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This paper analyzes the effect of financial constraints on firms' corporate social responsibility. Exploiting heterogeneity in firms' exposure to a monetary policy shock in the U.S., which reduced financial constraints for some firms, I find that firms increase their environmental responsibility. I use facility-level data to account for unobservable time-varying influences on pollution and find that toxic emissions decrease when parent companies are more exposed to the monetary policy shock. I further find that these facilities are also more likely to implement pollution abatement activities. Examining within-parent company heterogeneity I find that pollution abatement investments center on facilities at greater risk of facing additional costs due to environmental regulation. The findings are consistent with the idea that a reduction in financial constraints reduces pollution as it allows firms to implement pollution abatement measures.
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 aims to analyze the effects of financial constraints and the financial crisis on the financing and investment policies of newly founded firms. Thereby, the analysis adds important new insights on a crucial segment of the economy. We make use of a large and comprehensive data set of French firms founded in the years 2004-2006, i.e. well before the financial crisis. Our panel data analysis shows that the global financial crisis imposed a shock (mostly demand-driven) on the financing as well as on the investments of these firms. Moreover, we find that financially constrained firms use less external debt financing and invest smaller amounts. They also rely on less trade credit. With regard to bank financing, newly founded firms which are more financially constrained accumulate less bank debt and repay initial bank debt slower than their non-financially constraint counterparts. Finally, we find that financially constrained firms are affected to a smaller degree by the financial crisis than their less financially constrained counterparts.
During the last years the relationship between financial development and economic growth has received widespread attention in the literature on growth and development. This paper summarises in its first part the results of this research, stressing the growth-enhancing effects of an increased interpersonal re-allocation of resources promoted by financial development. The second part of the paper seeks to identify the determinants of financial development based on Diamond's theory of financial intermediation as delegated monitoring. The analysis shows that the quality of corporate governance of banks is the key factor in financial system development. Accordingly, financial sector reforms in developing countries will only succeed if they strengthen the corporate governance of financial institutions. In this area, financial institution building has an important contribution to make. Paper presented at the First Annual Seminar on New Development Finance held at the Goethe University of Frankfurt, September 22 - October 3, 1997
We study a model where some investors ("hedgers") are bad at information processing, while others ("speculators") have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators' trades more visible to hedgers. As a consequence, issuers will oppose both the disclosure of fundamentals and trading transparency. Issuers may either under- or over-provide information compared to the socially efficient level if speculators have more bargaining power than hedgers, while they never under-provide it otherwise. When hedgers have low financial literacy, forbidding their access to the market may be socially efficient.
We study the effect of weakening creditor rights on distress risk premia via a bankruptcy reform that shifts bargaining power in financial distress toward shareholders. We find that the reform reduces risk factor loadings and returns of distressed stocks. The effect is stronger for firms with lower firm-level shareholder bargaining power. An increase in credit spreads of riskier relative to safer firms, in particular for firms with lower firm-level shareholder bargaining power, confirms a shift in bargaining power from bondholders to shareholders. Out-of-sample tests reveal that a reversal of the reform's effects leads to a reversal of factor loadings and returns.
In contrast to the popularity of financial education interventions worldwide, studies on the economic effects of those interventions report mixed results. With a focus on the effect on disadvantaged groups, we review both the theoretical and empirical findings in order to understand why this discrepancy exists. The survey first highlights that it is necessary to distinguish between the concepts of, and the relationships between, financial education, financial literacy and financial behavior to identify the true effects of financial education. The review addresses possible biases caused by third factors such as numeracy. Next, we review theories on financial literacy which make clear that the effect of financial education interventions is heterogeneous across the population. Last, we look closely at main empirical studies on financial education targeted at the migrants/immigrants, the low-income earners and the young, and compare their methodologies. There seems to be a positive effect on short-term financial knowledge and awareness of the young, but there is no proven evidence on long-term behavior after being grown up. Studies on financial behavior of migrants and immigrants show almost no effect of financial education.
Based on a sample of university students, we provide field and laboratory evidence that a small scale training intervention has a both statistically and economically significant effect on subjective and objective assessments of financial knowledge. We also show that for a large part of students whose self-assessed financial knowledge has improved we do not find an increase in their actual skills.
This dissertation consists of three essays, which study the implication of financial frictions in business cycles and monetary policy making. The first essay develops a Dynamic Stochastic General Equilibrium (DSGE) model to study how the instability of the banking sector can amplify and propagate business cycles. Model simulations show that in an economic down turn, in addition to credit demand contraction induced by low firm net worth, low bank capital
position can create strong credit supply contraction, and have a quantitatively significant effect on business cycle dynamics. The second essay studies the optimal Taylor-type monetary policy rules based on the model developed in the first chapter and find that with interest rate smoothing, 'leaning against the wind' can significantly dampen the procyclicality of financial distortions, and increase the welfare of the economy. The third chapter examines the role of households frugality in a financial crisis and finds that higher savings by more frugal households provide an important cushion for the fall in private investment funding.
In this paper, we investigate the implications of providing loan officers with a compensation structure that rewards loan volume and penalizes poor performance. We study detailed transactional information of more than 45,000 loans issued by 240 loan officers of a large commercial bank in Europe. We find that when the performance of their portfolio deteriorates, loan officers shift their efforts towards monitoring poorly-performing borrowers and issue fewer loans. However, these new loans are of above-average quality, which suggests that loan officers have a pecking order and process loans only for the very best clients when they are under time constraints.
In this paper we investigate the implications of providing loan officers with a compensation structure that rewards loan volume and penalizes poor performance versus a fixed wage unrelated to performance. We study detailed transaction information for more than 45,000 loans issued by 240 loan officers of a large commercial bank in Europe. We examine the three main activities that loan officers perform: monitoring, originating, and screening. We find that when the performance of their portfolio deteriorates, loan officers increase their effort to monitor existing borrowers, reduce loan origination, and approve a higher fraction of loan applications. These loans, however, are of above-average quality. Consistent with the theoretical literature on multitasking in incomplete contracts, we show that loan officers neglect activities that are not directly rewarded under the contract, but are in the interest of the bank. In addition, while the response by loan officers constitutes a rational response to a time allocation problem, their reaction to incentives appears myopic in other dimensions.
Since the financial crisis financial literacy has attracted growing interest among researchers and policy makers, as there is international empirical evidence that financial literacy is poor among both adults and students. In Germany we have almost no empirical evidence on financial literacy, especially in the case of students attending secondary schools, as financial education has not featured on German school curricula to date. Besides, Germany has not yet participated in the optional financial literacy module of PISA, which was offered for the first time in 2012. However, a lack of private pension provisioning, in spite of demographic change, and low stock ownership among German households indicate a deficit in financial knowledge and skills in this country as well.
In this paper we investigate financial literacy among students aged 14 to 16 attending a secondary school in the state of Hesse. The foundation is a test designed according to international standards. The statistical analysis of the test reveals substantial deficits in key areas of financial literacy. Particular deficits could be identified in the fields of basic knowledge of financial matters and, to an even greater degree, in more advanced concepts such as risk diversification. Applying interest calculations to financial matters turned out to be problematic for many students.
Furthermore, the paper analyses the impact of gender and type of school on the overall test score as well as test performance in specific tasks. The findings suggest that financial matters should be covered in some form at secondary schools. In light of the potentially far-reaching consequences of financial illiteracy for financial wellbeing, German participation in future PISA financial literacy tests seems highly advisable to gain a deeper understanding of the preliminary findings presented in this paper.
This paper studies insurance demand for individuals with limited financial literacy. We propose uncertainty about insurance payouts, resulting from contract complexity, as a novel channel that affects decision-making of financially illiterate individuals. Then, a trade-off between second-order (risk aversion) and third-order (prudence) risk preferences drives insurance demand. Sufficiently prudent individuals raise insurance demand upon an increase in contract complexity, while the effect is reversed for less prudent individuals. We characterize competitive market equilibria that feature complex contracts since firms face costs to reduce complexity. Based on the equilibrium analysis, we propose a monetary measure for the welfare cost of financial illiteracy and show that it is mainly driven by individuals’ risk aversion. Finally, we discuss implications for regulation and consumer protection.
Savings accounts are owned by most households, but little is known about the performance of households’ investments. We create a unique dataset by matching information on individual savings accounts from the DNB Household Survey with market data on account-specific interest rates and characteristics. We document considerable heterogeneity in returns across households, which can be partly explained by financial sophistication. A one-standard deviation increase in financial literacy is associated with a 13% increase compared to the median interest rate. We isolate the usage of modern technology (online accounts) as one channel through which financial literacy has a positive association with returns.
We report the results of a longitudinal intervention with students across five universities in China designed to reduce online consumer debt. Our research design allocates individuals to either a financial literacy treatment, a self-control training program, or a zero-touch control group. Financial education interventions improve test scores on general financial literacy but only marginally affect future online borrowing. Our self-control treatment features detailed tracking of spending and borrowing activity with a third-party app and introspection about individuals' consumption with a counselor. These sessions reduce future online borrowing, delinquency charges, and borrowing for entertainment reasons - and are driven by the male subjects in the sample. Our results suggest that self-regulation can affect financial behavior in e-commerce platforms.
A growing body of literature shows the importance of financial literacy in households' financial decisions. However, fewer studies focus on understanding the determinants of financial literacy. Our paper fills this gap by analyzing a specific determinant, the educational system, to explain the heterogeneity in financial literacy scores across Germany. We suggest that the lower financial literacy observed in East Germany is partially caused by a different institutional framework experienced during the Cold War, more specifically, by the socialist educational system of the GDR which affected specific cohorts of individuals. By exploiting the unique set-up of the German reunification, we identify education as a channel through which institutions and financial literacy are related in the German context.
Over the life-cycle, wealth holdings tend to be highest in the early part of retirement. The quality of financial decisions among older adults is therefore an important determinant of their financial security during the asset drawdown phase. This paper assesses how financial literacy shapes financial decision-making at older ages. We devised a special module in the Singapore Life Panel survey to measure financial literacy to study its relationship with three aspects of household financial and investment behaviors: credit card debt repayment, stock market participation, and adherence to age-based investment glide paths. We found that the majority of respondents age 50+ has some grasp of concepts such as interest compounding and inflation, but fewer know about risk diversification. We provide evidence of a statistically significant positive association between financial literacy and each of the three aspects of suboptimal financial decision-making, controlling for many other factors, including education. A one-unit increase in the financial literacy score was associated with an 8.3 percentage point greater propensity to hold stocks, and a 1.7 percentage point higher likelihood of following an age-appropriate investment glide path. The financial literacy score is only weakly positively linked with timely credit card balance repayment, both in terms of statistical significance and estimate size.
This paper uses unique administrative data and a quasi-field experiment of exogenous allocation in Sweden to estimate medium- and longer-run effects on financial behavior from exposure to financially literate neighbors. It contributes evidence of causal impact of exposure and of a social multiplier of financial knowledge, but also of unfavorable distributional aspects of externalities. Exposure promotes saving in private retirement accounts and stockholding, especially when neighbors have economics or business education, but only for educated households and when interaction possibilities are substantial. Findings point to transfer of knowledge rather than mere imitation or effects through labor, education, or mobility channels.
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.
Using merger announcements and applying methods from computational linguistics we find strong evidence that stock prices under-react to information in financial media. A one standard deviation increase in the media-implied probability of merger completion increases the subsequent 12-day return of a long-short merger strategy by 1.2 percentage points. Filtering out the 28% of announced deals with the lowest media-implied completion probability increases the annualized alpha from merger arbitrage by 9.3 percentage points. Our results are particularly pronounced when high-yield spreads are large and on days when only few merger deals are announced. We also document that financial media information is orthogonal to announcement day returns.
This is a chapter for a forthcoming volume Oxford Handbook of Financial Regulation (Oxford University Press 2014) (eds. Eilís Ferran, Niamh Moloney, and Jennifer Payne). It provides an overview of EU financial regulation from the first banking directive up until its most recent developments in the aftermath of the financial crisis, focusing on the multiple layers of multi-level governance and their characteristic conceptual difficulties. Therefore the paper discusses the need to accommodate cross-border capital flows following from the EU internal market and the resulting regulatory strategies. This includes a brief overview of the principle of home country control and the ensuing Financial Services Action Plan. Dealing with the accommodation of cross-border capital flows and their regulation necessarily require an orchestration of the underlying supervisory structures, which is therefore also discussed. In the aftermath of the financial crisis of 2007-09 an additional aspect of necessary orchestration has emerged, that is the need to control systemic risk. Specific attention is paid to microprudential supervision by the newly established European Supervisory Authorities and macroprudential supervision in the European Banking Union, the latter’s underlying drivers and the accompanying Single Supervisory Mechanism, including the SSM’s institutional framework as well as the consideration of its rationales and the Single Resolution Mechanism closely linked to it.
In this paper we propose a way forward towards increased financial resilience in times of growing disagreement concerning open borders, free trade and global regulatory standards. In light of these concerns, financial resilience remains a highly valued policy objective. We wish to contribute by suggesting an agenda of concrete, do-able steps supporting an enhanced level of resilience, combined with a deeper understanding of its relevance in the public domain.
First, remove inconsistencies across regulatory rules and territorial regimes, and ensure their credibility concerning implementation. Second, discourage the use of financial regulatory standards as means of international competition. Third, give more weight to pedagogically explaining the established regulatory standards in public, to strengthen their societal backing.
We examine the inter-linkages between financial factors and real economic activity. We review the main theoretical approaches that allow financial frictions to be embedded into general equilibrium models. We outline, from a policy perspective, the most recent empirical papers focusing on the propagation of exogenous shocks to the economy, with a particular emphasis on works dealing with time variation of parameters and other types of nonlinearities. We then present an application to the analysis of the changing transmission of financial shocks in the euro area. Results show that the effects of a financial shock are time-varying and contingent on the state of the economy. They are of negligible importance in normal times but they greatly matter in conditions of stress.
Even if the importance of micro data transparency is a well-established fact, European institutions are still lacking behind the US when it comes to the provision of financial market data to academics. In this Policy Letter we discuss five different types of micro data that are crucial for monitoring (systemic) risk in the financial system, identifying and understanding inter-linkages in financial markets and thus have important implications for policymakers and regulatory authorities. We come to the conclusion that for all five areas of micro data, outlined in this Policy Letter (bank balance sheet data, asset portfolio data, market transaction data, market high frequency data and central bank data), the benefits of increased transparency greatly offset potential downsides. Hence, European policymakers would do well to follow the US example and close the sizeable gap in micro data transparency. For most cases, relevant data is already collected (at least on national level), but just not made available to academics for partly incomprehensible reasons. Overcoming these obstacles could foster financial stability in Europe and assure level playing fields with US regulators and policymakers.
Financing asset growth
(2012)
We document the existence of a debt anomaly that is in addition to the asset growth anomaly: for a given asset growth rate, firms that issue more debt, as well as firms that retire more debt, have lower stock returns in the 12 months starting 6 months after the calendar year of asset growth. Exploring the reasons for debt issuance, we find that managers of firms for which analyst expectations are more over-optimistic, which suffer from declining investment profitability, and whose earnings-price ratios are relatively high are inclined to rely more heavily on debt financing. On the other hand, firms that retire more debt for a given asset growth rate tend to have improving profitability but to be over-priced. We also find that the financing decision is influenced by the prior debt ratio, the asset growth rate, profitability, and CEO pay sensitivity. We interpret our results in terms of managerial incentives, signaling, and market timing.
In this paper we provide new evidence that corporate financing decisions are associated with managerial incentives to report high equity earnings. Managers rely most heavily on debt to finance their asset growth when their future earnings prospects are poor, when they are under pressure due to past declines in earnings, negative past stock returns, and excessively optimistic analyst earnings forecasts, and when the earnings yield is high relative to bond yields so that from an accounting perspective equity is ‘expensive’. Managers of high debt issuing firms are more likely to be newly appointed and also more likely to be replaced in subsequent years. Abnormal returns on portfolios formed on the basis of asset growth and debt issuance are strongly positively associated with the contemporaneous changes in returns on assets and on equity as well as with earnings surprises. This may account for the finding that debt issuance forecasts negative abnormal returns, since debt issuance also forecasts negative changes in returns on assets and on equity and negative earnings surprises. Different mechanisms appear to be at work for firms that retire debt.
Exploiting heterogeneity in U.S. firms' exposure to an unconventional monetary policy shock that reduced debt financing costs, I identify the impact of financing conditions on firms' toxic emissions. I find robust evidence that lower financing costs reduce toxic emissions and boost investments in emission reduction activities, especially capital-intensive pollution control activities. The effect is stronger for firms in noncompliance with environmental regulation. Examining the ability of regaining regulatory compliance by implementing pollution control activities I find that only capital-intensive activities help firms regaining compliance. These findings underscore the impact of firms' financing conditions for emissions and the environment.
The paper compares provision of public infrastructure via public-private partnerships (PPPs) with provision under government management. Due to soft budget constraints of government management, PPPs exert more effort and therefore have a cost advantage in building infrastructure. At the same time, hard budget constraints for PPPs introduce a bankruptcy risk and bankruptcy costs. Consequently, if bankruptcy costs are high, PPPs may be less efficient than public management, although this does not result from PPPs’ higher interest costs.
A widely recognized paper by Colin Mayer (1988) has led to a profound revision of academic thinking about financing patterns of corporations in different countries. Using flow-of-funds data instead of balance sheet data, Mayer and others who followed his lead found that internal financing is the dominant mode of financing in all countries, that financing patterns do not differ very much between countries and that those differences which still seem to exist are not at all consistent with the common conviction that financial systems can be classified as being either bank-based or capital market-based. This leads to a puzzle insofar as it calls into question the empirical foundation of the widely held belief that there is a correspondence between the financing patterns of corporations on the one side, and the structure of the financial sector and the prevailing corporate governance system in a given country on the other side. The present paper addresses this puzzle on a methodological and an empirical basis. It starts by comparing and analyzing various ways of measuring financial structure and financing patterns and by demonstrating that the surprising empirical results found by studies that relied on net flows are due to a hidden assumption. It then derives an alternative method of measuring financing patterns, which also uses flow-of-funds data, but avoids the questionable assumption. This measurement concept is then applied to patterns of corporate financing in Germany, Japan and the United States. The empirical results, which use an estimation technique for determining gross flows of funds in those cases in which empirical data are not available, are very much in line with the commonly held belief prior to Mayer’s influential contribution and indicate that the financial systems of the three countries do indeed differ from one another in a substantial way, and moreover in a way which is largely in line with the general view of the differences between the financial systems of the countries covered in the present paper.
A widely recognized paper by Colin Mayer (1988) has led to a profound revision of academic thinking about financing patterns of corporations in different countries. Using flow-of-funds data instead of balance sheet data, Mayer and others who followed his lead found that internal financing is the dominant mode of financing in all countries, that therefore financial patterns do not differ very much between countries and that those differences which still seem to exist are not at all consistent with the common conviction that financial systems can be classified as being either bank-based or capital market-based. This leads to a puzzle insofar as it calls into question the empirical foundation of the widely held belief that there is a correspondence between the financing patterns of corporations on the one side, and the structure of the financial sector and the prevailing corporate governance system in a given country on the other side. The present paper addresses this puzzle on a methodological and an empirical basis. It starts by demonstrating that the surprising empirical results found by Mayer et al. are due to a hidden assumption underlying their methodology. It then derives an alternative method of measuring financing patterns, which also uses flow-of-funds data, but avoids the questionable assumption. This measurement concept is then applied to patterns of corporate financing in Germany, Japan and the United States. The empirical results are very much in line with the commonly held belief prior to Mayer’s influential contribution and indicate that the financial systems of the three countries do indeed differ from one another in a substantial way.
Seit zwanzig Jahren befaßt sich die Finanzmarktforschung einerseits mit Fragen der Bewertung und des Managements von Finanztiteln auf effizienten Kapitalmärkten und mit Fragen der Managementkontrolle auf unvollkommenen Märkten. Der folgende selektive Überblick konzentriert sich auf zentrale Aspekte der Theorie und Empirie der Managementkontrolle bei asymmetrischer Information. Ziel ist die Auseinandersetzung mit der unlängst vorgetragenen These zu den Mythen der Unternehmenskontrolle (Martin Hellwig 1997). Der aktuelle Überblick wird entwickelt vor dem Hintergrund der Gutenberg’schen Position eines eigenständigen Unternehmensinteresses, losgelöst von den Interessen der shareholder oder anderer stakeholder. Diese Position von Gutenberg verbindet sich im dritten Band der „Grundlagen der BWL: Die Finanzen“ von 1969 mit der Forderung nach Einhaltung eines sog. finanziellen Gleichgewichts. Erst in jüngster Zeit werden auch kapitalmarkttheoretisch fundierte Modelle entwickelt, die auch Raum bieten für eine Autonomie des Managements gegenüber dessen stakeholders.
Fünf Jahre nach Beginn der Banken- und Staatsschuldenkrise („Finanzkrise“) kämpfen wir weiterhin mit den elementaren Problemen: Bei Märkten und Marktteilnehmern fehlt es an Stabilität und Vertrauen. Viele Banken stehen immer noch nicht auf eigenen Füßen und nehmen die ihnen in Europa traditionell zukommende zentrale Rolle für Wachstum und Entwicklung nicht wahr. Den guten Absichten, auf die sich die großen politischen Mächte während der ersten G-20 Treffen 2008 und 2009 verständigt hatten, ist eine Reihe von sinnvollen Ideen und Konzepten gefolgt. Die Voraussetzungen für einen grundlegenden reformerischen Erfolg sind somit gegeben – doch nun muss die Umsetzung folgen. Dazu bedarf es mutiger Entscheidungen. Im Jahr 2014 muss die europäische Politik gleich mehrere Weichen stellen. Der Bundesregierung kommt dabei die Schlüsselrolle zu. Sie muss den Mut haben zu radikaler Ordnungspolitik!
Der Beitrag diskutiert den unlängst veröffentlichten Referentenentwurf eines Finanzstabilitätsgesetzes, der vorsieht, dass die Bundesbank ab 2013 ein Mandat zur makroprudenziellen Überwachung bekommt. Die Entscheidungen über die Vorschläge, die sich vor allem an die Bundesregierung oder an die Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin) richten dürften, wird ein neuer Ausschuss für Finanzstabilität beim Bundesfinanzministerium treffen. Der Autor befasst sich mit der Zusammensetzung dieses Ausschusses und mit den Instrumenten, die für die Umsetzung der Empfehlungen des Ausschusses zur Verfügung stehen.
Wenn man untersuchen möchte, ob sich die Finanzsysteme verschiedener Länder im Verlauf der letzten Jahre aneinander angeglichen haben oder demnächst angleichen werden, braucht man ein Konzept zur Beschreibung von Finanzsystemen, durch das wesentliche Strukturen, deren Unterschiede und Veränderungen erkennbar werden, ohne dabei in "Systemgeschwafel" (D. Schneider) abzugleiten. Wir haben dafür das Konzept der Komplementarität als nützlich identifiziert. Der Beitrag stellt dieses Konzept vor und soll und seine Eignung belegen. Letztlich geht es dabei auch um die Frage, ob reale Finanzsysteme konsistente Systeme mit komplementären Elementen darstellen. Nach der Vorstellung der formalen Konzepte der Komplementarität und der Konsistenz wird "das Finanzsystem" auf seine Komple mentarität untersucht. Dazu wird ein Finanzsystem aus der Sicht von Unternehmen des nichtfinanziellen Sektors als ein System gekennzeichnet, das aus drei Teilsystemen besteht. Das erste Teilsystem ist das Finanzierungssystem einschließlich Finanzsektor und Mustern der Unternehmensfinanzierung, das zweite das Corporate Governance-System und das dritte das Unternehmens-Strategie-System. Für alle drei Teilsysteme wird – allgemein und mit Bezug auf die Finanzsysteme Deutschlands, Japans und der USA - gezeigt, inwieweit die Elemente der betreffenden Teilsysteme untereinander komplementär sind, und geprüft, ob sie in ihren Ausprägungen auch konsistent sind, d.h. wirklich "zueinander passen". Untersucht wird auch die Komplementarität und Konsistenz zwischen den Teilsystemen selbst. Der Beitrag endet mit Überlegungen über die Anwendung des Komplementaritätskonzepts. Dass ein Finanzsystem die Eigenschaft der Komplementarität aufweist, hat nicht nur weitreichende Implikationen für die Methodik der Analyse von Finanzsystemen, sondern auch für die Vorhersehbarkeit der Entwicklung von Finanzsystemen und damit für die Wahrscheinlichkeit einer Konvergenz von Finanzsystemen, für deren Effizienzeigenschaften und für die Möglichkeiten, Finanzsysteme durch gestaltende Eingriffe zu verbessern.
Recently there has been an explosion of research on whether the equilibrium real interest rate has declined, an issue with significant implications for monetary policy. A common finding is that the rate has declined. In this paper we provide evidence that contradicts this finding. We show that the perceived decline may well be due to shifts in regulatory policy and monetary policy that have been omitted from the research. In developing the monetary policy implications, it is promising that much of the research approaches the policy problem through the framework of monetary policy rules, as uncertainty in the equilibrium real rate is not a reason to abandon rules in favor of discretion. But the results are still inconclusive and too uncertain to incorporate into policy rules in the ways that have been suggested.
Bank regulators have the discretion to discipline banks by executing enforcement actions to ensure that banks correct deficiencies regarding safe and sound banking principles. We
highlight the trade-offs regarding the execution of enforcement actions for financial stability. Following this we provide an overview of the differences in the legal framework governing supervisors’ execution of enforcement actions in the Banking Union and the United States. After discussing work on the effect of enforcement action on bank behaviour and the real economy, we present data on the evolution of enforcement actions
and monetary penalties by U.S. regulators. We conclude by noting the importance of supervisors to levy efficient monetary penalties and stressing that a division of competences among different regulators should not lead to a loss of efficiency regarding
the execution of enforcement actions.
Leveraging data from a leading FinTech peer-to-peer lending platform in the United States, allowing us to capture both individuals’ successful and unsuccessful loan applications, we test the effect of FinTech loans on subsequent employment choice and future financial performance of serial borrowers, those repeatedly soliciting loans on the platform. An analysis of 198,984 loan requests made by 92,382 individuals shows that a failed loan application increases the probability of switching employment status. Self-employed individuals are 22% more likely to switch to becoming an employee following an unsuccessful loan application. This probability increases to 31% for those in the lowest income decile and decreases to 13% for those in the highest income decile. We document an improvement in monthly income and credit access following a successful loan application. However, this enhancement is asymmetric. Monthly income enhancement is 3.11 times larger for self-employed individuals in the lowest income decile relative to individuals in the highest income decile. Access to credit enhancement is 1.85 times larger for self-employed individuals in the lowest credit access decile relative to individuals in the second highest credit access decile.
We analyze the joint dynamics of prices, productivity, and employment across firms, building a dynamic equilibrium model of heterogeneous firms who compete for workers and customers in frictional labor and product markets. Using panel data on prices and output for German manufacturing firms, the model is calibrated to evaluate the quantitative contributions of productivity and demand for the labor market. Product market frictions decisively dampen the firms' employment adjustments to productivity shocks. We further analyze the impact of aggregate shocks to the first and second moments of productivity and demand and relate them to business-cycle features in our data.
We document the structure of firm-bank relationships across the eleven largest euro area countries and present new stylised facts using novel data from the recent credit registry of the Eurosystem - AnaCredit. We look at the number of banking relationships, reliance on the main bank, credit instruments, loan maturity and interest rates. The granularity of the data allows us to account for cross country differences in firm characteristics. Firms in Southern European countries borrow from a larger number of banks and obtain a lower share of credit from the main bank compared to those in Northern European countries. They also tend to borrow more on short term, more expensive instruments and to obtain loans with shorter maturity. This is consistent with the hypothesis that Southern European countries rely less on relationship banking and obtain credit less conducive to firm growth, in line with the smaller average size of Southern European firms. Instead, no clear pattern emerges in terms of interest rates, consistent with the idea that banks appropriate part of the surplus generated by relationship lending through higher rates.
In the aftermath of the global financial crisis and great recession, many countries face substantial deficits and growing debts. In the United States, federal government outlays as a ratio to GDP rose substantially from about 19.5 percent before the crisis to over 24 percent after the crisis. In this paper we consider a fiscal consolidation strategy that brings the budget to balance by gradually reducing this spending ratio over time to the level that prevailed prior to the crisis. A crucial issue is the impact of such a consolidation strategy on the economy. We use structural macroeconomic models to estimate this impact focussing primarily on a dynamic stochastic general equilibrium model with price and wage rigidities and adjustment costs. We separate out the impact of reductions in government purchases and transfers, and we allow for a reduction in both distortionary taxes and government debt relative to the baseline of no consolidation. According to the model simulations GDP rises in the short run upon announcement and implementation of this fiscal consolidation strategy and remains higher than the baseline in the long run. We explore the role of the mix of expenditure cuts and tax reductions as well as gradualism in achieving this policy outcome. Finally, we conduct sensitivity studies regarding the type of model used and its parameterization.
In the aftermath of the global financial crisis and great recession, many countries face substantial deficits and growing debts. In the United States, federal government outlays as a ratio to GDP rose substantially from about 19.5 percent before the crisis to over 24 percent after the crisis. In this paper we consider a fiscal consolidation strategy that brings the budget to balance by gradually reducing this spending ratio over time to the level that prevailed prior to the crisis. A crucial issue is the impact of such a consolidation strategy on the economy. We use structural macroeconomic models to estimate this impact. We consider two types of dynamic stochastic general equilibrium models: a neoclassical growth model and more complicated models with price and wage rigidities and adjustment costs. We separate out the impact of reductions in government purchases and transfers, and we allow for a reduction in both distortionary taxes and government debt relative to the baseline of no consolidation. According to the initial model simulations GDP rises in the short run upon announcement and implementation of this fiscal consolidation strategy and remains higher than the baseline in the long run.
In the aftermath of the global financial crisis and great recession, many countries face substantial deficits and growing debts. In the United States, federal government outlays as a ratio to GDP rose substantially from about 19.5 percent before the crisis to over 24 percent after the crisis. In this paper we consider a fiscal consolidation strategy that brings the budget to balance by gradually reducing this spending ratio over time to the level that prevailed prior to the crisis. A crucial issue is the impact of such a consolidation strategy on the economy. We use structural macroeconomic models to estimate this impact focussing primarily on a dynamic stochastic general equilibrium model with price and wage rigidities and adjustment costs. We separate out the impact of reductions in government purchases and transfers, and we allow for a reduction in both distortionary taxes and government debt relative to the baseline of no consolidation. According to the model simulations GDP rises in the short run upon announcement and implementation of this fiscal consolidation strategy and remains higher than the baseline in the long run. We explore the role of the mix of expenditure cuts and tax reductions as well as gradualism in achieving this policy outcome. Finally, we conduct sensitivity studies regarding the type of model used and its parameterization.
Recently, we evaluated a fiscal consolidation strategy for the United States that would bring the government budget into balance by gradually reducing government spending relative to GDP to the ratio that prevailed prior to the crisis (Cogan et al, JEDC 2013). Specifically, we published an analysis of the macroeconomic consequences of the 2013 Budget Resolution that was passed by the U.S. House of Representatives in March 2012. In this note, we provide an update of our research that evaluates this year’s budget reform proposal that is to be discussed and voted on in the House of Representative in March 2013. Contrary to the views voiced by critics of fiscal consolidation, we show that such a reduction in government purchases and transfer payments can increase GDP immediately and permanently relative to a policy without spending restraint. Our research makes use of a modern structural model of the economy that incorporates the long-standing essential features of economics: opportunity costs, efficiency, foresight and incentives. GDP rises because households take into account that spending restraint helps avoid future increases in tax rates. Lower taxes imply less distorted incentives for work, investment and production relative to a scenario without fiscal consolidation and lead to higher growth.
Under ordinary circumstances, the fiscal implications of central bank policies tend to be seen as relatively minor and escape close scrutiny. The global financial crisis of 2008, however, demanded an extraordinary response by central banks which brought to light the immense power of central bank balance sheet policies as well as their major fiscal implications. Once the zero lower bound on interest rates is reached, expanding a central bank’s balance sheet becomes the central instrument for providing additional monetary policy accommodation. However, with interest rates near zero, the line separating fiscal and monetary policy is blurred. Furthermore, discretionary decisions associated with asset purchases and liquidity provision, as well as with lender-of-last-resort operations benefiting private entities, can have major distributional effects that are ordinarily associated with fiscal policy. In the euro area, discretionary central bank decisions can have immense distributional effects across member states. However, decisions of this nature are incompatible with the role of unelected officials in democratic societies. Drawing on the response to the crisis by the Federal Reserve and the ECB, this paper explores the tensions arising from central bank balance sheet policies and addresses pertinent questions about the governance and accountability of independent central banks in a democratic society.
Fiscal policies and household consumption during the COVID-19 pandemic: a review of early evidence
(2020)
We review early evidence on how household consumption behavior has evolved over the pandemic and how different groups of households have responded to fiscal stimulus programs. Due to the scarcity of evidence for Europe, our review focuses on evidence from the US. Notwithstanding the institutional and demographic differences, we highlight generalizable findings and challenges to the design of stimulus policies from the pandemic. In conclusion, we identify several open issues for dis cussion.
This paper investigates whether a fiscal stimulus implies a different impact for flexible and rigid labour markets. The analysis is done for 11 advanced OECD economies. Using quarterly data from 1999 to 2013, I estimate a panel threshold structural VAR model in which regime switches are determined by OECD’s employment protection legislation index. My empirical results indicate significant differences between rigid and flexible labour markets regarding the impact of the fiscal stimulus on output and unemployment. While the impulse response of real GDP to a government spending shock is positive and more effective in flexible labour markets, it has less impact in the rigid ones. Moreover, it is found that a fiscal stimulus leads to higher overall unemployment in highly regulated countries.