche Hedging-Determinante. Zwischen der Höhe des gebundenen Managervermögens und der Hedging-Wahrscheinlichkeit besteht entsprechend der Hedging-Theorie ein signifikanter positiver Zusammenhang. Entgegen den amerikanischen Befunden kann jedoch eine disziplinierende Wirkung von Großaktionären auf die Hedging-Entscheidung nicht beobachtet werden. Zur Berücksichtigung der spezifischen deutschen Kapitalmarktverhältnisse wird der Einfluss von Bankenbeteiligungen und Familienunternehmen auf die Hedging-Entscheidung untersucht. Ein Bankeneinfluss auf die Derivateeinsatz-Entscheidung kann jedoch nicht festgestellt werden. Entgegen Diversifikations- und Kapitalmarktüberlegungen besteht bei Familienunternehmen interessanterweise eine signifikant geringere Hedging-Wahrscheinlichkeit.
99
This paper examines the provision of managerial investment incentives by an accounting based incentive scheme in a multiperiod agency setting in which an impatient manager has to choose between mutually exclusive investment projects. We study the properties of accounting rules that motivate an impatient manager to exert unobservable effort and to make optimal investment decisions. In this analysis, a realized cash flow constitutes a noisy signal that contains information about the unknown profitability of the investment project. By observing these signals a principal is able to revise his prior beliefs about the agent´s investment decision. The revision of the principal´s prior beliefs leads to a trade off between the provision of efficient investment incentives and intertemporalsharing of output.
97
Rating agencies state that they take a rating action only when it is unlikely to be reversed shortly afterwards. Based on a formal representation of the rating process, I show that such a policy provides a good explanation for the empirical evidence: Rating changes occur relatively seldom, exhibit serial dependence, and lag changes in the issuers’ default risk. In terms of informational losses, avoiding rating reversals can be more harmful than monitoring credit quality only twice per year.
95
Recent changes in accounting regulation for financial instruments (SFAS 133, IAS 39) have been heavily criticized by representatives from the banking industry. They argue for retaining a historical cost based "mixed model" where accounting for financial instruments depends on their designation to either trading or nontrading activities. In order to demonstrate the impact of different accounting models for financial instruments on the financial statements of banks, we develop a bank simulation model capturing the essential characteristics of a modern universal bank with investment banking and commercial banking activities. In our simulations we look at different scenarios with periods of increasing/decreasing interest rates using historical data and with different banking strategies (fully hedged; partially hedged). The financial statements of our model bank are prepared under different accounting rules ("Old" IAS before implementation of IAS 39; current IAS) with and without hedge accounting as offered by the respective sets of rules. The paper identifies critical issues of applying the different accounting rules for financial instruments to the activities of a universal bank. It demonstrates important shortcomings of the "Old" IAS rules (before IAS 39), and of the current IAS rules. Under the current IAS rules the results of a fully hedged bank may have to show volatility in income statements due to changes in market interest rates. Accounting results of a partially hedged bank in the same scenario may be less affected even though there are economic gains or losses.
94
Portfolio choice and estimation risk : a comparison of Bayesian approaches to resampled efficiency
(2002)
Estimation risk is known to have a huge impact on mean/variance (MV) optimized portfolios, which is one of the primary reasons to make standard Markowitz optimization unfeasible in practice. Several approaches to incorporate estimation risk into portfolio selection are suggested in the earlier literature. These papers regularly discuss heuristic approaches (e.g., placing restrictions on portfolio weights) and Bayesian estimators. Among the Bayesian class of estimators, we will focus in this paper on the Bayes/Stein estimator developed by Jorion (1985, 1986), which is probably the most popular estimator. We will show that optimal portfolios based on the Bayes/Stein estimator correspond to portfolios on the original mean-variance efficient frontier with a higher risk aversion. We quantify this increase in risk aversion. Furthermore, we review a relatively new approach introduced by Michaud (1998), resampling efficiency. Michaud argues that the limitations of MV efficiency in practice generally derive from a lack of statistical understanding of MV optimization. He advocates a statistical view of MV optimization that leads to new procedures that can reduce estimation risk. Resampling efficiency has been contrasted to standard Markowitz portfolios until now, but not to other approaches which explicitly incorporate estimation risk. This paper attempts to fill this gap. Optimal portfolios based on the Bayes/Stein estimator and resampling efficiency are compared in an empirical out-of-sample study in terms of their Sharpe ratio and in terms of stochastic dominance.
93
Substantial research attention has been devoted to the pension accumulation process, whereby employees and those advising them work to accumulate funds for retirement. Until recently, less analysis has been devoted to the pension decumulation process – the process by which retirees finance their consumption during retirement. This gap has recently begun to be filled by an active group of researchers examining key aspects of the pension payout market. One of the areas of most interesting investigation has been in the area of annuities, which are financial products intended to cover the risk of retirees outliving their assets. This paper reviews and extends recent research examining the role of annuities in helping finance retirement consumption. We also examine key market and regulatory factors.
92
The classical approaches to asset allocation give very different conclusions about how much foreign stocks a US investor should hold. US investors should either allocate a large portion of about 40% to foreign stocks (which is the result of mean/variance optimization and the international CAPM) or they should hold no foreign stocks at all (which is the conclusion of the domestic CAPM and mean/variance spanning tests). There is no way in between.
The idea of the Bayesian approach discussed in this article is to shrink the mean/variance efficient portfolio towards the market portfolio. The shrinkage effect is determined by the investor's prior belief in the efficiency of the market portfolio and by the degree of violation of the CAPM in the sample. Interestingly, this Bayesian approach leads to the same implications for asset allocation as the mean-variance/tracking error criterion. In both cases, the optimal portfolio is a combination of the market portfolio and the mean/variance efficient portfolio with the highest Sharpe ratio.
Applying both approaches to the subject of international diversification, we find that a substantial home bias is only justified when a US investor has a strong belief in the global mean/variance efficiency of the US market portfolio and when he has a high regret aversion of falling behind the US market portfolio. We also find that the current level of home bias can be justified whenever-regret aversion is significantly higher than risk aversion.
Finally, we compare the Bayesian approach of shrinking the mean/variance efficient portfolio towards the market portfolio to another Bayesian approach which shrinks the mean/variance efficient portfolio towards the minimum-variance portfolio. An empirical out-of-sample study shows that both Bayesian approaches lead to a clearly superior performance compared to the classical mean/variance efficient portfolio.
91
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.
91 rev.
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.
90
We propose a new framework for modelling time dependence in duration processes on financial markets. The well known autoregressive conditional duration (ACD) approach introduced by Engle and Russell (1998) will be extended in a way that allows the conditional expectation of the duration process to depend on an unobservable stochastic process, which is modelled via a Markov chain. The Markov switching ACD model (MSACD) is a very flexible tool for description and forecasting of financial duration processes. In addition the introduction of an unobservable, discrete valued regime variable can be justified in the light of recent market microstructure theories. In an empirical application we show, that the MSACD approach is able to capture several specific characteristics of inter trade durations while alternative ACD models fail. Furthermore, we use the MSACD to test implications of a sequential trade model.
89
Executive Stock Option Programs (SOPs) have become the dominant compensation instrument for top-management in recent years. The incentive effects of an SOP both with respect to corporate investment and financing decisions critically depend on the design of the SOP. A specific problem in designing SOPs concerns dividend protection. Usually, SOPs are not dividend protected, i.e. any dividend payout decreases the value of a manager’s options. Empirical evidence shows that this results in a significant decrease in the level of corporate dividends and, at the same time, into an increase in share repurchases. Yet, few suggestions have been made on how to account for dividends in SOPs. This paper applies arguments from principal-agent-theory and from the theory of finance to analyze different forms of dividend protection, and to address the relevance of dividend protection in SOPs. Finally, the paper relates the theoretical analysis to empirical work on the link between share repurchases and SOPs.
88
For the Neuer Markt year 2001 is not considered as one of its best, compared to its prior performance. Investors who once piled into the Neuer Markt have now become wary of the exchange, which was launched in 1997 as Europe’s leading growth market and answer to the U.S.‘s Nasdaq Stock Market. The Neuer Markt’s reputation has been marred by the misleading information policy from several Neuer Markt companies, publishing false annual and quarterly data. Some of these companies are responsible for having misinformed investors of their pending bankruptcies. Under these circumstances, it is time to find an explanation for the dramatic loss of credibility in Neuer Markt enterprises. Finding an answer, two aspects come under consideration: • What type of information (annual versus quarterly reports) was available for investors and • of what quality were these provided data. Interim reports can be seen as important instrument in the reporting system to inform all kinds of investors. For this reason we examine the quality of Neuer Markt quarterly reports by concentrating on the disclosure level of 52 Neuer Markt companies‘ reports for the third quarter 1999 and 2000. To enable comparison we establish four disclosure indexes that measure the report’s compliance with the Neuer Markt Rules and Regulations as well as with IAS and US GAAP interim reporting standards. The results demonstrate that the level of disclosure has increased over time. Then we aim to find typical attributes of Neuer Markt enterprises that provide high or low level of accounting information in their quarterly reports. Nevertheless the study also shows that there is not any correlation between market capitalization and the quality of interim reports. However, it can be suggested that an additional enforcement mechanism could improve quality and lure investors back. A step towards this aim is the standardization project of quarterly reports of Deutsche Boerse AG.
87a
Access to loans and other financial services is extremely valuable for micro-, small- and medium-sized enterprises in developing and transition countries as it enables their owners as well as their employees to exploit their economic potential and to increase their income. Although this insight has lead development aid institutions to undertake many attempts to create sustainable microfinance institutions, only a small fraction of these has been successful so far. This article analyses what determines the success of attempts to provide financial services in general, and credit in particular, to low income target groups in these countries. We argue that it is crucial to understand, and to mitigate or even eliminate in practice, the serious and numerous incentive problems at the level of the lending operations as well as those at the levels of the human resource management and the governance of microfinance institutions. We attempt to show moreover, that unsolved incentive problems at only one level will ultimately undermine any potential success at the other levels. In our paper, we first analyse information and incentive problems from a theoretical perspective, using and extending the well-known Stiglitz-Weiss model of credit rationing, and derive theoretical requirements for solutions of these problems. In the light of these considerations, we then discuss how problems are solved in practice. Section 3 deals with the credit relationship. Section 4 extends the argument by showing how incentive problems within the institution can be handled, and section 5 analyses corporate governance-related problems of development finance institutions as incentive problems. In section 6 it is demonstrated why, and how, the incentive problems at the different levels, as well as their solutions, are interrelated. From this we derive the proposition that, as the institutional devices for dealing with these problems constitute a complementary system, any sustainable solution requires consistent arrangements of all elements and at all levels of the system. In the last section we will show the potential of strategic networks to set up institutions which we consider to be consistent systems for successfully solving the problems at all three levels simultaneously.
87
Während sich die Entwicklungsfinanzierung in Theorie und Praxis generell mit dem Finanzwesen in Entwicklungs- und Transformationsländern befasst, steht im Teilgebiet der Microfinance die Frage im Vordergrund, wie in diesen Ländern der Zugang ärmerer Bevölkerungsgruppen und speziell von Klein- und Kleinstunternehmer(innen), Kleinbauern und sonstigen wirtschaftlich Selbständigen aus eher niedrigen sozialen Schichten zu Kredit und anderen Finanzdiensleistungen verbessert werden kann. Obwohl es einige Vorläufer gibt, die schon früh die allgemeine Politik der Entwicklungsländer bezüglich ihrer Finanzsektoren und ebenso die dazu passende Entwicklungshilfe-Politik der Industrieländer der 60er und 70er Jahre mit ökonomisch-theoretischen Argumenten scharf kritisiert haben,1 waren in der Vergangenheit weder Entwicklungsfinanzierung im allgemeinen noch Microfinance im besonderen ein wirklich ernst genommener Gegenstand der ökonomischen Literatur, die man zum mainstream rechnen kann. Dem entspricht es, dass sich auch die Praxis der Entwicklungsfinanzierung sehr lange weitgehend unabhängig von ökonomisch- theoretischen Überlegungen vollzogen hat. Diese Situation hat sich seit mehr als einem Jahrzehnt grundlegend verändert. Dies hat einen wesentlichen Grund darin, dass sich in der entwicklungspolitischen Praxis auf dem Gebiet der Finanzierung von Klein- und Kleinstbetrieben, eben Microfinance, Erfolge erzielen ließen, die vorher unvorstellbar waren. Mit einer deutlichen commercial orientation und einer Ausrichtung auf die genuinen Probleme des financial institution building konnte erreicht werden, dass es inzwischen einige Dutzend Finanzinstitutionen in Entwicklungs- und Transformationsländern gibt, die ökonomisch stabil und sogar profitabel sind und mit ihrem Leistungsangebot eine große Anzahl von "armen" Kunden erreichen, die bei den Kreditabteilungen der herkömmlichen Banken kaum über die Schwelle gelassen würden.2 Dies hat die Aufmerksamkeit von Forschern aus dem mainstream erweckt. Mindestens ebenso wichtig sind aber die immanenten Entwicklungen innerhalb der ökonomischen Theorie. Mit ihrer Hinwendung zum institutionalistischen Denkansatz hat die Wirtschaftstheorie auf einmal eine neue Aufmerksamkeit für die Phänomene entwickelt, die für die Praktiker der Entwicklungsfinanzierung seit langem von zentraler Bedeutung sind: Inzwischen kann man theoretisch nachweisen, dass es in der Tat Zugangsprobleme zu Kredit für "kleine Leute" gibt, dass das Angebot von Kredit für sie beschränkt ist und dass es nicht genügt, einfach nur staatlich auferlegte Restriktionen – die so genannte financial repression – zu beseitigen, um ....
85
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.
83
In this paper we have developed a financial model of the non-life insurer to provide assistance for the management of the insurance company in making decisions on product, investment and reinsurance mix. The model is based on portfolio theory and recognizes the stochastic nature of and the interaction between the underwriting and investment income of the insurance business. In the context of an empirical application we illustrate howa portfolio optimisation approach can be used for asset-liability management.
82
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.
81
Im Rahmen wertorientierter Unternehmensführung gewinnen Erfolgsbeteiligungen immer größere Verbreitung. Besonders populär ist das EVA-Bonussystem, das auf dem Erfolgskonzept "Economic Value Added" von STERN STEWART & Co. beruht. In der vorliegenden Arbeit wird gezeigt, daß dieses Bonussystem gegen die Bedingung der Anreizkompatibilität verstößt: Der Entscheidungsträger kann finanzielle Vorteile erzielen, indem er Investitionsentscheidungen trifft, die aus Sicht der Anteilseigner nachteilig sind. Insbesondere besteht die Tendenz zur Unterinvestition. Die Darstellungen beruhen auf der Annahme, daß nicht nur die Anteilseigner zukünftige Einkünfte (bzw. Überschüsse) mit einem risikoangepaßten Zinssatz diskontieren, sondern auch der Entscheidungsträger. Zunächst werden die theoretischen Grundlagen dargestellt. Wenn bei gegebener Risikoklasse der Entscheidungsträger erwartete Prämien mit dem Kalkulationszinsfuß k +D diskontiert und die Anteilseigner erwartete Überschüsse des Leistungsbereichs mit k diskontieren, besteht bei einem im Zeitablauf konstanten Prämiensatz f und Überschußbeteiligung nur dann Anreizkompatibilität, wenn D= 0 gilt. Für D> 0 besteht die Tendenz zur Unterinvestition. Sie ist um so größer, je höher D ist und je später die potentiellen Projektüberschüsse anfallen. Bei Beteiligung am Residualgewinn ergeben sich dieselben Anreizwirkungen wie bei Überschußbeteiligung, sofern die kalkulatorischen Zinsen mit dem risikolosen Zinssatz r ermittelt werden. Werden sie mit k ermittelt, so wird (für k>r ) im Vergleich zu einer Überschußbeteiligung die Tendenz zur Unterinvestition ausgelöst (sofern D= 0) oder verstärkt (sofern D> 0). Die Tendenz zur Unterinvestition ist jeweils um so gravierender, je später aktivierte Anschaffungsauszahlungen als Abschreibungen zu verrechnen sind und je höher der für die Ermittlung der kalkulatorischen Zinsen auf die (Rest-)Buchwerte maßgebliche Zinssatz k ist. Der Economic Value Added stellt eine Konkretisierung des Residualgewinns dar. Auch bei dem darauf aufbauenden (EVA-)Bonussystem besteht die Tendenz zu Fehlentscheidungen (insbesondere zur Unterinvestition). Sie resultiert vor allem aus der Ermittlung der kalkulatorischen Zinsen mit dem risikoangepaßten Zinssatz k, den geforderten "Bereinigungen" bei der Ermittlung des investierten Kapitals bzw. des Periodenerfolges und gegebenenfalls der Wahl der Erfolgsänderung gegenüber dem Vorjahr als Bemessungsgrundlage.
80
Vor dem Hintergrund allgemeiner Bedingungen der Anreizkompatibilität wird für verschiedenen Kapitalmarktmodelle untersucht, ob zwischen den Anteilseignern eines Unternehmens Einmütigkeit besteht und, wenn ja, mit welchem Unternehmensziel der finanzielle Nutzen der Anteilseigner maximiert wird. Von besonderer Bedeutung für die Anreizkompatibilität der üblichen linearen Erfolgsteilung ist die Bedingung pareto-effizienter Risikoteilung. Sind für den Erfolg des Unternehmens spezifische Störterme relevant und soll der Entscheidungsträger in relativ starkem Umfang am Erfolg beteiligt werden, ist die Risikoteilung zwischen ihm und den (anderen) Anteilseignern pareto-inferior. Anreizkompatible erfolgsorientierte Belohnungs- bzw. Prämienfunktionen für den Entscheidungsträger sind dann konvex und zustandsabhängig. Aktienoptionsprogramme können als Approximationen an solche Prämienfunktionen interpretiert werden.
079
Banking and markets
(2001)
This paper integrates a number of recent themes in the literature in banking and asset markets–optimal risk sharing, limited market participation, asset-price volatility, market liquidity, and financial crises–in a general-equilibrium theory of the financial system. A complex financial system comprises both financial markets financial institutions. Financial institutions can take the form of intermediaries or banks. Banks, inlike intermediaries, are subject to runs, but crises do not imply market failure. We show that a sophisticated financiel system–a system with complete markets for aggregate risk and limited market participation–is incentive-efficient, if the institutions take the form of intermediaries, or else constrained-efficient, of they take the form of banks. We also consider an economy in which the markets for aggregate risks are incomplete. In this context, there is a rolefpr prudential regulation: regulating liquidity can improve welfare.
78
We analyze exchange rates along with equity quotes for 3 German firms from New York (NYSE) and Frankfurt (XETRA) during overlapping trading hours to see where price discovery occurs and how stock prices adjust to an exchange rate shock. Findings include: (a) the exchange rate is exogenous with respect to the stock prices; (b) exchange rate innovations are more important in understanding the evolution of NYSE prices than XETRA prices; and (c) most (but not all) of the fundamental or random walk component of firm value is determined in Frankfurt.
075
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.
73
Mängel bei der Abschlußprüfung : Tatsachenberichte und Analysen aus betriebswirtschaftlicher Sicht
(2001)
Unternehmenskrisen, „überraschende“ zumal, standen am Anfang der gesetzlichen Normierung der Abschlußprüfung in Deutschland. Es entspricht daher einem legitimen Anliegen von Öffentlichkeit und Fachwelt, die herrschende Maßstäblichkeit der Qualität von Abschlußprüfungen und die Glaubwürdigkeit4 von Abschlußprüfern insbesondere dann in gesteigertem Maße als Problem zu begreifen, wenn den gesetzlichen Schutzzwecken und Schutznormen der etablierten Abschlußprüfung zum Trotz Unternehmen in eine Krise geraten: Denn innerhalb der institutionellen Mechanismen ihrer Früherkennung – eines funktionalen Teils des deutschen Systems von corporate governance – gilt die Pflichtprüfung mit Recht als pivotales Element. Vieles an festzustellender Kritik mag hierbei einem der Komplexität der zu verhandelnden Sachzusammenhänge unüberbrückbaren Laienverständnis geschuldet sein; manches aber ist sicherlich erklärlich durch verbesserbare gesetzliche Vorschriften, zu lösende theoretische (ökonomische und rechtswissenschaftliche) Problemstellungen und eine zu fördernde gute Berufspraxis. Jüngste fragliche Mängel der Abschlußprüfung geben den Anlaß zu vorliegenden Tatsachenberichten und betriebswirtschaftlichen Analysen. Die getroffene Auswahl der Unternehmen ist hierbei ebenso willkürlich wie die der betroffenen Wirtschaftsprüfungsgesellschaften – nicht zufällig ist indes die Auswahl der betriebswirtschaftlichen Grundprobleme: Betreffen diese doch wesentliche Erwartungen an die Abschlußprüfung, die offenbar so regelmäßig enttäuscht wurden, daß selbst in Regierungsbegründungen von Gesetzesvorlagen nunmehr eine „sog. Erwartungslücke“5 bemüht wird. Die Erwartungslücken ergeben sich hierbei insbesondere aus der Vorstellung, daß (a) der gesetzliche Pflichtprüfer bei einer ordnungsmäßigen Prüfung zwingend doloses Handeln aufzudecken habe, daß (b) bilanzielle Wertansätze hinreichend zuverlässige Größen bilden, die über die Vermögenslage des Unternehmens berichten und schließlich (c) die Prüfung der tatsächlichen wirtschaftlichen Lage des Unternehmens und die Unterrichtung hiervon in Prüfungsbericht und Bestätigungsvermerk eine Selbstverständlichkeit der Pflichtprüfung sei. Diesen Erwartungen folgt der Gang der Untersuchung.
72
At least in the past, banking in continental Europe has been characterised by a number of features that are quite specific to the region. They include the following: (1) banks play a strong role in their respective financial systems; (2) universal banking is prevalent; (3) not strictly profit-oriented banks play a significant role; and (4) there are considerable differences between national banking systems. It can be safely assumed that the future of banking in Europe will be shaped by three major external developments: deregulation and liberalisation; advances in information technology; and economic, financial and monetary integration. The overall consequences of these developments would be much too vast a topic to be addressed in one short paper. Therefore the present paper concentrates on the following question: Are the traditional peculiarities of the banking and financial systems of continental Europe likely to disappear as a consequence of the aforementioned external developments or are they more likely to remain in spite of these developments? The external developments affect the features specific to banking in continental Europe only indirectly and only via the strategies selected and pursued by the various players in the financial systems, notably the banks themselves, and in ways which strongly depend on the structure of the banking industry and the level of competition between banks and other providers of financial services. The paper develops an informal model of the relationships between (1) external developments, (2) bank strategies and the structure of the banking industry, and (3) the peculiarities of banking in Europe, and derives a hypothesis predicting which of the traditional peculiarities are likely to disappear and which are likely to remain. It argues that, overall, the peculiarities are not likely to disappear in the short or the medium term. First version June 2000. This version March 2001.
71
In den 1980er und den frühen 1990er Jahren waren japanische Banken die weltweit größten Finanzinstitute und galten als Inbegriff „globaler“ Banken. Der Crash der japanischen Wertpapier- und Immobilienmärkte Anfang der 1990er Jahre und die nachfolgende Rezession waren Anlass zu tiefgreifenden Reformen im japanischen Finanzsystem. Die japanischen Banken waren gezwungen, ihre internationalen Strategien zu reformulieren. Als Konsequenz zogen sie sich aus vielen Märkten zurück und strukturierten ihre internationalen Netzwerke um. Vor dem Hintergrund theoretischer Überlegungen zu der Bedeutung von „Globalität“ und einer empirischen Untersuchung der Entwicklung der Auslandsstellennetze japanischer Banken in den 1980er und 1990er Jahren stellt der vorliegende Beitrag die Globalität japanischer Banken in Frage.
70
Auch sechs Jahre nach Einführung der Vorschriften zur Ad-hoc-Publizität nach § 15 WpHG besteht bei den Unternehmen weiterhin große Unsicherheit bezüglich ihrer ordnungsmäßigen Umsetzung. Dies gilt insbesondere für die Behandlung von ad-hoc-meldepflichtigen Sachverhalten, die sich aus der Regelberichterstattung ergeben. Der vorliegende Beitrag entwickelt hierzu Lösungsansätze im Sinne einer kapitalmarktorientierten Unternehmenspublizität.
69
In this paper, we estimate the demand for homeowner insurance in Florida. Since we are interested in a number of factors influencing demand, we approach the problem from two directions. We first estimate two hedonic equations representing the premium per contract and the price mark-up. We analyze how the contracts are bundled and how contract provisions, insurer characteristics and insured risk characteristics and demographics influence the premium per contract and the price mark-up. Second, we estimate the demand for homeowners insurance using two-stage least squares regression. We employ ISO's indicated loss costs as our proxy for real insurance services demanded. We assume that the demand for coverage is essentially a joint demand and thus we can estimate the demand for catastrophe coverage separately from the demand for noncatastrophe coverage. We determine that price elasticities are less elastic for catastrophic coverage than for non-catastrophic coverage. Further estimated income elasticities suggest that homeowners insurance is an inferior good. Finally, we conclude based on the results of a selection model that our sample of ISO reporting companies well represents the demand for insurance in the Florida market as a whole.
68
Der vorliegende Beitrag zeigt auf, wie hedonische Preisindizes für Immobilien auf der Basis von Transaktionen berechnet werden können. Der Heterogenität der Immobilien wird dabei durch ein ökonometrisches Modell Rechnung getragen, wobei in dieser Arbeit das Problem der Wahl einer geeigneten Funktionsform durch eine Transformation nach dem Ansatz von Box/Cox (1964) explizit berücksichtigt wird. Die Datenbasis deckt etwa 65% der Transaktionen des Wohnungsmarktes im Zeitraum 1990-1999 ab. Die Korrektur aufgrund unvollständiger Angaben führt zu einem Datensatz von 84 686 Transaktionen. Dieser Datensatz ist ein Vielfaches dessen, was bisher vergleichbaren Studien zugrunde lag und stellt damit eine international einmalige Datengrundlage dar.
067
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.
66
Real options theory applies techniques known from finance theory to the valuation of capital investments. The present paper investigates further into this analogy, considering the case of a portfolio of real options. An implementation of real option models in practice will mostly be concerned with a portfolio of real options, so the analysis of portfolio aspects is of both academic and practical interest. Is a portfolio of real options special? In order to shed some light on this question, the present paper will outline the relevant features of a portfolio of real options. It will show that the analogy to financial options remains great if compound option models are applied. As a result, a portfolio of real options, and therefore the firm as such, generally is to be understood as one single compound, real option.
65a
At present, the question of how national pension or retirement payment systems should be organised is being hotly debated in various countries, and opinions vary widely as to what should be regarded as the optimal design for such systems. It appears to the authors of the present paper that in this entire discussion one aspect is largely overlooked: What relationships exist between the pension system and the financial system in a given country? As such relationships might prove to be important, the present paper investigates the following questions: (1) Are there differences between the national pension systems of three major European countries – Germany, France and the U.K. – and between the financial systems of these countries? (2) And if the existence of such differences can be demonstrated, is there a correspondence between the differences with respect to the various national pension systems and the differences as regards the countries’ financial systems? (3) And if such a correspondence exists, is there any kind of interrelationship between the national financial and pension systems of the individual countries which goes beyond a mere correspondence? Looking mainly at two aspects – namely, risk allocation and the incentives to create human capital – the authors of this paper argue (1) that there are indeed considerable differences between the financial and pension systems of the three countries; (2) that in both Germany and the U.K. there are also systematic correspondences between the respective pension systems and financial systems and their economic characteristics, but that such a correspondence cannot be identified in the case of France; and (3) that these parallels are, in the final analysis, based on complementarities and are therefore likely to contribute to the efficiency of the German and the British systems. The paper concludes with a brief look at policy implications which the existence of, or the lack of, consistency between national pension systems and national financial systems might have.
65
Pensions- und Finanzsysteme in Europa : ein Vergleich unter dem Gesichtspunkt der Komplementarität
(2001)
Die Debatte über die optimale Ausgestaltung der Alterssicherung wird in jüngster Zeit äußerst kontrovers und hitzig geführt. Dabei scheint uns ein zentraler Aspekt nicht genügend beachte zu werden: Welcher Zusammenhang besteht zwischen den Merkmalen des Finanzsystems und des Pensionssystems eines Landes? Weil dieser Zusammenhang wichtig sein könnte, wird in diesem Beitrag untersucht, ob es Unterschiede zwischen den Finanz- und Pensionssystemen in drei großen europäischen Ländern, Deutschland, Frankreich und Großbritannien, gibt, ob sich diese Unterschiede in charakteristischer Weise entsprechen und ob sich über diese Entsprechungen hinaus auch Wechselwirkungen zwischen dem Finanzsystem und dem Pensionssystem eines Landes nachweisen lassen.
Zur Beantwortung dieser Fragen wird in einem ersten Schritt kurz die Unterschiedlichkeit der Finanz- und Pensionssysteme zwischen den drei Ländern skizziert, und es werden parallelen zwischen diesen Unterschieden nachgewiesen. Daran anschließend werden die Zusammenhänge zwischen der Ausgestaltung der gesetzlichen Alterssicherung und der volkswirtschaftlichen Risikoallokation sowie der Ausgestaltung der betrieblichen Alterssicherung für die Unternehmensstrategien, -finanzierung und –verfassung betrachtet. Dabei lässt sich zeigen, dass es sowohl in Deutschland als auch in Großbritannien eine – wenn auch vollkommen unterschiedlich ausgeprägte – Komplementarität zwischen Finanz- und Pensionssystem gibt, während sich ein solcher Zusammenhang für Frankreich nicht konstatieren lässt. Abschließend werden wirtschaftspolitische Implikationen dieses Zusammenhangs angesprochen
064
Competition for order flow can be characterized as a coordination game with multiple equilibria. Analyzing competition between dealer markets and a crossing network, we show that the crossing network is more stable for lower traders’ disutilities from unexecuted orders. By introducing private information, we prove existence of a unique equilibrium with market consolidation. Assets with low volatility and large volumes are traded on crossing networks, others on dealer markets. Efficiency requires more assets to be traded on crossing networks. If traders’ disutilities differ sufficiently, a unique equilibrium with market fragmentation exists. Low disutility traders use the crossing network while high disutility traders use the dealer market. The crossing network’s market share is inefficiently small.
63
Ja, der Ablauf der Lock-up-Frist ist ein kursrelevantes Ereignis. Wir untersuchen Kursreaktionen auf das Ende der Lock-up-Frist bei 142 Unternehmen des Neuen Marktes. Da der Ablauf der Sperrfrist bereits zum Zeitpunkt des Börsengangs bekannt ist, erwarten wir bei einem (semi-)informationseffizienten Kapitalmarkt durchschnittlich keine Kursreaktion. Im Rahmen einer Ereignisstudie zeigen wir aber, dass sich am Ende der Sperrfrist signifikant negative Überrenditen ergeben. Durch eine differenzierte Analyse stellen wir fest, dass firmenspezifische Faktoren (Volatilität, Performance, Free Float) die Kursreaktionen am Ende der Lock-up-Periode beeinflussen. Die Befunde unserer Untersuchung belegen die Notwendigkeit klarer Regeln für mehr Transparenz nach dem Börsengang. Bedeutsam sind die vorliegenden Ergebnisse vor allem vor dem Hintergrund der aktuellen Diskussion um eine Erweiterung der insiderrechtlichen Meldepflichen im Rahmen des 4. Finanzmarktförderungsgesetzes. This paper explores the materiality of expirations of lock-up provisions that prevent insiders from selling their shares after the initial public offering (IPO). We examine 172 lock-up agreements of 142 IPOs floated on Germany’s New Market. Since the date of the lock-up expiration is common knowledge at the IPO, we would not expect to find abnormal returns surrounding the event day, assuming that markets are informationally efficient. However, using an event-study methodology we detect statistically significant negative abnormal returns and a twenty-five percent increase in trading volume surrounding lock-up expiration. The negative abnormal returns are larger for firms with high volatility, superior performance after the IPO, and low free float. The results of our study raise important regulatory issues with respect to disclosure rules of firms going public. We argue that insiders should be legally required to disclose their sell transactions in order to protect new and less informed shareholders.
62
Im Mittelpunkt dieses Beitrag stehen Verweildauermodelle und deren Verwendung als Analyseinstrumente für die Bewertung und Berechnung von Kreditausfallrisiken. Verschiedene Möglichkeiten zur Berechnung der Dauer des Nichtausfalls eines Kredites werden dabei vorgestellt. Die hier vorgestellten Verfahren werden auf einen aus Kreditakten von sechs deutschen Universalbanken zusammengestellten Datensatz angewendet. Beispiele und Interpretationshilfen zu den jeweils vorgestellten Methoden erleichtern den Zugang zu diesen Modellen. Es werden zahlreiche Hinweise auf weiterführende Literatur gegeben.
61
Dieser Beitrag stellt verschiedene ökonometrische Methoden zur Bewertung und Berechnung von Kreditausfallrisiken vor und wendet diese auf einen Datensatz sechs deutscher Universalbanken an. Im Mittelpunkt stehen dabei Logit- und Probitmodelle, mit deren Hilfe die Ausfallwahrscheinlichkeit eines Kredites geschätzt werden kann. Dabei werden auch moderne Verfahren zur Analyse von Paneldaten besprochen. Beispiele undInterpretationshilfen zu den jeweils vorgestellten Methoden erleichtern den Zugang zu diesen Modellen. Es werden zahlreiche Hinweise auf weiterführende Literatur gegeben.
60
Initiated by the seminal work of Diamond/Dybvig (1983) and Diamond (1984), advances in the theory of financial intermediation have sharpened our understanding of the theoretical foundations of banks as special financial institutions. What makes them "unique" is the combination of accepting deposits and issuing loans. However, in recent years the notion of "disintermediation" has gained tremendous popularity, especially among American observers. These observers argue that deregulation, globalisation and advances in information technology have been eroding the role of banks as intermediaries and thus their alleged uniqueness. It is even assumed that ever more efficiently organised capital markets and specialised financial institutions that take advantage of these markets, such as mutual funds or finance companies, will lead to the demise of banks. Using a novel measurement concept based on intermediation and securitisation ratios, the present article provides evidence which shows that banking disintermediation is indeed a reality for the US financial system. This seems to indicate that American banks are not all that "unique"; they can be replaced to a considerable extent. Moreover, many observers seem to believe that what has happened in the US reflects a universal trend. However, empirical results reported in this paper indicate that such a trend has not manifested itself in other financial systems, and in particular, not in Germany or Japan. Evidence on the enormous structural differences between financial systems and the lack of unequivocal signs of convergence render any inferences from the American experience to other financial systems very problematic.
59
Vorgestellt wird eine empirische Studie, welche den Zusammenhang zwischen Rendite und Risiko für ein Sample deutscher Versicherungsaktien im Zeitraum 1975-1998 untersucht. Als Methode wurde ein Multifaktorenmodell mit makroökonomischen Faktoren verwendet. Je nach Untersuchungszeitraum beläuft sich der Anteil der erklärten Varianz auf 9,29% bis 13,62%. Es konnte eine signifikanter negativer Einfluß zwischen der Veränderung des allgemeinen Zinsniveaus und den Risikoprämien von Versicherungsaktien identifiziert werden. Weiterhin ist Wechselkurses der DM zum US-Dollar signifikant.
58
Although the world of banking and finance is becoming more integrated every day, in most aspects the world of financial regulation continues to be narrowly defined by national boundaries. The main players here are still national governments and governmental agencies. And until recently, they tended to follow a policy of shielding their activities from scrutiny by their peers and members of the academic community rather than inviting critical assessments and an exchange of ideas. The turbulence in international financial markets in the 1980s, and its impact on U.S. banks, gave rise to the notion that academics working in the field of banking and financial regulation might be in a position to make a contribution to the improvement of regulation in the United States, and thus ultimately to the stability of the entire financial sector. This provided the impetus for the creation of the “U.S. Shadow Financial Regulatory Committee”. In the meantime, similar shadow committees have been founded in Europe and Japan. The specific problems associated with financial regulation in Europe, as well as the specific features which distinguish the European Shadow Financial Regulatory Committee from its counterparts in the U.S. and Japan, derive from the fact that while Europe has already made substantial progress towards economic and political integration, it is still primarily a collection of distinct nation-states with differing institutional set-ups and political and economic traditions. Therefore, any attempt to work towards a European approach to financial regulation must include an effort to promote the development of a European culture of co-operation in this area, and this is precisely what the European Shadow Financial Regulatory Committee (ESFRC) seeks to do. In this paper, Harald Benink, chairman of the ESFRC, and Reinhard H. Schmidt, one of the two German members, discuss the origin, the objectives and the functioning of the committee and the thrust of its recommendations.
57
We present an empirical study focusing on the estimation of a fundamental multi-factor model for a universe of European stocks. Following the approach of the BARRA model, we have adopted a cross-sectional methodology. The proportion of explained variance ranges from 7.3% to 66.3% in the weekly regressions with a mean of 32.9%. For the individual factors we give the percentage of the weeks when they yielded statistically significant influence on stock returns. The best explanatory power – apart from the dominant country factors – was found among the statistical constructs „success“ and „variability in markets“.
056
The use of catastrophe bonds (cat bonds) implies the problem of the so called basis risk, resulting from the fact that, in contrast to traditional reinsurance, this kind of coverage cannot be a perfect hedge for the primary’s insured portfolio. On the other hand cat bonds offer some very attractive economic features: Besides their usefulness as a solution to the problems of moral hazard and default risk, an important advantage of cat bonds can be seen in the presumably lower transaction costs compared to (re)insurance products. Insurance coverage usually incurs costs of acquisition, monitoring and loss adjustment, all of which can be reduced by making use of the financial markets. Additionally, cat bonds are only weakly correlated with market risk, implying that in perfect financial markets these securities could be traded at a price including just small risk premiums. Although these aspects have been identified in economic literature, to our knowledge there has been no publication so far that formally addresses the trade-off between basis risk and transaction cost. In this paper, therefore, we introduce a simple model that enables us to analyze cat bonds and reinsurance as substitutional risk management tools in a standard insurance demand theory environment. We concentrate on the problem of basis risk versus transaction cost, and show that the availability of cat bonds affects the structure of optimal reinsurance contract design in an interesting way, as it leads to an increase of indemnity for small losses and a decrease of indemnity for large losses.