Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting
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181
We analyze the effect of committee formation on how corporate boards perform two main functions: setting CEO pay and overseeing the financial reporting process. The use of performance-based pay schemes induces the CEO to manipulate earnings, which leads to an increased need for board oversight. If the whole board is responsible for both functions, it is inclined to provide the CEO with a compensation scheme that is relatively insensitive to performance in order to reduce the burden of subsequent monitoring. When the functions are separated through the formation of committees, the compensation committee is willing to choose a higher pay-performance sensitivity as the increased cost of oversight is borne by the audit committee. Our model generates predictions relating the board committee structure to the pay-performance sensitivity of CEO compensation, the quality of board oversight, and the level of earnings management.
180
Mutual insurance companies and stock insurance companies are different forms of organized risk sharing: policyholders and owners are two distinct groups in a stock insurer, while they are one and the same in a mutual. This distinction is relevant to raising capital, selling policies, and sharing risk in the presence of financial distress. Up-front capital is necessary for a stock insurer to offer insurance at a fair premium, but not for a mutual. In the presence of an owner-manager conflict, holding capital is costly. Free-rider and commitment problems limit the degree of capitalization that a stock insurer can obtain. The mutual form, by tying sales of policies to the provision of capital, can overcome these problems at the potential cost of less diversified owners.
179
Using a unique data set on trade credit defaults among French firms, we investigate whether and how trade credit is used to relax financial constraints. We show that firms that face idiosyncratic liquidity shocks are more likely to default on trade credit, especially when the shocks are unexpected, firms have little liquidity, are likely to be credit constrained or are close to their debt capacity. We estimate that credit constrained firms pass more than one fourth of the liquidity shocks they face on to their suppliers down the trade credit chain. The evidence is consistent with the idea that firms provide liquidity insurance to each other and that this mechanism is able to alleviate the consequences of credit constraints. In addition, we show that the chain of defaults stops when it reaches firms that are large, liquid, and have access to financial markets. This suggests that liquidity is allocated from large firms with access to outside finance to small, credit constrained firms through trade credit chains.
178
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.
177
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.
176
Many tax-codes around the world allow for special taxable treatment of savings in retirement accounts. In particular, profits in retirement accounts are usually tax exempt which allow investors to increase an asset’s return by holding it in such a retirement account. While the existing literature on asset location shows that risk-free bonds are usually the preferred asset to hold in a retirement account, we explain how the tax exemption of profits in retirement accounts affects private investors’ asset allocation. We show that total final wealth can be decomposed into what the investor would have earned in a taxable account and what is due to the tax exemption of profits in the retirement account. The tax exemption of profits can thus be considered a tax-gift which is similar to an implicit bond holding. As this tax-gift’s impact on total final wealth decreases over time, so does the investor’s equity exposure.
175
This paper analyses cross-border contagion in a sample of European banks from January 1994 to January 2003. We use a multinomial logit model to estimate the number of banks in a given country that experience a large shock on the same day (“coexceedances”) as a function of variables measuring common shocks and coexceedances in other countries. Large shocks are measured by the bottom 95th percentile of the distribution of the first difference in the daily distance to default of the bank. We find evidence in favour of significant cross-border contagion. We also find some evidence that since the introduction of the euro cross-border contagion may have increased. The results seem to be very robust to changes in the specification.
174
We compute the optimal dynamic asset allocation policy for a retiree with Epstein-Zin utility. The retiree can decide how much he consumes and how much he invests in stocks, bonds, and annuities. Pricing the annuities we account for asymmetric mortality beliefs and administration expenses. We show that the retiree does not purchase annuities only once but rather several times during retirement (gradual annuitization). We analyze the case in which the retiree is restricted to buy annuities only once and has to perform a (complete or partial) switching strategy. This restriction reduces both the utility and the demand for annuities.
173
We propose a new approach to measuring the effect of unobservable private information or beliefs on volatility. Using high-frequency intraday data, we estimate the volatility effect of a well identified shock on the volatility of the stock returns of large European banks as a function of the quality of available public information about the banks. We hypothesise that, as the publicly available information becomes stale, volatility effects and its persistence should increase, as the private information (beliefs) of investors becomes more important. We find strong support for this idea in the data. We argue that the results have implications for debate surrounding the opacity of banks and the transparency requirements that may be imposed on banks under Pillar III of the New Basel Accord.
172
Wir untersuchen, in welchem Ausmaß die Aktien deutscher Unternehmen im Zeitverlauf an ausländischen Börsen gehandelt werden. Es zeigt sich – nach anfänglich bedeutsamer Handelsaktivität im Ausland – ein ausgeprägter Rückfluss-Effekt nach Deutschland. Zweitnotierungen an ausländischen Börsen dienen der Verbreiterung der Aktionärsbasis und somit der Senkung der Kapitalkosten und letztendlich der Steigerung des Unternehmenswertes. Dazu ist ein ausreichendes Handelsvolumen an der ausländischen Börse unabdinglich. Daran gemessen sind die Auslandsnotierungen deutscher Unternehmen nicht erfolgreich. Dies ist jedoch nicht im gleichen Ausmaß für alle Unternehmen der Fall. Kleinere, wachsende Unternehmen und Unternehmen mit höherem Anteil des Auslandsumsatzes am Gesamtumsatz werden relativ stärker im Ausland gehandelt.
171
This paper provides new insights into the nature of loan securitization. We analyze the use of collateralized loan obligation (CLO) transactions by European banks from 1997 to 2004 andtry to identify the influence that various firm-specific and macroeconomic factors may have on an institution's securitization decision. We find that not only regulatory capital arbitrage under Basel I has been driving the market. Rather, our results suggest that loan securitization is an appropriate funding tool for banks with high risk and low liquidity. It may also have been used by commercial banks to indirectly access investment-bank activities and the associated gains.
170
The tax codes in many countries allow for special tax advantages for investments in special retirement plans. Probably the most important advantage to these plans is that profits usually remain untaxed. This paper deals with the question, which assets are preferable in a taxdeferred account (TDA). Contrary to the conventional wisdom that one should prefer bonds in the TDA, it is shown that especially in early years, stocks can be the preferred asset to hold in the TDA for an investor maximizing final wealth, given a certain asset allocation. The higher the performance of stocks compared to bonds, the higher the tax burden put on stocks compared to bonds. Simultaneously, the longer the remaining investment horizon, the larger the relative outperformance of the optimal asset location strategy compared to the myopic strategy of locating bonds in the TDA. An algorithm is provided to determine the investment strategy that maximizes (expected) funds at the end of a given investment horizon when there is an analytical solution.
169
This paper analyzes the relation between demographic structure and real asset returns on treasury bills, bonds and stocks for the G7-countries (United States, Canada, Japan, Italy, France, the United Kingdom and Germany). A macroeconomic multifactor model is used to examine a variety of different demographic factors from 1951 to 2002. There was no robust relationship found between shocks in demographic variables and asset returns in the framework of these models, which suggests that Asset Meltdown is rather fiction than fact.
168
Both banks and open end real estate funds effectuate liquidity transformation in large amounts and high scales. Because of this similarity the latter should be analyzed using the same methodologies as usually applied for banks. We show that the work in the tradition of Diamond and Dybvig (1983), especially Allen and Gale (1998) and Diamond and Rajan (2001), provides an applicable theoretical framework. We used this as the basis for our model for open end real estate funds. We then examined the usefulness of the modeling structure in analyzing open end real estate funds. First, we could show that withdrawing of capital resulting in a run is not always inefficient. Instead, withdrawing can as well be referred to the situation where the low return of an open end fund unit in comparison to other opportunities makes, (partial) withdrawal viewed from the risk-sharing perspective optimal. Even with costly liquidation, this result will hold, though we will have deadweight losses in such a situation. Second, introducing a secondary market in our model does, not in general, resolve the problem of deadweight losses associated with foreclosure. If assets are sold during a run, we do not only have a transfer of value but it can also create an economic cost. Because funds are forced to liquidate the illiquid asset in order to fulfill their obligations, the price of the real estate asset is forced down making the crisis worse. Rather than providing insurance, such that investors receive a transfer in negative outcomes, the secondary market does the opposite. It provides a negative insurance instead. Third, our model proves that the open end structure provides a monitoring function which serves as an efficient instrument to discipline the funds management. Therefore, we argue that an open end structure can represent a more adequate solution to securitize real estate or other illiquid assets. Instead of transforming open end in closed end structures, fund runs should be accepted as a normal phenomenon to clear the market from funds with mismanagement.
167
Rentenreform in Russland : heutiger Stand und Entwicklungsperspektiven im internationalen Vergleich
(2006)
Das Rentensystem ist ein wichtiges Element jeder modernen Volkswirtschaft. Heutzutage werden Rentenreformen sowohl in den Industriestaaten als auch in den Transformationsländern diskutiert und praktisch umgesetzt. Jedoch sind die Ursachen bzw. Ziele der Rentenreformen in einzelnen Regionen zu unterscheiden. Während der demographische Wandel in den Industriestaaten zur Notwendigkeit der Erhöhung der Einnahmen bzw. Kürzung der Ausgaben der Rentensysteme geführt hat, kämpfen die Transformationsländer mit den Folgen des sozialistischen Systems der Alterssicherung und den Problemen des Transformationsprozesses. Vor diesem Hintergrund diskutiert diese Arbeit die Notwendigkeit sowie die ersten Schritte der Umsetzung der Rentenreform in Russland, setzt diese in Relation zu den Reformschritten in Lateinamerika und Osteuropa und analysiert die Perspektiven zukünftiger Reformen in Russland.
166
One of the most acute problems in the world today is provision of a respectable living for the elderly. Today the process of aging population (as a result of a declined birth rate and increased life expectancy) has touched all countries of the world - developed countries as well as countries like Russia. Consequently, reforming traditional pension systems to deal with the changing situation has become an important issue around the world. These reforms typically center on the implementation of some form of funding of future pension benefits. This also holds for Russia, where in 1995 pension reform legislation introduced the so-called “accumulation pension”. In this context, this article will deal with the issues concerning the establishment of mutual funds, legal aspects of their operating and their investing opportunities. There will be carried out a comparative analysis of mutual funds with the other forms of public investments, namely: Common Funds of Bank Management, Voucher Investment Funds and Joint-stock Investment Funds.
165
Open-end real estate funds are of particular importance in the German bankdominated financial system. However, recently the German open-end fund industry came under severe distress which triggered a broad discussion of required regulatory interventions. This paper gives a detailed description of the institutional structure of these funds and of the events that led to the crisis. Furthermore, it applies recent banking theory to open-end real estate funds in order to understand why the open-end fund structure was so prevalent in Germany. Based on these theoretical insights we evaluate the various policy recommendation that have been raised.
163
This paper investigates whether the stock market reacts to unsolicited ratings for a sample of S&P rated firms from January 1996 to December 2005. We first analyze the stock market reaction associated with the assignment of an initial unsolicited rating. We find evidence that this reaction is negative and particularly accentuated for Japanese firms. A comparison between S&P’s initial unsolicited ratings with previously published ratings of two Japanese rating agencies for a Japanese subsample shows that ratings assigned by S&P are systematically worse. Further, we find that the stock market does not react to the transition from an unsolicited to a solicited rating. Comparison of the upgrades in the sample with a matched-sample of upgrades of solicited ratings reveals that the price reactions are no different. In addition, abnormal returns are worse for firms whose rating remained unchanged after the solicitation compared to those for upgraded firms. Finally, we find that Japanese firms are less likely to receive an upgrade. Our findings suggest that unsolicited ratings are biased downwards, that the capital market therefore expects upgrades of formerly unsolicited ratings and punishes firms whose ratings remain unchanged. All these effects seem to be more pronounced for Japanese firms.
162
Stakeholderorientierung, Systemhaftigkeit und Stabilität der Corporate Governance in Deutschland
(2006)
Since the time of Germany’s belated industrialisation, corporate governance in Germany has been stakeholder oriented in the dual sense of attaching importance to the interests of stakeholders who are not at the same time shareholders, and of providing certain opportunities for these stakeholders to influence corporate decisions. Corporate governance is also systemic. It is a system of elements that are complementary to each other, and also consistent. In other word, it is composed of elements for which it is important that they fit together well, and in the German case these elements did fit together well until quite recently. Corporate governance as a system is itself an element of the German bank-based financial system at large and possibly even of the entire German business and economic system. Stakeholder orientation of governance is consistent with the general structure this system, and even represents one of its central elements. In retrospect, German corporate governance has also proved to be surprisingly stable. Its fundamental traits date back to the turn from the 19th to the 20th century. There are strong reasons to assume that the systemic features, that is, its complementarity and consistency, have greatly contributed to its past stability. Since about ten years now, there are growing tendencies to question the viability and stability of the German corporate governance system and even the financial system as a whole. One of the central topics in the new debate concerns the stakeholder orientation of the system, which some observers and critics consider as the main weakness of the “German model” under the increasing pressures of globalisation and European integration. As far as their development over time is concerned, systems of complementarity elements exhibit certain peculiarities: (1) They do not adjust easily to changing circumstances. (2) Changes concerning important individual elements, such as the stakeholder orientation of governance, tend to jeopardize the viability and the stability of the entire system. (3) While they appear to be stable, systems shaped by complementary may simply be rigid and tend to break under strong external pressure. “Breaking” means that a system undergoes a fundamental transformation. It seems plausible to assume that the German financial system is already in the middle of such a transformation. It is yet another consequence of its systemic character that this transformation is not likely to be a smooth and gradual process and that it will not lead to a “mixed model” but rather to the adoption of a capital market-based financial system as it prevails in the Anglo-Saxon countries. In such a system, corporate governance cannot be geared to catering to the interests of stakeholders, and an active role for them would not even make any economic sense.
161
Using data of US domestic mergers and acquisitions transactions, this paper shows that acquirers have a preference for geographically proximate target companies. We measure the ‘home bias’ against benchmark portfolios of hypothetical deals where the potential targets consist of firms of similar size in the same four-digit SIC code that have been targets in other transactions at about the same time or firms that have been listed at a stock exchange at that time. There is a strong and consistent home bias for M&A transactions in the US, which is significantly declining during the observation period, i.e. between 1990 and 2004. At the same time, the average distances between target and acquirer increase articulately. The home bias is stronger for small and relatively opaque target companies suggesting that local information is the decisive factor in explaining the results. Acquirers that diversify into new business lines also display a stronger preference for more proximate targets. With an event study we show that investors react relatively better to proximate acquisitions than to distant ones. That reaction is more important and becomes significant in times when the average distance between target and acquirer becomes larger, but never becomes economically significant. We interpret this as evidence for the familiarity hypothesis brought forward by Huberman (2001): Acquirers know about the existence of proximate targets and are more likely to merge with them without necessarily being better informed. However, when comparing the best and the worst deals, we are able to show a dramatic difference in distances and home bias: The most successful deals display on average a much stronger home bias and distinctively smaller distance between acquirer and target than the least successful deals. Proximity in M&A transactions therefore is a necessary but not sufficient condition for success. The paper contributes to the growing literature on the role of distance in financial decisions.
160
In this paper, we propose a model of credit rating agencies using the global games framework to incorporate information and coordination problems. We introduce a refined utility function of a credit rating agency that, additional to reputation maximization, also embeds aspects of competition and feedback effects of the rating on the rated firms. Apart from hinting at explanations for several hypotheses with regard to agencies' optimal rating assessments, our model suggests that the existence of rating agencies may decrease the incidence of multiple equilibria. If investors have discretionary power over the precision of their private information, we can prove that public rating announcements and private information collection are complements rather than substitutes in order to secure uniqueness of equilibrium. In this respect, rating agencies may spark off a virtuous circle that increases the efficiency of the market outcome.
159
Kapitalmarktorientierte Risikosteuerung in Banken : Marktwertsteuerung statt Marktzinsmethode
(2005)
In diesem Beitrag wird das Konzept der Marktzinsmethode als Grundlage der dualen Risikosteuerung von Kredit- und Marktpreisrisiken in Frage gestellt. Die Kreditrisiken einer Bank implizieren bonitätsinduzierte Marktpreisrisiken und bankspezifische Refinanzierungskosten. Während die bonitätsinduzierten Marktpreisrisiken in der dualen Risikosteuerung keine Berücksichtigung finden, werden die bankspezifischen Refinanzierungskosten zwar erkannt, aber bankintern nicht verursachungsgerecht zugeordnet. Das Grundmodell der Marktzinsmethode bietet keine Lösungsansätze zur Behebung dieser Probleme. Demgegenüber lassen sich die Fehlsteuerungsimpulse von vornherein durch eine konsequente Marktbewertung (Mark to Market) aller Finanzinstrumente vermeiden. Als Ausblick werden erste Überlegungen zur Implementierung einer umfassenden Marktwertsteuerung in Banken entwickelt und exemplarisch ein hierfür geeignetes Bewertungsmodell vorgestellt.
158
In recent years stock exchanges have been increasingly diversifying their operations into related business areas such as derivatives trading, post-trading services and software sales. This trend can be observed most notably among profit-oriented trading venues. While the pursuit for diversification is likely to be driven by the attractiveness of these investment opportunities, it is yet an open question whether certain integration activities are also efficient, both from a social welfare and from the exchanges' perspective. Academic contributions so far analyzed different business models primarily from the social welfare perspective, whereas there is only little literature considering their impact on the exchange itself. By employing a panel data set of 28 stock exchanges for the years 1999-2003 we seek to shed light on this topic by comparing the factor productivity of exchanges with different business models. Our findings suggest three conclusions: (1) Integration activity comes at the cost of increased operational complexity which in some cases outweigh the potential synergies between related activities and therefore leads to technical inefficiencies and lower productivity growth. (2) We find no evidence that vertical integration is more efficient and productive than other business models. This finding could contribute to the ongoing discussion about the merits of vertical integration from a social welfare perspective. (3) The existence of a strong in-house IT-competence seems to be beneficial to overcome.
157
Academic contributions on the demutualization of stock exchanges so far have been predominantly devoted to social welfare issues, whereas there is scarce empirical literature referring to the impact of a governance change on the exchange itself. While there is consensus that the case for demutualization is predominantly driven by the need to improve the exchange's competitiveness in a changing business environment, it remains unclear how different governance regimes actually affect stock exchange performance. Some authors propose that a public listing is the best suited governance arrangement to improve an exchange's competitiveness. By employing a panel data set of 28 stock exchanges for the years 1999-2003 we seek to shed light on this topic by comparing the efficiency and productivity of exchanges with differing governance arrangements. For this purpose we calculate in a first step individual efficiency and productivity values via DEA. In a second step we regress the derived values against variables that - amongst others - map the institutional arrangement of the exchanges in order to determine efficiency and productivity differences between (1) mutuals (2) demutualized but customer-owned exchanges and (3) publicly listed and thus at least partly outsider-owned exchanges. We find evidence that demutualized exchanges exhibit higher technical efficiency than mutuals. However, they perform relatively poor as far as productivity growth is concerned. Furthermore, we find no evidence that publicly listed exchanges possess higher efficiency and productivity values than demutualized exchanges with a customer-dominated structure. We conclude that the merits of outside ownership lie possibly in other areas such as solving conflicts of interest between too heterogeneous members.
156
This article presents an overview of the contemporary German insurance market, its structure, players, and development trends. First, brief information about the history of the insurance industry in Germany is provided. Second, the contemporary market is analyzed in terms of its legal and economic structure, with statistics on the number of companies, insurance density and penetration, the role of insurers in the capital markets, premiums split, and main market players and their market shares. Furthermore, the three biggest insurance lines—life, health, and property and casualty—are considered in more detail, such as product range, country specifics, and insurance and investment results. A section on regulation outlines its implementation in the insurance sector, offering information on the underlying legislative basis, supervisory body, technical procedures, expected developments, and sources of more detailed information.
155
We provide insights into determinants of the rating level of 371 issuers which defaulted in the years 1999 to 2003, and into the leader-follower relationship between Moody’s and S&P. The evidence for the rating level suggests that Moody’s assigns lower ratings than S&P for all observed periods before the default event. Furthermore, we observe two-way Granger causal-ity, which signifies information flow between the two rating agencies. Since lagged rating changes influence the magnitude of the agencies’ own rating changes it would appear that the two rating agencies apply a policy of taking a severe downgrade through several mild down-grades. Further, our analysis of rating changes shows that issuers with headquarters in the US are less sharply downgraded than non-US issuers. For rating changes by Moody’s we also find that larger issuers seem to be downgraded less severely than smaller issuers.
154
It is widely believed that the ideal board in corporations is composed almost entirely of independent (outside) directors. In contrast, this paper shows that some lack of board independence can be in the interest of shareholders. This follows because a lack of board independence serves as a substitute for commitment. Boards that are dependent on the incumbent CEO adopt a less aggressive CEO replacement rule than independent boards. While this behavior is inefficient ex post, it has positive ex ante incentive effects. The model suggests that independent boards (dependent boards) are most valuable to shareholders if the problem of providing appropriate incentives to the CEO is weak (severe).
153
We derive the effects of credit risk transfer (CRT) markets on real sector productivity and on the volume of financial intermediation in a model where banks choose their optimal degree of CRT and monitoring. We find that CRT increases productivity in the up-market real sector but decreases it in the low-end segment. If optimal, CRT unambiguously fosters financial deepening, i.e., it reduces credit-rationing in the economy. These effects rely upon the ability of banks to commit to the optimal CRT at the funding stage. The optimal degree of CRT depends on the combination of moral hazard, general riskiness, and the cost of monitoring in non-monotonic ways.
152
This paper makes an attempt to present the economics of credit securitisation in a non-technical way, starting from the description and the analysis of a typical securitisation transaction. The paper sketches a theoretical explanation for why tranching, or nonproportional risk sharing, which is at the heart of securitisation transactions, may allow commercial banks to maximize their shareholder value. However, the analysis makes also clear that the conditions under which credit securitisation enhances welfare, are fairly restrictive, and require not only an active role of the banking supervisory authorities, but also a price tag on the implicit insurance currently provided by the lender of last resort.
151
Despite a lot of re-structuring and many innovations in recent years, the securities transaction industry in the European Union is still a highly inefficient and inconsistently configured system for cross-border transactions. This paper analyzes the functions performed, the institutions involved and the parameters concerned that shape market and ownership structure in the industry. Of particular interest are microeconomic incentives of the main players that can be in contradiction to social welfare. We develop a framework and analyze three consistent systems for the securities transaction industry in the EU that offer superior efficiency than the current, inefficient arrangement. Some policy advice is given to select the 'best' system for the Single European Financial Market.
150
„Bedeutende Finanzplätze“ oder Finanzzentren sind eng abgegrenzte Orte mit einer beträchtlichen Konzentration wichtiger professioneller Aktivitäten aus dem Finanzdienstleistungsbereich und der entsprechenden Institutionen. Allerdings: „Finance is a footloose industry“: Die Finanzbranche kann abwandern, ein Finanzzentrum kann sich verlagern, möglicherweise auch einfach auflösen. Die Möglichkeit der Auflösung und der Abwanderung stellt eine Bedrohung dar, die in der Zeit der Globalisierung und der rasanten Fortschritte der Transport- und der Informations- und Kommunikationstechnik ausgeprägter sein dürfte, als sie je war. Frankfurt ist zweifellos ein „bedeutender Finanzplatz“, und manchen gilt er auch als bedroht. Allein deshalb ist unser Thema wichtig; und auch wenn die Einschätzungen von Bedeutung und Bedrohtheit keineswegs neu sind, ist es doch aktuell. Der Aspekt der Bedrohtheit prägt, wie wir die Frage im Titel verstehen und diskutieren möchten. Was ist ein „bedeutender Finanzplatz“? Selbst wenn man das Attribut „bedeutend“ erst einmal beiseite lässt, ist die Frage keineswegs trivial. Sie zielt ja nicht nur auf eine Begriffsklärung, eine Sprachregelung ab. Hinter dem Begriff steht oft auch eine Vorstellung vom „Wesen“ dessen, was ein Begriff bezeichnet. Also: Was macht einen Finanzplatz aus? Und weiter: Warum gibt es überhaupt Finanzplätze als beträchtliche Konzentrationen von bestimmten wichtigen Aktivitäten und Institutionen? Welche Kräfte führen - oder zumindest führten - zu der räumlichen Konzentration der Aktivitäten und Institutionen, wie wirken diese Kräfte, und wie ändern sie sich gegebenenfalls? Diesen Fragen ist dieser Beitrag im Wesentlichen gewidmet, und sie prägen seinen Aufbau. Im Abschnitt II wird diskutiert, was ein „bedeutender Finanzplatz“ ist oder woran man ihn erkennt und „was er braucht“. Im Abschnitt III gehen wir zuerst auf die Frage nach der in letzter Zeit unter dem Stichwort „the end of geography“ heftig diskutierten Vorstellung einer Auflösung oder Virtualisierung der Finanzplätze ein – nicht weil dies die wichtigere Bedrohung wäre, sondern weil es die grundlegendere Frage darstellt. Dann diskutieren wir den Wettbewerb von Finanzplätzen in Europa. Den Abschluss bilden Überlegungen zu den Perspektiven des Finanzplatzes Frankfurt und der möglichen Förderung seiner Entwicklung.
149
Small and medium-sized firms typically obtain capital via bank financing. They often rely on a mixture of relationship and arm’s-length banking. This paper explores the reasons for the dominance of heterogeneous multiple banking systems. We show that the incidence of inefficient credit termination and subsequent firm liquidation is contingent on the borrower’s quality and on the relationship bank’s information precision. Generally, heterogeneous multiple banking leads to fewer inefficient credit decisions than monopoly relationship lending or homogeneous multiple banking, provided that the relationship bank’s fraction of total firm debt is not too large.
148
Small and medium-sized firms typically obtain capital via bank financing. They often rely on a mixture of relationship and arm’s-length banking. This paper explores the reasons for the dominance of heterogeneous multiple banking systems. We show that the incidence of inefficient credit termination and subsequent firm liquidation is contingent on the borrower’s quality and on the relationship bank’s information precision. Generally, heterogeneous multiple banking leads to fewer inefficient credit decisions than monopoly relationship lending or homogeneous multiple banking, provided that the relationship bank’s fraction of total firm debt is not too large.
147
This paper starts out by pointing out the challenges and weaknesses which the German banking systems faces according to the prevailing views among national and international observers. These challenges include a generalproblem of profitability and, possibly as its main reason, the strong role of public banks. These concerns raise the questions whether the facts support this assessment of a general profitability problem and whether there are reasons to expect a fundamental or structural transformation of the German banking system. The paper contains four sections. The first one presents the evidence concerning the profitability problem in a comparative, international perspective. The second section presents information about the so-called three-pillar system of German banking. What might be surprising in this context is that the group of pub lic banks is not only the largest segment of the German banking system, but that the primary savings banks also are its financially most successful part. The German banking system is highly fragmented. This fact suggests to discuss past, present and possible future consolidations in the banking system in the third section. The authors provide evidence to the effect that within- group consolidation has been going on at a rapid pace in the public and the cooperative banking groups in recent years and that this development has not yet come to an end, while within-group consolidation among the large private banks, consolidation across group boundaries at a national level and cross-border or international consolidation has so far only happened at a limited scale, and do not appear to gain momentum in the near future. In the last section, the authors develop their explanation for the fact that large-scale and cross border consolidation has so far not materialized to any great extent. Drawing on the concept of complementarity, they argue that it would be difficult to expect these kinds of mergers and acquisitions happening within a financial system which is itself surprisingly stable, or, as one cal also call it, resistant to change.
146
The German corporate governance system has long been cited as the standard example of an insider-controlled and stakeholder-oriented system. We argue that despite important reforms and substantial changes of individual elements of the German corporate governance system the main characteristics of the traditional German system as a whole are still in place. However, in our opinion the changing role of the big universal banks in the governance undermines the stability of the corporate governance system in Germany. Therefore a breakdown of the traditional system leading to a control vacuum or a fundamental change to a capital market-based system could be in the offing.
145
This paper examines intraday stock price effects and trading activity caused by ad hoc disclosures in Germany. The evidence suggests that the observed stock prices react within 90 minutes after the ad hoc disclosures. Trading volumes take even longer to adjust. We find no evidence for abnormal price reactions or abnormal trading volume before announcements. The bigger the company that announces an ad hoc disclosure, the less severe is the abnormal price effect following the announcement. The number of analysts is negatively correlated to the trading volume effect before the ad hoc disclosure. The higher the trading volume on the last trading day before the announcement, the greater is the price effect after the ad hoc disclosures and the greater the trading volume effect. Keywords: ad hoc disclosure rules, intraday stock price adjustments, market efficiency.
144
Die Altersvorsorge in Russland - Theoretische Analyse, aktuelle Rahmenbedingungen und ihre Umsetzung
(2005)
Das russische Rentenversicherungssystem befindet sich in der Krise. Wie in einer Vielzahl entwickelter Staaten auch, erodiert die Basis des umlagefinanzierten Rentensystems („Generationenvertrag“) auf Grund des demografischen Wandels. Dies wird verstärkt durch die mangelnde Wirtschaftskraft Russlands. Ausgangspunkt der Diskussion des russischen Rentenmodells in diesem Artikel ist die Darstellung der theoretischen Grundannahmen, die Analyse der aktuellen und zukünftigen Rahmenbedingungen sowie eine Prognose der natürlichen und räumlichen Bevölkerungsbewegung in Russland. Hierauf folgt die Präsentation der gegenwärtigen Situation einschließlich der bereits erfolgten ersten Schritte zu einer umfassenden Neuordnung des Rentenversicherungssystems sowie die Darstellung von „hot steps“ auf dem Weg zu einer nachhaltigen Alterssicherung.
143
Seit der Einführung des Deutschen Corporate Governance Kodex (Kodex) im Jahr 2002 sind deutsche börsennotierte Unternehmen zur Abgabe der Entsprechenserklärung gemäß § 161 AktG verpflichtet (Comply-or-Explain-Prinzip). Auf der Basis dieser Information soll durch den Druck des Kapitalmarkts die Einhaltung des Kodex überwacht und gegebenenfalls sanktioniert werden. Dabei wird regelmäßig postuliert, dass bei überdurchschnittlicher Befolgung bzw. Nichtbefolgung der Kodex-Empfehlungen eine Belohnung durch Kurszuschläge bzw. eine Sanktionierung durch Kursabschläge erfolgt. Die Ergebnisse einer Ereignisstudie zeigen, dass die Abgabe der Entsprechenserklärung keine erhebliche Kursbeeinflussung auslöst und die für das Enforcement des Kodex angenommene (und erforderliche) Selbstregulierung durch den Kapitalmarkt nicht stattfindet. Es wird daher kritisch hinterfragt, ob der für den Kodex gewählte und grundsätzlich zu begrüßende flexible Regulierungsansatz im System des zwingenden deutschen Gesellschaftsrechts einen geeigneten Enforcement-Mechanismus darstellt. This paper studies the short-run announcement effects of compliance with the German Corporate Governance Code (‘the Code’) on firm value. Event study results suggest that firm value is unaffected by the announcement, although such market reactions to the first time disclosure of the declaration of conformity were widely assumed by the private and public promoters of the Code. This result from acceptance of the German Code add evidence to the hypothesis that regulatory corporate governance initiatives that rely on mandatory disclosure without monitoring and enforcement are ineffective in civil law countries.
142
We investigate the connection between corporate governance system configurations and the role of intermediaries in the respective systems from a informational perspective. Building on the economics of information we show that it is meaningful to distinguish between internalisation and externalisation as two fundamentally different ways of dealing with information in corporate governance systems. This lays the groundwork for a description of two types of corporate governance systems, i.e. insider control system and outsider control system, in which we focus on the distinctive role of intermediaries in the production and use of information. It will be argued that internalisation is the prevailing mode of information processing in insider control system while externalisation dominates in outsider control system. We also discuss shortly the interrelations between the prevailing corporate governance system and types of activities or industry structures supported.
140
When options are traded, one can use their prices and price changes to draw inference about the set of risk factors and their risk premia. We analyze tests for the existence and the sign of the market prices of jump risk that are based on option hedging errors. We derive a closed-form solution for the option hedging error and its expectation in a stochastic jump model under continuous trading and correct model specification. Jump risk is structurally different from, e.g., stochastic volatility: there is one market price of risk for each jump size (and not just \emph{the} market price of jump risk). Thus, the expected hedging error cannot identify the exact structure of the compensation for jump risk. Furthermore, we derive closed form solutions for the expected option hedging error under discrete trading and model mis-specification. Compared to the ideal case, the sign of the expected hedging error can change, so that empirical tests based on simplifying assumptions about trading frequency and the model may lead to incorrect conclusions.
138
This paper deals with the superhedging of derivatives and with the corresponding price bounds. A static superhedge results in trivial and fully nonparametric price bounds, which can be tightened if there exists a cheaper superhedge in the class of dynamic trading strategies. We focus on European path-independent claims and show under which conditions such an improvement is possible. For a stochastic volatility model with unbounded volatility, we show that a static superhedge is always optimal, and that, additionally, there may be infinitely many dynamic superhedges with the same initial capital. The trivial price bounds are thus the tightest ones. In a model with stochastic jumps or non-negative stochastic interest rates either a static or a dynamic superhedge is optimal. Finally, in a model with unbounded short rates, only a static superhedge is possible.
137
This paper suggests a motive for bank mergers that goes beyond alleged and typically unverifiable scale economies: preemtive resolution of banks´ financial distress. Such "distress mergers" can be a significant motivation for mergers because they can foster reorganizations, realize diversification gains, and avoid public attention. However, since none of these potential benefits comes without a cost, the overall assessment of distress mergers is unclear. We conduct an empirical analysis to provide evidence on consequences of distress mergers. The analysis is based on comprehensive data from Germany´s savings and cooperatives banks sectors over the period 1993 to 2001. During this period both sectors faced significant structural problems and superordinate institutions (associations) presumably have engaged in coordinated actions to manage distress mergers. The data comprise 3640 banks and 1484 mergers. Our results suggest that bank mergers as a means of preemtive distress resolution have moderate costs in terms of the economic impact on performance. We do find strong evidence consistent with diversification gains. Thus, distress mergers seem to have benefits without affecting systematic stability adversely.
136, Versi
Tests for the existence and the sign of the volatility risk premium are often based on expected option hedging errors. When the hedge is performed under the ideal conditions of continuous trading and correct model specification, the sign of the premium is the same as the sign of the mean hedging error for a large class of stochastic volatility option pricing models. We show, however, that the problems of discrete trading and model mis-specification, which are necessarily present in any empirical study, may cause the standard test to yield unreliable results.
134
Der Bestimmung risikoadäquater Diskontierungssätze kommt bei der Unternehmensbedeutung eine zentrale Bedeutung zu. Wird zu deren Bestimmung in der praktischen Anwendung das CAPM verwendet, gilt es dabei, risikolose Zinssätze und Risikoprämien zu bestimmen, für die erwartete Renditen des Marktportfeuilles und Beta-Faktoren als Maßgrößen für das systematische Risiko benötigt werden. Passend zu den zu bewertenden erwarteten Überschussgrößen sollten auch die zur Diskontierung verwendeten Renditeforderungen die im Bewertungszeitpunkt erwarteten künftigen Renditen vergleichbarer Anlagen widerspiegeln. Die weitaus meisten Beiträge zur Operationalisierung des CAPM leiten die Renditeforderungen jedoch aus historischen Kapitalmarktrenditen ab. Wir zeigen in diesem Beitrag auf, wie erwartete künftige Renditen aus beobachtbaren Größen, vor allen den Zinsstrukturkurven und den beobachtbaren Analystenprognosen, zukunftsorientiert abgeleitet werden können. Damit wird eine konzeptionell schlüssigere Bewertung der im Bewertungszeitpunkt erwarteten künftigen Überschüsse mit den zeitgleich erwarteten künftigen Renditen ermöglicht.
133
When performance measures are used for evaluation purposes, agents have some incentives to learn how their actions affect these measures. We show that the use of imperfect performance measures can cause an agent to devote too many resources (too much effort) to acquiring information. Doing so can be costly to the principal because the agent can use information to game the performance measure to the detriment of the principal. We analyze the impact of endogenous information acquisition on the optimal incentive strength and the quality of the performance measure used.
132
This paper compares the accuracy of credit ratings of Moody s and Standard&Poors. Based on 11,428 issuer ratings and 350 defaults in several datasets from 1999 to 2003 a slight advantage for the rating system of Moody s is detected. Compared to former research the robustness of the results is increased by using nonparametric bootstrap approaches. Furthermore, robustness checks are made to control for the impact of Watchlist entries, staleness of ratings and the effect of unsolicited ratings on the results.
131
The question whether the adoption of International Financial Reporting Standards (IFRS) will result in measurable economic benefits is of special policy relevance in particular given the European Union’s decision to require the application of IFRS by listed companies from 2005/2007. In this paper, I investigate the common con-jecture that internationally recognized high quality reporting standards (IAS/IFRS or US-GAAP) reduce the cost of capital of adopting firms (e.g. Levitt 1998; IASB 2002). Building on Leuz/Verrecchia (2000), I use a set of German firms which pre-adopted such standards before 2005, but investigate the potential economic benefits by analyzing their expected cost of equity capital utilizing and customizing avail-able implied estimation methods (e.g. Gebhardt/Lee/Swaminathan 2001, Easton/Taylor/Shroff/Sougiannis 2002, Easton 2004). Evidence from a sample of about 13,000 HGB, 4,500 IAS/IFRS and 3,000 US-GAAP firm-month observations in the period 1993-2002 generally fails to document lower expected cost of equity capital and therefore measurable economic benefits for firms applying IAS/IFRS or US-GAAP. Accordingly, I caution to state that reporting under internationally accepted standards, per se, lowers the cost of equity capital of adopting firms.
130
EU financial integration : is there a 'Core Europe'? ; evidence from a cluster-based approach
(2005)
Numerous recent studies, e.g. EU Commission (2004a), Baele et al. (2004), Adam et al.(2002), and the research pooled in ECB-CFS (2005), Gaspar, Hartmann, and Sleijpen(2003), have documented progress in EU financial integration from a micro-level view.This paper contributes to this research by identifying groups of financially integratedcountries from a holistic, macro-level view. It calculates cross-sectional dispersions, andinnovates by applying an inter-temporal cluster analysis to eight euro area countries for the period 1995-2002. The indicators employed represent the money, government bond and credit markets. Our results show that euro countries were divided into two stable groups of financially more closely integrated countries in the pre-EMU period. Back then, geographic proximity and country size might have played a role. This situation has changed remarkably with the euro's introduction. EMU has led to a shake-up both in the number and composition of groups. The evidence puts a question mark behin d using Germany as a benchmark in the post-EMU period. The ¯ndings suggest as well that ¯nancial integration takes place in waves. Stable periods and periods of intense transition alternate. Based on the notion of 'maximum similarity', the results suggest that there exist 'maximum similarity barriers'. It takes extraordinary events, such as EMU, to push the degree of ¯nancial integration beyond these barriers. The research encourages policymakers to move forward courageously in the post-FSAP era, and provides comfort that the substantial di®erences between the current and potentially new euro states can be overcome. The analysis could be extended to the new EU member countries, to the global level, and to additional indicators.
129
We show that multi-bank loan pools improve the risk-return profile of banks’ loan business. Banks write simple contracts on the proceeds from pooled loan portfolios, taking into account the free-rider problems in joint loan production. Thus, banks benefit greatly from diversifying credit risk while limiting the efficiency loss due to adverse incentives. We present calibration results that the formation of loan pools reduce the volatility in default rates, proxying for credit risk, of participating banks’ loan portfolios by roughly 70% in our sample. Under reasonable assumptions, the gain in return on equity (in certainty equivalent terms) is around 20 basis points annually.