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The global financial crisis has lead to a renewed interest in discretionary fiscal stimulus. Advocates of discretionary measures emphasize that government spending can stimulate additional private spending — the so-called Keynesian multiplier effect. Thus, we investigate whether the discretionary spending announced by Euro area governments for 2009 and 2010 is likely to boost euro area GDP by more than one for one. Because of modeling uncertainty, it is essential that such policy evaluations be robust to alternative modeling assumptions and different parameterizations. Therefore, we use five different empirical macroeconomic models with Keynesian features such as price and wage rigidities to evaluate the impact of fiscal stimulus. Four of them suggest that the planned increase in government spending will reduce private spending for consumption and investment purposes significantly. If announced government expenditures are implemented with delay the initial effect on euro area GDP, when stimulus is most needed, may even be negative. Traditional Keynesian multiplier effects only arise in a model that ignores the forward-looking behavioral response of consumers and firms. Using a multi-country model, we find that spillovers between euro area countries are negligible or even negative, because direct demand effects are offset by the indirect effect of euro appreciation.
The recent financial crisis has led to a major debate about fair-value accounting. Many critics have argued that fair-value accounting, often also called mark-to-market accounting, has significantly contributed to the financial crisis or, at least, exacerbated its severity. In this paper, we assess these arguments and examine the role of fair-value accounting in the financial crisis using descriptive data and empirical evidence. Based on our analysis, it is unlikely that fair-value accounting added to the severity of the current financial crisis in a major way. While there may have been downward spirals or asset-fire sales in certain markets, we find little evidence that these effects are the result of fair-value accounting. We also find little support for claims that fair-value accounting leads to excessive write-downs of banks’ assets. If anything, empirical evidence to date points in the opposite direction, that is, towards overvaluation of bank assets.
In this paper we investigate the comparative properties of empirically-estimated monetary models of the U.S. economy. We make use of a new data base of models designed for such investigations. We focus on three representative models: the Christiano, Eichenbaum, Evans (2005) model, the Smets and Wouters (2007) model, and the Taylor (1993a) model. Although the three models differ in terms of structure, estimation method, sample period, and data vintage, we find surprisingly similar economic impacts of unanticipated changes in the federal funds rate. However, the optimal monetary policy responses to other sources of economic fluctuations are widely different in the different models. We show that simple optimal policy rules that respond to the growth rate of output and smooth the interest rate are not robust. In contrast, policy rules with no interest rate smoothing and no response to the growth rate, as distinct from the level, of output are more robust. Robustness can be improved further by optimizing rules with respect to the average loss across the three models.
The goal of this research is to develop an understanding of what causes organizations and information systems to be “good” with regard to communication and coordination. This study (1) gives a theoretical explanation of how the processes of organizational adaptation work and (2) what is required for establishing and measuring the goodness of an organization with regard to communication and coordination. By leveraging concepts from cybernetics and philosophy of language, particularly the theoretical conceptualization of information systems as social systems and language communities, this research arrives at new insights. After discussing related work from systems theory, organization theory, cybernetics, and philosophy of language, a theoretical conceptualization of information systems as language communities is adopted. This provides the foundation for two exploratory field studies. Then a formal theory for explaining the adaptation of organizations via language and communication is presented. This includes measures for the goodness of organizations with regard to communication and coordination. Finally, propositions stemming from the theoretical model are tested using multiple case studies in six information system development projects in the financial services industry.
CHAPTER A: THE INVESTMENT BEHAVIOR OF PRIVATE EQUITY FUND MANAGERS I The Bright and Dark Side of Staging: Investment Performance and the Varying Motivations of Private Equity Firms II The Liquidation Dilemma of Money Losing Investments – The Impact of Investment Experience and Window Dressing of Private Equity and Venture Capital Funds CHAPTER B: THE ASSESSMENT OF RISK AND RETURN OF PRIVATE EQUITY I Venture Capital Performance Projection: A Simulation Approach II Modeling Default Risk of Private Equity Funds – A Market-based Framework
Inhaltsverzeichnis Liste der wissenschaftlichen Beiträge .................................................................................. III Inhaltsverzeichnis ..............................................................................................................IV Abbildungsverzeichnis I List of Figures ................................................................................ VII Tabellenverzeichnis I List of Tables ..................................................................................... VIII Abkürzungsverzeichnis .......................................................................................................... IX 1 Einleitung 1.1 Problemstellung .............................................................................................................. 1 1.2 Einordnung und Ergebnisse der wissenschaftlichen Beiträge ....................................... 3 Literaturverzeichnis ................................................................................................................ 9 2 Langes Leben und Wohlstand im Alter: Ein Überblick über die finanzwirtschaftlichen Alternativen zur Ausgestaltung des Ruhestandes ... 10 2.1 Einführung .................................................................................................................... 10 2.2 Produktalternativen fiir die Ausgestaltung der Entnahmephase .................................. 12 2.2.1 Leibrenten .......................................................................................................... 12 2.2.1.1 Charakteristika von Leibrenten und deren historische Entwicklung .... 12 2.2.1.2 Leibrentenmarkt und -produkte in Deutschland ................................... 15 2.2.1.3 Determinanten von Leibrentenprämien ................................................ 22 2.2.2 Entnahmepläne ................................................................................................... 28 2.2.2.1 Charakteristika von Entnahmeplänen ................................................... 28 2.2.2.2 Entnahmepläne als Instrument der Ruhestandsplanung ....................... 31 2.2.2.3 Leibrenten vs. Entnahmepläne .............................................................. 33 2.3 Forschungsergebnisse zur Ausgestaltung der Entnahmephase .................................... 36 2.3.1 Einleitende Bemerkungen .................................................................................. 36 2.3.2 Positive Literatur ................................................................................................ 37 2.3.2.1 Theoretische Arbeiten zur Bedeutung von Leibrenten ......................... 37 2.3.2.2 Vererbungsmotive als Erklärungsansatz fiir geringe Nachfrage nach Leibrenten ... 39 2.3.2.3 Kosten als Erklärungsansatz fiir geringe Nachfrage nach Leibrenten .. 42 2.3.2.4 Weitere Erklärungsansätze rur geringe Nachfrage nach Leibrenten .... 44 2.3.3 Normative Literatur ............................................................................................ 47 2.3.3.1 Untersuchungen zu reinen Entnahmeplänen ......................................... 47 2.3.3.2 Untersuchung von Entnahmeplänen unter Berücksichtigung von Leibrenten ..... 50 2.3.4 Sonstige Arbeiten ............................................................................................... 56 2.4 Schlussbetrachtung ....................................................................................................... 57 Anhang A: Berechnung von Leibrentenprämien ................................................................. 59 Anhang B: Abbildung der Biometrie ................................................................................... 62 Literaturverzeichnis .............................................................................................................. 67 3 Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities versus Phased Withdrawal Plans... 76 3.1 Introduction .................................................................................................................. 76 3.2 The Case of Phased Withdrawal .................................................................................. 79 3.2.1 Withdrawal Plans with Fixed Benefits ............................................................... 80 3.2.2 Phased Withdrawal Rules with Variable Benefits ............ : ................................ 80 3.3 Risk and Reward Analysis of Phased Withdrawal Plans Conditional on Survival... ... 82 3.3.1 Research Design ................................................................................................. 82 3.3.2 Analysis of Expected Benefits ........................................................................... 84 3.3.3 Shortfall Risk Analysis ...................................................................................... 86 3.3.4 Analysis of Expected Bequests .......................................................................... 89 3.4 Risk-Minimizing Phased Withdrawal Strategies ......................................................... 90 3.4.1 Optimized Withdrawal Rules in a Risk-Return Context... ................................. 90 3.4.2 Comparative Results: Annuity versus Phased Withdrawal Plans ...................... 92 3.4.3 Phased Withdrawal Plans with Mandatory Deferred Annuities ........................ 97 3.4.4 Comparative Results ........................................................................................ 100 3.5 Summary and concluding remarks ............................................................................. 101 Appendix A: Determining Annuity Benefits ..................................................................... 104 Appendix B: Determining Expected Benefits, Expected Bequest and the Risk of a Consumption Shortfall for Phased Withdrawal Plans with given Benefit-to-Wealth Ratios .......................................................................................................................... 105 References .......................................................................................................................... 107 4 Leistungsgarantien in der Auszahlphase von investmentbasierten Altersvorsorgeverträgen: Entwicklung eines konditionalen Eigenkapitalsystems und Analyse seiner ökonomischen Implikationen ... 111 4.1 Einführung .................................................................................................................. 111 4.2 Altersvorsorgeverträge in der Auszahlphase ............................................................. 114 4.2.1 Gesetzliche Regelungen ................................................................................... 114 4.2.2 Entnahmepläne vs. Leibrenten ......................................................................... 115 4.3 Konditionales Eigenkapitalsystem fiir Altersvorsorgeverträge ................................. 117 4.3.1 Einleitende Vorbemerkungen ........................................................................... 117 4.3.2 Konzeptionelle Grundlagen eines konditionalen EK-Systems ........................ 119 4.3.3 Deduktion eines Eigenkapitalsystems fiir die Entnahmephase ........................ 121 4.4 Eigenkapitalanforderungen in der Entnahmephase .................................................... 126 4.4.1 Vorbemerkungen zur empirischen Untersuchung ............................................ 126 4.4.2 Ex post Analyse von Altersvorsorge-Entnahmeplänen ................................... 128 4.4.3 Untersuchung der Eigenkapitalanforderungen im ex ante Kontext ................. 132 4.4.3.1 Untersuchungsansatz und Modellannahmen ....................................... 132 4.4.3.2 Analysen auf Einzelvertragsbasis ....................................................... 135 4.4.3.3 Analysen im Rahmen eines Geschäfts- und Absatzmodells ............... 140 4.4.3.4 Robustheitsanalysen ............................................................................ 145 4.5 Schlussbetrachtung ..................................................................................................... 147 Literaturverzeichnis ............................................................................................................ 149 Lebenslauf ............................................................................................................................. 151 Ehrenwörtliche Erklärung: ................................................................................................. 154
This dissertation analyzes tax policy, corporations, and capital market effects. First, the Savings Directive, which has left a loophole by providing grandfathering for some securities, is examined. It can be shown that investors are not willing to pay a premium for bonds that are exempt from the withholding rate, so it may be concluded that the supply of existing loopholes is large enough to allow tax evaders to continue evasion at no additional cost. Second, tax neutrality towards alternative financing instruments for corporate investment is a ubiquitous demand in the political debate. However, the magnitude of possible efficiency costs of a departure from tax neutrality is hardly discussed. Against this background, this dissertation discusses the theory of capital structure and provides back-ofthe-envelope calculations of the possible efficiency cost of a tax distortion of the debt-equity decision. Third, the ex-dividend-day effect in relation to the Gennan tax reform of 2000/2001 is discussed. The abolishment of the imputation system allows reinvestigating the size of the exdividend- day effect. I find no structural break in the size of the German ex-dividend-day effect and no evidence of an ex-dividend-day price drop that exceeds the dividend paid. Fourth, an account of the quantitative development of tax legislation in post-war Germany is presented. It can be shown that the legislative output did not increase over the decades and is not affected by a split majority in the upper and lower houses. Finally, it turns out that an increasing fraction of this legislation is passed in December.
This thesis is concerned with the derivation of new methods for the analysis of nonstationary, cross correlated panels. The suggested procedures are carefully quantified by means of Monte Carlo experiments. Typical applications of the developed methods consist in multi-country studies, with several countries observed over a couple of decades. The empirical applications implemented here are the testing for trends in the investment share in European GDPs and the examination of OECD interest rates. In the first chapter, a panel test for the presence of a linear time trend is proposed. The test is applicable in cross-correlated, heterogeneous panels and it can also be used when the integration order of innovations is unknown, by means of subsampling. In the next chapter a cointegration test having asymptotic standard normal distributiun and not requiring exogeneity assumptions is derived. In panels exhibiting cross-correlation or cointegration, individual test statistics are asymptotically independent, which leads to a panel test statistic robust to dependence across units. The third chapter examines in an econometric context the simple idea of combining p-values from a series of statistical tests and improves its applicability in the presence of cross-correlation. The last chapter applies recent panel techniques to OECD long-term interest rates and differentials thereof, finding only rather week evidence in favor of stationarity when allowing for cross-correlation.
The paper explores factors that influence the design of financing contracts between venture capital investors and European venture capital funds. 122 Private Placement Memoranda and 46 Partnership Agreements are investigated in respect to the use of covenant restrictions and compensation schemes. The analysis focuses on the impact of two key factors: the reputation of VC-funds and changes in the overall demand for venture capital services. We find that established funds are more severely restricted by contractual covenants. This contradicts the conventional wisdom which assumes that established market participants care more about their reputation, have less incentive to behave opportunistically and therefore need less covenant restrictions. We also find that managers of established funds are more often obliged to invest own capital alongside with investors money. We interpret this as evidence that established funds have actually less reason to care about their reputation as compared to young funds. One reason for this surprising result could be that managers of established VC funds are older and closer to retirement and therefore put less weight on the effects of their actions on future business opportunities. We also explore the effects of venture capital supply on contract design. Gompers and Lerner (1996) show that VC-funds in the US are able to reduce the number of restrictive covenants in years with high supply of venture capital and interpret this as a result of increased bargaining power by VC-funds. We do not find similar evidence for Europe. Instead, we find that VC-funds receive less base compensation and higher performance related compensation in years with strong capital inflows into the VC industry. This may be interpreted as a signal of overconfidence: Strong investor demand seems to coincide with overoptimistic expectations by fund managers which make them willing to accept higher powered incentive schemes. JEL: G32 Keywords: Venture Capital, Contracting, Limited Partnership, Funds, Principal Agent, Compensation, Covenants, Reputation, Bargaining Power
Does BPO pay off at the firm-level? Although there are several studies which analyze the potential benefits of BPO, there is a virtual absence of research papers on BPO outcomes. Based on an analysis of 137 Business process outsourcing (BPO) ventures at 254 German banks in a period between 1994 and 2005, we found that the outsourcer's financial performance in terms of profitability and cost efficiency was increased significantly compared to industry peers without BPO. The increase stems not from workforce reductions but rather from increased employee productivity. Further, we show how BPO governance ensures BPO success: individually negotiated outsourcing contracts help to improve cost efficiency and profitability measures. Relational governance based on trust has only positive effects on profitability. Keywords: Business Process Outsourcing, firm performance, firm characteristics, banking, German banks, governance JEL Classifications: G21, L14, L21, L24
The syndicated loan market, as a hybrid between public and private debt markets, comprises financial institutions with access to valuable private information about borrowers as a result of close bank-borrower relationships. In this paper, we seek empirical evidence for the costs of these relationships in a sample of UK syndicated loan contracts for the time period 1996 through 2005. Using detailed financial data for both borrowers (private and public companies) and for financial institutions, we find that undercapitalized banks charge higher loan spreads for loans to opaque borrowers using various measures for borrower opaqueness and controlling for bank, borrower and loan characteristics. We further analyze this hold-up effect over the business cycle and find that it only prevails during recessions. In expansion phases, however, we do not find evidence for banks exploiting their information monopoly. This finding is consistent with theories on bank reputation in bank loan commitments. Ambiguity about borrower financial health, which induces the information monopoly in the first place, also gives banks the discretion to exploit or not exploit informational captured borrowers. Our findings are both statistically and economically significant and robust to alternative bank and macroeconomic risk proxies. We address potential concerns about unobserved borrower heterogeneity exploiting the panel data nature of our sample. Using firm-bank fixed effect regressions, we find supporting evidence for our theoretical framework. JEL Classifications: G14, G21, G22, G23, G24 Keywords: Syndicated loans; Hold-up; Lending relationships; Business cycle
The recent success of some alternative trading systems (ATSs) has had a strong impact on the traditional stock exchange industry and many observers expect even more dramatic changes in the future. This paper investigates the nature of competition between stock exchanges and ATSs and argues that the introduction of ATSs weakens the level of competition between market-makers in the traditional exchange...
Over the last four decades the literature on bond rating changes and its effects on security prices increased significantly with almost all studies not controlling for the respective reason for those. We therefore investigate the impact of rating events on the stock and the credit default swap (CDS) market incorporating rating reviews and rating changes together with the reason mentioned by the rating agency. Our results for the general effects are in line with prior findings but conditioning on the respective reason shows that the markets’ anticipation of rating actions is largely driven by events due to changes in firms’ operating performance. Furthermore, we provide empirical evidence for the hypothesis in prior literature that a surprise downgrade does not necessarily have to be bad news for stockholders when wealth is transferred from bondholders, but negative rating actions are always bad news for bondholders. The results additionally reveal increasing rating announcement effects by declining credit quality of firms for both rating reviews and changes. JEL Classification: D82, G14, G20. Keywords: Credit Default Swaps, Credit Ratings, Credit Rating Reasons, Event Study.
Applying an investment perspective to higher education, the paper presents detailed empirical evidence on the rate of return to higher education and its determinants. Employing a sample of 17,180 higher education graduates derived from the German Labor Force Survey 2004, we show considerable variation in the rates of return to higher education across the different subjects, with some subjects on average not representing attractive private investments from an economic point of view. We find that the decision what to study is worth several hundred thousand Euros. Applying regression analysis, we find gender- and degree-specific return advantages only in certain subjects. Comparing the return of an investment in higher education and the production cost of higher education, we show that more expensive subjects (apart from Medicine) yield a lower return. When considering the cost of study, the overall order of attractiveness of the different forms of education remains stable, but the investment in further subjects is no longer clearly attractive. Keywords: Returns to Education, Human Capital, Higher Education Earnings Capacity.
CONCLUSION The analysis of the exposure measurement problem has shown that the proper measurement of counterparty exposure for portfolios of derivatives transactions is a complex task that cannot be performed without making a lot of simplifying assumptions. Because of the complicated interaction of correlation effects and offsettings from different transactions, the single transaction framework which is currently used by most banks is definitely not capable of accurately determining the portfolio credit risk. When simulation techniques are applied to estimate exposure, the accuracy of exposure estimations can be increased significantly. However, a lot of modelling choices has to be made concerning the valuation of transactions and the stochastic model of underlying market rates. Because the system has to make projections of market rates into the far future, the choice of an appropriate stochastic model for market rate dynamics is crucial in order to prevent unreasonable scenarios. The predominant application of models based on Brownian Motion in today’s bank risk management therefore leads to questionable results in respect to derivatives exposure evaluation.
The objective of this paper is to test the hypothesis that in particular financially constrained firms lease a higher share of their assets to mitigate problems of asymmetric information. The assumptions are tested under a GMM framework which simultaneously controls for endogeneity problems and firms’ fixed effects. We find that the share of total annual lease expenses attributable to either finance or operating leases is considerably higher for financially strained as well as for small and fast-growing firms – those likely to face higher agency-cost premiums on marginal financing. Furthermore, our results confirm the substitution of leasing and debt financing for lessee firms. However, we find no evidence that firms use leasing as an instrument to reduce their tax burdens. Keywords: Leasing; financial constraints; capital structure; asymmetric information.
This paper investigates the impact of IT standardization on bank performance based on a panel of 457 German savings banks over the period from 1996 to 2006. We measure IT standardization as the fraction of IT expenses for centralized services over banks' total IT expenses. Bank efficiency, in turn, is measured by traditional accounting performance indicators as well as by cost and profit efficiencies that are estimated by a stochastic frontier approach. Our results suggest that IT standardization is conducive to cost efficiency. The relation is positive and robust for small and medium-sized banks but vanishes for very large banks. Furthermore, our study confirms the often cited computer paradox by showing that total IT expenditures negatively impact cost efficiency and have no influence on bank profits. To the best of our knowledge, this paper is first to empirically explore whether IT standardization enhances efficiency by employing genuine data of banks' IT expenditures. JEL Classification: C23, G21 Keywords: IT standardization, cost and profit efficiency, savings banks
Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modeling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust. Government spending multipliers in an alternative empirically-estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small with GDP and employment effects only one-sixth as large.
This paper analyzes the risk properties of typical asset-backed securities (ABS), like CDOs or MBS, relying on a model with both macroeconomic and idiosyncratic components. The examined properties include expected loss, loss given default, and macro factor dependencies. Using a two-dimensional loss decomposition as a new metric, the risk properties of individual ABS tranches can directly be compared to those of corporate bonds, within and across rating classes. By applying Monte Carlo Simulation, we find that the risk properties of ABS differ significantly and systematically from those of straight bonds with the same rating. In particular, loss given default, the sensitivities to macroeconomic risk, and model risk differ greatly between instruments. Our findings have implications for understanding the credit crisis and for policy making. On an economic level, our analysis suggests a new explanation for the observed rating inflation in structured finance markets during the pre-crisis period 2004-2007. On a policy level, our findings call for a termination of the 'one-size-fits-all' approach to the rating methodology for fixed income instruments, requiring an own rating methodology for structured finance instruments. JEL Classification: G21, G28 Keywords: credit risk, risk transfer, systematic risk
This dissertation consists of three chapters. The first two chapters investigate the real effects of inflation and the third chapter the role of child care for fertility and female female labor supply. Chapter 1 introduces a generalized panel threshold model to analyze the relation between inflation and economic growth for a sample of developing countries. It is demonstrated that allowing for regime intercepts can be crucial for obtaining unbiased estimates of both, inflation thresholds and its marginal effects on growth in the various regimes. The empirical results confirm that the omitted variable bias of standard panel threshold models can be statistically and economically significant. Chapter 2, which is joined work with Dieter Nautz, investigates the impact of inflation on relative price variability (RPV) as a further important channel of the real effects of inflation. With a view to the recent debate on the Fed's implicit lower and upper bounds of its inflation objective, the econometric model introduced in Chapter 1 is used to explore the inflation-RPV linkage in U.S. cities. Chapter 3 investigates the relationship between fertility, female labor supply and child care in the context of a life cycle model for Germany. A particular emphasis is placed on the differences between West and East Germany. Counterfactual policy experiments mimicking recent policy reforms on maternal leave and the provision of subsidized child care are conducted with a structurally estimated version of the model.
We highlight the implications of combining underwriting services and lending for the choice of underwriters and for competition in the underwriting business. We show that cross-selling can increase underwriters’ incentives, and we explain three phenomena: first, that cross-selling is important for universal banks to enter the investment banking business; second, that cross-selling is particularly attractive for highly leveraged borrowers; third, that less-than-market rates are no prerequisite for cross-selling to benefit a bank’s clients. In our model, cross-selling reduces rents in the underwriting business.
The utility-maximizing consumption and investment strategy of an individual investor receiving an unspanned labor income stream seems impossible to find in closed form and very dificult to find using numerical solution techniques. We suggest an easy procedure for finding a specific, simple, and admissible consumption and investment strategy, which is near-optimal in the sense that the wealthequivalent loss compared to the unknown optimal strategy is very small. We first explain and implement the strategy in a simple setting with constant interest rates, a single risky asset, and an exogenously given income stream, but we also show that the success of the strategy is robust to changes in parameter values, to the introduction of stochastic interest rates, and to endogenous labor supply decisions.
In this paper, we analyze economies of scale for German mutual fund complexes. Using 2002-2005 data of 41 investment management companies, we specify a hedonic translog cost function. Applying a fixed effects regression on a one-way error component model there is clear evidence of significant overall economies of scale. On the level of individual mutual fund complexes we find significant economies of scale for all of the companies in our sample. With regard to cost efficiency, we find that the average mutual fund complexes in all size quartiles deviate considerably from the best practice cost frontier. JEL Classification: G2, L25 Keywords: mutual fund complex, investment management company, cost efficiency, economies of scale, hedonic translog cost function, fixed effects regression, one-way error component model
Der vorliegende Beitrag untersucht, ob der Mehrheitsaktionär einer Gesellschaft im Vorfeld eines Zwangsausschlusses von Minderheitsaktionären (sog. Squeeze-Out) versucht, die Kapitalmarkterwartungen negativ zu beeinflussen. Ein solches "manipulatives" Verhalten wird häufig in der juristischen wie betriebswirtschaftlichen Literatur unterstellt, da der Aktienkurs fü die Abfindungshöhe die Wertuntergrenze bildet. Unsere empirische Untersuchung der Bilanz- und Pressemitteilungspolitik von Squeeze-Out-Unternehmen im Vorfeld der Ankündigung einer solchen Maßnahme am deutschen Kapitalmarkt zeigt, dass in diesem Zeitraum tatsächlich ein signifikanter Anstieg (Rückgang) der im Ton pessimistischen (optimistischen) Pressemitteilungen feststellbar ist. Allerdings zeigt sich weiter, dass die Aktien der Squeeze-Out-Kandidaten bereits im Vorfeld und am Tag der Ankündigung so hohe positive Überrenditen erzielen, dass der von uns quantifizierte kumulierte Effekt der Informationspolitik auf die Börsenbewertung einen insgesamt nur sehr geringen Einfluss ausübt und von anderen Faktoren (z.B. Abfindungsspekulationen) dominiert wird. JEL: M41, M40, G14, K22
Gauging risk with higher moments : handrails in measuring and optimising conditional value at risk
(2009)
The aim of the paper is to study empirically the influence of higher moments of the return distribution on conditional value at risk (CVaR). To be more exact, we attempt to reveal the extent to which the risk given by CVaR can be estimated when relying on the mean, standard deviation, skewness and kurtosis. Furthermore, it is intended to study how this relationship can be utilised in portfolio optimisation. First, based on a database of 600 individual equity returns from 22 emerging world markets, factor models incorporating the first four moments of the return distribution have been constructed at different confidence levels for CVaR, and the contribution of the identified factors in explaining CVaR was determined. Following this the influence of higher moments was examined in portfolio context, i.e. asset allocation decisions were simulated by creating emerging market portfolios from the viewpoint of US investors. This can be regarded as a normal decisionmaking process of a hedge fund focusing on investments into emerging markets. In our analysis we compared and contrasted two approaches with which one can overcome the shortcomings of the variance as a risk measure. First of all, we solved in the presence of conflicting higher moment preferences a multi-objective portfolio optimisation problem for different sets of preferences. In addition, portfolio optimisation was performed in the mean-CVaR framework characterised by using CVaR as a measure of risk. As a part of the analysis, the pair-wise comparison of the different higher moment metrics of the meanvariance and the mean-CVaR efficient portfolios were also made. Throughout the work special attention was given to implied preferences to the different higher moments in optimising CVaR. We also examined the extent to which model risk, namely the risk of wrongly assuming normally-distributed returns can deteriorate our optimal portfolio choice. JEL Classification: G11, G15, C61
Stocks are exposed to the risk of sudden downward jumps. Additionally, a crash in one stock (or index) can increase the risk of crashes in other stocks (or indices). Our paper explicitly takes this contagion risk into account and studies its impact on the portfolio decision of a CRRA investor both in complete and in incomplete market settings. We find that the investor significantly adjusts his portfolio when contagion is more likely to occur. Capturing the time dimension of contagion, i.e. the time span between jumps in two stocks or stock indices, is thus of first-order importance when analyzing portfolio decisions. Investors ignoring contagion completely or accounting for contagion while ignoring its time dimension suffer large and economically significant utility losses. These losses are larger in complete than in incomplete markets, and the investor might be better off if he does not trade derivatives. Furthermore, we emphasize that the risk of contagion has a crucial impact on investors' security demands, since it reduces their ability to diversify their portfolios.
We provide explicit solutions to life-cycle utility maximization problems simultaneously involving dynamic decisions on investments in stocks and bonds, consumption of perishable goods, and the rental and the ownership of residential real estate. House prices, stock prices, interest rates, and the labor income of the decision-maker follow correlated stochastic processes. The preferences of the individual are of the Epstein-Zin recursive structure and depend on consumption of both perishable goods and housing services. The explicit consumption and investment strategies are simple and intuitive and are thoroughly discussed and illustrated in the paper. For a calibrated version of the model we find, among other things, that the fairly high correlation between labor income and house prices imply much larger life-cycle variations in the desired exposure to house price risks than in the exposure to the stock and bond markets. We demonstrate that the derived closed-form strategies are still very useful if the housing positions are only reset infrequently and if the investor is restricted from borrowing against future income. Our results suggest that markets for REITs or other financial contracts facilitating the hedging of house price risks will lead to non-negligible but moderate improvements of welfare.
This paper relates recursive utility in continuous time to its discrete-time origins and provides a rigorous and intuitive alternative to a heuristic approach presented in [Duffie, Epstein 1992], who formally define recursive utility in continuous time via backward stochastic differential equations (stochastic differential utility). Furthermore, we show that the notion of Gâteaux differentiability of certainty equivalents used in their paper has to be replaced by a different concept. Our approach allows us to address the important issue of normalization of aggregators in non-Brownian settings. We show that normalization is always feasible if the certainty equivalent of the aggregator is of expected utility type. Conversely, we prove that in general L´evy frameworks this is essentially also necessary, i.e. aggregators that are not of expected utility type cannot be normalized in general. Besides, for these settings we clarify the relationship of our approach to stochastic differential utility and, finally, establish dynamic programming results. JEL Classifications: D81, D91, C61
In this paper, we examine the impact of mergers among German savings banks on the extent to which these savings banks engage in small business lending. The ongoing consolidation in the banking industry has sparked concerns about the continuous availability of credit to small businesses which has been further fueled by empirical studies that partly confirm a reduction in small business lending in the aftermath of mergers. However, using a proprietary data set of German savings banks we find strong evidence that in Germany merging savings banks do not significantly change the extent to which they lend to small businesses compared to prior to the merger or compared to the contemporaneous lending by non-merging banks. We investigate the merger related effects on small business lending in Germany from a bank-level perspective. Furthermore, we estimate small business lending and its continuous adjustment process simultaneously using recent General Method of Moments (GMM) techniques for panel data as proposed by Arellano and Bond (1991).
This paper discusses the so-called commercial approach to microfinance under economic and ethical aspects. It first shows how microfinance has developed from a purely welfare-oriented activity to a commercially relevant line of banking business. The background of this stunning success is the – almost universal – adoption of the so-called commercial approach to microfinance in the course of the last decade. As the author argues, this commercial approach is the only sound approach to adopt if one wanted microfinance to have any social and developmental impact, and therefore the wide-spread “moralistic” criticism of the commercial approach, which has again and again been expressed in the 1990s, is ill-placed from an economic and an ethical perspective. However, some recent events in microfinance raise doubts as to whether the commercial approach has not, in a number of cases, gone too far. The evident example for such a development is the Mexican microfinance institution Compartamos, which recently undertook a financially extremely successful IPO. As it seems, some microfinance institutions have by now become so radically commercial that all of those social and development considerations, which have traditionally motivated work in the field of microfinance, seem to have lost their importance. Thus there is a conflict between commercial and developmental aspirations. However, this conflict is not inevitable. The paper concludes by showing that, and how, a microfinance institution can try to combine using the strengths of the capital market and at the same time maintaining its developmental focus and importance.
This paper is one of the first to analyse political influence on state-owned savings banks in a developed country with an established financial market: Germany. Combining a large dataset with financial and operating figures of all 457 German savings banks from 1994 to 2006 and information on over 1,250 local elections during this period we investigate the change in business behavior around elections. We find strong indications for political inflence: the probability that savings banks close branches, lay-off employees or engage in merger activities is significantly reduced around elections. At the same time they tend to increase their extraordinary spendings, which include support for social and cultural events in the area, on average by over 15%. Finally, we find that savings banks extend significantly more loans to their corporate and private customers in the run-up to an election. In further analyses, we show that the magnitude of political influence depends on bank specific, economical and political circumstances in the city or county: political influence seems to be facilitated by weak political majorities and profitable banks. Banks in economically weak areas seem to be less prone to political influence.
In this paper, we investigate how bank mergers affect bank revenues and present empirical evidence that mergers among banks have a substantial and persistent negative impact on merging banks’ revenues. We refer to merger related negative effects on banks’ revenues as dissynergies and suggest that they are a result of organizational diseconomies, the loss of customers and the temporary distraction of management from day-to-day operations by effecting the merger. For our analyses we draw on a proprietary data set with detailed financials of all 457 regional savings banks in Germany, which have been involved in 212 mergers between 1994 and 2006. We find that the negative impact of a merger on net operating revenues amounts to 3% of pro-forma consolidated banks’ operating profits and persists not only for the year of the merger but for up to four years post-merger. Only thereafter mergers exhibit a significantly superior performance compared to their respective pre-merger performance or the performance of their non-merging peers. The magnitude and persistence of merger related revenue dissynergies highlight their economic relevance. Previous research on post-merger performance mainly focuses on the effects from mergers on banks’ (cost) efficiency and profitability but fails to provide clear and consistent results. We are the first, to our knowledge, to examine the post-merger performance of banks’ net operating revenues and to empirically verify significant negative implications of mergers for banks’ net operating revenues. We propose that our finding of negative merger related effects on banks’ operating revenues is the reason why previous research fails to show merger related gains.
The "quiet life hypothesis (QLH)" posits that banks enjoy the advantages of market power in terms of foregone revenues or cost savings. We suggest a unified approach to measure competition and efficiency simultaneously to test this hypothesis. We estimate bank-specific Lerner indices as measures of competition and test if cost and profit efficiency are negatively related to market power in the case of German savings banks.We find that both market power and average revenues declined among these banks between 1996 and 2006. While we find clear evidence supporting the QLH, estimated effects of the QLH are small from an economical perspective.
Motivated by the recent discussion of the declining importance of deposits as banks´ major source of funding we investigate which factors determine funding costs at local banks. Using a panel data set of more than 800 German local savings and cooperative banks for the period from 1998 to 2004 we show that funding costs are not only driven by the relative share of comparatively cheap deposits of bank´s liabilities but among other factors especially by the size of the bank. In our empirical analysis we find strong and robust evidence that, ceteris paribus, smaller banks exhibit lower funding costs than larger banks suggesting that small banks are able to attract deposits more cheaply than their larger counterparts. We argue that this is the case because smaller banks interact more personally with customers, operate in customers´ geographic proximity and have longer and stronger relationships than larger banks and, hence, are able to charge higher prices for their services. Our finding of a strong influence of bank size on funding costs is also in an in- ternational context of great interest as mergers among small local banks - the key driver of bank growth - are a recent phenomenon not only in European banking that is expected to continue in the future. At the same time, net interest income remains by far the most important source of revenue for most local banks, accounting for approximately 70% of total operating revenues in the case of German local banks. The influence of size on funding costs is of strong economic relevance: our results suggest that an increase in size by 50%, for example, from EUR 500 million in total assets to EUR 750 million (exemplary for M&A transactions among local banks) increases funding costs, ceteris paribus, by approximately 18 basis points which relates to approx. 7% of banks´ average net interest margin.
It appears astonishing to me that none of the papers and discussions at this conference on "Financial Flows to Developing Countries" have even touched upon an important category of international financial relationships which involves direct flows and links to the so-called developing countries. Specifically, none of the contributions have dealt with “development finance”, which is a broad term covering various kinds of activities carried out in the framework of development assistance. This is a particularly striking omission, given that until fairly recently the volume of official aid exceeded the volume of private capital flows to the developing and transition economies (IMF, 1998, p. 60). Moreover, it is conceivable that, in terms of both their developmental impact and their contribution to the alleviation of social problems, the flows financed by official aid may be more important than private capital flows. Thus, I felt that, at the very least, my fellow conference participants should be made aware of this gap in the range of topics addressed by the conference, and it was with this goal in mind that I prepared the present paper as a contribution to the concluding session of the conference. The first section of the present paper defines the concept of “development finance” and seeks to show how its content and meaning has changed over time. In the second section, I discusses a broad trend in banking regulation which has recently emerged in many developing and transition countries and which has, in my view, highly problematic implications for the potential to create financially sound and developmentally relevant “microfinance institutions”.
Risk transfer with CDOs
(2008)
Modern bank management comprises both classical lending business and transfer of asset risk to capital markets through securitization. Sound knowledge of the risks involved in securitization transactions is a prerequisite for solid risk management. This paper aims to resolve a part of the opaqueness surrounding credit-risk allocation to tranches that represent claims of different seniority on a reference portfolio. In particular, this paper analyzes the allocation of credit risk to different tranches of a CDO transaction when the underlying asset returns are driven by a common macro factor and an idiosyncratic component. Junior and senior tranches are found to be nearly orthogonal, motivating a search for the where about of systematic risk in CDO transactions. We propose a metric for capturing the allocation of systematic risk to tranches. First, in contrast to a widely-held claim, we show that (extreme) tail risk in standard CDO transactions is held by all tranches. While junior tranches take on all types of systematic risk, senior tranches take on almost no non-tail risk. This is in stark contrast to an untranched bond portfolio of the same rating quality, which on average suffers substantial losses for all realizations of the macro factor. Second, given tranching, a shock to the risk of the underlying asset portfolio (e.g. a rise in asset correlation or in mean portfolio loss) has the strongest impact, in relative terms, on the exposure of senior tranche CDO-investors. Our findings can be used to explain major stylized facts observed in credit markets.
This dissertation contains five independent chapters dealing with wage dispersion and unemployment. The first chapter deals with the explanation of international changes in wage inequality and unemployment in the 80s and 90s. Both theoretically and empirically, social benefits and its link to average income are blamed for the different experiences across countries. The second chapter discusses the search framework, to explain residual wage inequality and finds that institutional wage compression has ambiguous effects on employment. In the third chapter, we apply the theory to German data. We show that job-to-job transitions are important in explaining both frictions and career advances. In the fourth chapter, we empirically assess the relationship between wage dispersion and unemployment for homogeneous workers. We find that neither a frictional nor a neo-classical view in explaining this relationship are convincing. Unemployment within cells is not negatively correlated with wage dispersion. Finally, the last chapter builds a theoretical model which treats heterogeneous individuals in a production function framework and a frictional labor market. The model generates both wage dispersion within and between skill groups and both frictional and structural unemployment. In sum, the dissertation stresses the importance of modelling frictions to understand different types of wage inequality and unemployment.
Die Börsenindustrie hat in den vergangenen zwei Jahrzehnten einen signifikanten Wandel durchlaufen - und das nicht nur in Deutschland. Börsen haben schon längst nicht mehr den Charakter vergangener Tage, in denen ihre Mitglieder auf dem Parkett um Aktienpakete und -kurse von inländischen Unternehmen feilschten und an den genossenschaftlich organisierten Handelsplätzen eher eine vertrauliche Clubatmosphäre herrschte. Eine Vielzahl der Börsen hat den Parketthandel abgeschafft, ist selbst an einer Börse gelistet und orientiert sich primär am Shareholder Value und somit an den Interessen einer internationalen Aktionärsbasis. Mittlerweile existieren Börsenplätze, die mehrere Länder umspannen. Der französisch dominierten Euronext kommt hier eine Vorreiterrolle zu. Aber auch andere Börsen, wie die Deutsche Börse und die Schweizer Börse, haben länderübergreifend ihre Derivatehandelsplattformen vereinigt und mit ihrem Jointventure Eurex die umsatzstärkste Derivatebörse der Welt geschaffen. In jüngster Zeit werden nun auch transatlantische Allianzen zwischen amerikanischen und europäischen Börsen angedacht. Sowohl die Strategie der Nasdaq, die bisher eine Sperrminorität von über 25% an der Londoner Börse hält, als auch die der New York Stock Exchange, die eine Fusion mit der Euronext anstrebt, belegen dies. Zudem stehen Börsen mittlerweile in direktem Wettbewerb mit ihren Kunden und ehemaligen Eigentümern, den Finanzintermediären wie Banken und Wertpapierhäuser. Sie konkurrieren um Wertpapieraufträge von Investoren, da Banken nicht mehr jede Order automatisch an sie weiterleiten. Stattdessen versuchen manche Finanzintermediäre, die erhaltenen Investorenaufträge im eigenen Haus mit einer entsprechenden reziproken Order zusammenzuführen, um somit die Geld-Brief Spanne des Wertpapiers als Gewinn einzubehalten. Diese Internalisierung von Auftragsausführungen ist seit einigen Jahren insbesondere in England und Deutschland eine bedeutende Einkommensquelle für Wertpapierhäuser geworden. Gleichzeitig stoßen Börsen immer stärker in Geschäftsbereiche vor, die bislang die Domäne ihrer Kunden repräsentierten. Hier sei der Handel von bestimmten Kreditderivateprodukten genannt, die bisher außerbörslich zwischen großen Wertpapierhäusern gehandelt wurden. Sowohl die Chicago Mercantile Exchange als auch die Eurex planen den Handel dieser Titel auf ihren eigenen Plattformen. Ein weiteres Beispiel ist die vertikale Integration von Wertpapierabwicklungs- und Wertpapierverwahrungsgeschäften. Große internationale Banken wie BNP Paribas, Citigroup und State Street kämpfen hier gegen Börsen um Marktanteile. Wie kam es zu dem hier beschriebenen Wandel? Der entscheidende Katalysator ist der gestiegene Wettbewerbsdruck auf traditionelle Börsen, welcher in vielen Fällen zu einer Umstrukturierung ihrer Organisationsform und Eigentümerstruktur führte. Diese neu ausgerichteten Börsen verstanden sich nun als reguläre, gewinnorientierte Firmen, die nicht mehr in erster Linie ihren Kunden, sondern ihren neuen Eigentümern, den Aktionären, verpflichtet waren. ...
The introduction of a common currency as well as the harmonization of rules and regulations in Europe has significantly reduced distance in all its guises. With reduced costs of overcoming space, this emphasizes centripetal forces and it should foster consolidation of financial activity. In a national context, as a rule, this led to the emergence of one financial center. Hence, Europeanization of financial and monetary affairs could foretell the relegation of some European financial hubs such as Frankfurt and Paris to third-rank status. Frankfurt’s financial history is interesting insofar as it has lost (in the 1870s) and regained (mainly in the 1980s) its preeminent place in the German context. Because Europe is still characterized by local pockets of information-sensitive assets as well as a demand for variety the national analogy probably does not hold. There is room in Europe for a number of financial hubs of an international dimension, including Frankfurt.
Generally, information provision and certifcation have been identified as the major economic functions of rating agencies. This paper analyzes whether the “watchlist” (rating review) instrument has extended the agencies' role towards a monitoring position, as proposed by Boot, Milbourn, and Schmeits (2006). Using a data set of Moody's rating history between 1982 and 2004, we find that the overall information content of rating action has indeed increased since the introduction of the watchlist procedure. Our findings suggest that rating reviews help to establish implicit monitoring contracts between agencies and borrowers and as such enable a finer partition of rating information, thereby contributing to a higher information quality.
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. JEL Classification Codes: G11, H24
This paper analyses the role of collateral in loan contracting when companies are financed by multiple bank lenders and relationship lending can be present. We conjecture and empirically validate that relationship lenders, who enjoy an informational advantage over arm’s-length banks, are more senior to strengthen their bargaining power in future renegotiation if borrower’s face financial distress. This deters costly conflicts between lenders and fosters workout decisions by the best informed party. Consistent with our conjecture, we find that relationship lender in general have a higher probability to be collateralized, and a higher degree of collateralization (i.e. seniority). Furthermore, we show that seniority and the status of relationship lending increases the likelihood that a bank invests in a risky workout of distressed borrowers. Both findings support the view that collateral is a strategic instrument intended to influence the bargaining position of banks. Our result further suggest that seniority and relationship lending are complementary to each other. JEL Classification: G21
Generally, information provision and certification have been identified as the major economic functions of rating agencies. This paper analyzes whether the “watchlist" (rating review) instrument has extended the agencies' role towards a monitoring position, as proposed by Boot, Milbourn, and Schmeits (2006). Using a data set of Moody's rating history between 1982 and 2004, we find that the overall information content of rating action has indeed increased since the introduction of the watchlist procedure. Our findings suggest that rating reviews help to establish implicit monitoring contracts between agencies and borrowers and as such enable a finer partition of rating information, thereby contributing to a higher information quality.
Both practitioners and academics agree about the importance of price and its direct influenceon consumers’ purchase decision as well as the company profit. In the reality, we rarely see a
single price for a given product. One visit in a store already shows that consumers face many various prices. This strategy of differential prices allows to increase profit but also improves consumers’ situation and increases welfare. A wide range of various price differentiation mechanisms exists on the market which makes price differentiation a very interesting phenomenon. Additionally, market developments constantly allow for new price differentiation applications. In this work, I research a fascinating topic of price differentiation, its various forms
and new application possibilities in changing market areas.
This thesis is concerned with various aspects of estimating trend output and growth and discusses and evaluates methods to prepare medium-term GDP growth projections. Furthermore, econometric techniques suited for cross-correlated macroeconomic panel data with a focus on factor models are applied for unit root and cointegration testing as well as panel error correction estimation. Applications involve the identification of growth determinants as well as the modelling of aggregate labor supply in a multi-country framework. The first chapter evaluates a very popular method for potential output estimation and medium-term forecasting---the production function approach---in terms of predictive performance. For this purpose, a particular forecast evaluation framework is developed and an evaluation of the predictions of GDP growth for the three to five years ahead for each individual G7 country is carried out. In chapter two, a new approach for estimating trend growth of advanced economies is proposed. The suggestion combines econometric methods that have been used to test and estimate the implications of the extended Solow growth model in a cross sectional time series setting with an application of multivariate time series filter techniques. The last chapter discusses several panel unit root tests designed to accommodate cross-sectional dependence. These methods are then applied to an OECD country sample of the aggregate labor supply measure "hours worked".
Acquiring foreign firms far away might be hazardous to your share price: evidence from Germany
(2007)
This paper examines shareholder wealth effects of cross-border acquisitions. In a sample of 155 large acquisitions by German corporations from 1985–2006 international transactions in total do not lead to significant announcement returns. Geography, however, makes a difference: Shareholders of acquiring firms gain 6.5% in cross-border transactions into countries that have a common border with Germany but lose 4.4% in other international transactions. We find proximity to be one of the most important success factors in cross-border mergers and acquisitions, even when we control for firm, deal and country characteristics.
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.