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As 2021 draws to a close, Covid-19 continues to prevail worldwide. With the proverbial return to normalcy still appearing distant, there is now a tacit acceptance globally that at least for the foreseeable future, we must live with Covid-19. Given that Covid-19 is an infectious disease—which by definition is transmitted from person to person—the continued prevalence of Covid-19 has implications for how local authorities, communities, and individuals around the world will approach public spaces. While it may be premature to assume a so-called coronacene (see Higgins et al. 2020), going into the future our use of public spaces will be overshadowed by the possibility, even if remote, of illness or death by virtue of close proximity to other individuals.
Along with parks and squares, streets and avenues, bazaars constitute ubiquitous public spaces, including in countries of the developing world, such as Armenia and Georgia, our countries of discussion here. Although there is not a clear bifurcation between bazaars and other types of marketplaces, bazaars will usually be comprised of a multitude of nonfranchised, self-owned, small businesses that are variously family-run or rely on family labor. They are usually perceived as chaotic places that lack hygiene (the purportedly unhygienic character of the bazaar was brought to the forefront with the pandemic, given how Covid-19’s origin is widely assumed to be a Wuhan wet market).
In Armenia and Georgia, and indeed, across the former Soviet Union, bazaars are a source of employment for the urban and peri-urban population; they also offer goods at price points attractive to a wide demographic. This working paper builds on the premise that the bazaar is an informal institution. Bazaar traders will typically assemble networks by themselves (with manufacturers and wholesalers, buyers and transporters). These networks will usually vary from one business to another. Also, ownership and rent structures are frequently opaque, and the majority of commercial transactions are in cash, which does not appear in state records. As a consequence, for the state, many small businesses do not exist (Fehlings and Karrar 2016, 2020).
For those of us researching bazaar trading, Covid-19 has given rise to a basic question: How have independent businesses been transformed by the pandemic? This working paper is an attempt to parse this question in light of developments in Armenia and Georgia. In this working paper, we suggest that the Covid-19 pandemic has deepened informality in the bazaar. That being said, we want to underscore that the present discussion is exploratory. Our ethnography remains limited, and we look forward to returning to the field as soon as it is safe to do so.
We show that the COVID-19 pandemic triggered a surge in the elasticity of non-financial corporate to sovereign credit default swaps in core EU countries, characterized by strong fiscal capacity. For peripheral countries with lower budgetary slackness, the pandemic had essentially no impact on such elasticity. This evidence is consistent with the disaster-induced repricing of government support, which we model through a rare-disaster asset pricing framework with bailout guarantees and defaultable public debt. The model implies that risk-adjusted guarantees in the core were 2.6 times those in the periphery, suggesting that fiscal capacity buffers provide relief to firms’ financing costs.
We analyze the impact of decreases in available lending resources on quantitative and qualita- tive dimensions of firms’ patenting activities. We thereby make use of the European Banking Authority?s capital exercise to carve out the causal effect of bank lending on firm innovation. In order to do so we combine various datasets to derive information on firms’ financials, their patenting behaviors, as well as their relationships with their lenders. Building on this self- generated dataset, we provide support for the “less finance, less innovation” view. At the same time, we show that lower available financial resources for firms lead to improvement in the qualitative dimensions of their patents. Hence, we carve out a “less finance, less but better innovation” pattern.
We investigate the differential effect of the COVID-19 shock to the stock market shock on the share prices of firms with different levels of ESG (Environmental, Social and Governance) scores. Thereby, we analyse whether and to what extent better ESG ratings provided insurance for investors in the stocks of those firms during this shock. We focus our analysis on the European market in which ESG investment plays a particularly important role. Using a broad sample of listed firms we provide mixed evidence. On the one hand, we show that immediately after the start of the shock firms with a higher ESG score outperformed their peers. On the other hand, this effect faded less than six weeks later. Given the quick recovery of the market our finding supports the idea that ESG stocks provide limited insurance in severe crises.
Predictions of oil prices reaching $100 per barrel during the winter of 2021/22 have raised fears of persistently high inflation and rising inflation expectations for years to come. We show that these concerns have been overstated. A $100 oil scenario of the type discussed by many observers, would only briefly raise monthly headline inflation, before fading rather quickly. However, the short-run effects on headline inflation would be sizable. For example, on a yearover- year basis, headline PCE inflation would increase by 1.8 percentage points at the end of 2021 under this scenario, and by 0.4 percentage points at the end of 2022. In contrast, the impact on measures of core inflation such as trimmed mean PCE inflation is only 0.4 and 0.3 percentage points in 2021 and 2022, respectively. These estimates already account for any increases in inflation expectations under the scenario. The peak response of the 1-year household inflation expectation would be 1.2 percentage points, while that of the 5-year expectation would be 0.2 percentage points.
Retail investors pay over twice as much attention to local companies than non-local ones, based on Google searches. News volume and volatility amplify this attention gap. Attention appears causally related to perceived proximity: first, acquisition by a nonlocal company is associated with less attention by locals, and more by nonlocals close to the acquirer; second, COVID-19 travel restrictions correlate with a drop in relative attention to nonlocal companies, especially in locations with fewer fights after the outbreak. Finally, local attention predicts volatility, bid-ask spreads and nonlocal attention, not viceversa. These findings are consistent with local investors having an information-processing advantage.
Careers in finance
(2021)
The finance wage premium since the 1990s has arguably lured talent away from other industries. However, the allocation of talent is likely to respond to differences in career paths, not in wages at a given date. We use resume data to reconstruct the careers of 11,255 professionals in finance, high-tech and services from 1980 to 2017, and find that careers mostly develop within sectors. Careers in asset management feature higher and steeper pay profiles than those of employees in banking, insurance and non-finance, yet this career premium cannot be explained by higher risk. Labor market entry responds positively to career premia in asset management and high-tech, and these sectors are regarded as substitutes by potential entrants, consistently with high-tech competing with asset management in attracting talent.
Using the pandemic as a laboratory, we show that asset markets assign a time- varying price to firms' disaster risk exposure. In 2020 the cross-section of realized and expected stock returns reflected firms' different exposure to the pandemic, as measured by their vulnerability to social distancing. Realized and expected return differentials initially widened and then narrowed, but disaster exposure still commanded a risk premium in December 2020. When inferred from market outcomes, resilience correlates not only with social distancing, but also with cash and environmental ratings. However, vulnerability to social distancing is the only characteristic that identifies persistently scarred firms.
We investigate whether government credit guarantee schemes, extensively used at the onset of the Covid-19 pandemic, led to substitution of non-guaranteed with guaranteed credit rather than fully adding to the supply of lending. We study this issue using a unique euro-area credit register data, matched with supervisory bank data, and establish two main findings. First, guaranteed loans were mostly extended to small but comparatively creditworthy firms in sectors severely affected by the pandemic, borrowing from large, liquid and well-capitalized banks. Second, guaranteed loans partially substitute pre-existing non-guaranteed debt. For firms borrowing from multiple banks, the substitution mainly arises from the lending behavior of the bank extending guaranteed loans. Substitution was highest for funding granted to riskier and smaller firms in sectors more affected by the pandemic, and borrowing from larger and stronger banks. Overall, the evidence indicates that government guarantees contributed to the continued extension of credit to relatively creditworthy firms hit by the pandemic, but also benefited banks’ balance sheets to some extent.
The US Tax Cuts and Jobs Act (TCJA) led to a drastic reduction in the corporate tax and improved the treatment of C corporations compared to S corporations. We study the differential effect of the TCJA on these types of corporations using key economic variables of US banks, such as the number of employees, average salaries and benefits, profit/loss before taxes, and net income. Our analysis suggests that the TCJA increased the net-of-tax profits of C corporation banks compared to S corporations and, to a lesser extent, their pre-tax profits. At the same time, the reform triggered no significantly differential effect on the employment and average wages.
Historically Central Bank Independence (CBI) was anything but the norm. CBI seems to contradict core principles of democracy. Most economists were also against CBI. After the Great Inflation of the 1970ies many empirical studies demonstrated that there is a strong negative correlation between the degree of CBI and the rate of inflation. In 1990 most major countries had endowed their central bank with the status of independence. Overburdening with elevated expectations and additional competences are threatening the reputation of central banks and undermining the case for CBI.
COVID-19 brought about a shift in entrepreneurial opportunities and in the United States. In this paper, we proxy entrepreneurial processes by examining housing prices in different regions of the United States. Housing prices capture the movement in people, tax dynamics, and behavioral preferences for equity ownership in different regions and over time, all of which were drastically impacted by COVID-19. We examine all U.S. equity crowdfunding offerings starting with the very first offerings in 2016 Q2 until 2021 Q1 based on data from the Securities and Exchange Commission. The data indicate that regional housing prices post-COVID-19 are a strong predictor of the number of equity crowdfunding campaigns and the amount of capital raised. The impact of housing price changes on crowdfunding is more pronounced among more prosperous regions. The housing price effect is robust to numerous controls and consideration of outliers.
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 consider whether traders are more likely to commit securities violations when trading at home, a new form of working induced by the Covid pandemic. We examine data pre- and post-Covid, during which some traders were unexpectedly forced to work at home. The data indicate the presence of both a treatment and a selection effect, where work at home exhibits fewer misconduct cases. Work at home is associated with fewer cases of trading misconduct, although no difference in communications misconduct. The economic significance of working from home on trading misconduct is large for both the treatment and selection effects.
The nominee approach to equity crowdfunding pools all crowd investors into one (nominee) account where typically the platform acts as the legal owner but the crowd retains beneficial ownership. The platform plays an active digital corporate governance role that simultaneously enfranchises crowd investors with voting and ownership rights but removes the administrative burden on startups of having to deal with several hundred shareholders. Through an inter-platform and intra-platform analysis of a large sample of 1,018 initial equity crowdfunding campaigns, this paper assesses both the short-term and the long-term impact of nominee versus direct ownership. It finds that nominee initial campaigns are on average more successful than direct ownership campaigns in that they are more likely to succeed, raise more funds, attract overfunding and enjoy greater long run success in terms of successful seasoned equity crowdfunded offerings, numbers of such offerings, and probability of survival. These results hold inter-platform between the two main UK equity crowdfunding platforms (Seedrs and Crowdcube) as well as intra-platform, using the post-2015 quasi-natural experiment when the nominee approach became an option for startups raising capital on Crowdcube.
Non-standard errors
(2021)
In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard errors. To study them, we let 164 teams test six hypotheses on the same sample. We find that non-standard errors are sizeable, on par with standard errors. Their size (i) co-varies only weakly with team merits, reproducibility, or peer rating, (ii) declines significantly after peer-feedback, and (iii) is underestimated by participants.
The importance of agile methods has increased in recent years, not only to manage software development processes but also to establish flexible and adaptive organisational structures, which are essential to deal with disruptive changes and build successful digital business strategies. This paper takes an industry-specific perspective by analysing the dissemination, objectives and relative popularity of agile frameworks in the German banking sector. The data provides insights into expectations and experiences associated with agile methods and indicates possible implementation hurdles and success factors. Our research provides the first comprehensive analysis of agile methods in the German banking sector. The comparison with a selected number of fintechs has revealed some differences between banks and fintechs. We found that almost all banks and fintechs apply agile methods in IT-related projects. However, fintechs have relatively more experience with agile methods than banks and use them more intensively. Scrum is the most relevant framework used in practice. Scaled agile frameworks are so far negligible in the German banking sector. Acceleration of projects is apparently the most important objective of deploying agile methods. In addition, agile methods can contribute to cost savings and lead to improved quality and innovation performance, though for banks it is evidently more challenging to reach their respective targets than for fintechs. Overall our findings suggest that German banks are still in a maturing process of becoming more agile and that there is room for an accelerated adoption of agile methods in general and scaled agile frameworks in particular.
We propose three governance mechanisms pertinent to equity crowdfunding and campaign success through mitigating pronounced information asymmetries and agency problems. First, unlike IPOs for which the effect of Delaware incorporation has declined or disappeared over time, we propose Delaware incorporation matters a great deal for success in the new setting of equity crowdfunding. Second, we propose that security design is a critical tool for equity crowdfunding success and even more important than the limited 2-year financial statement disclosure. Third, we propose that platforms as intermediaries between entrepreneurs and investors play an important role in mitigating and sometimes exacerbating information asymmetries and agency problems. The population of equity crowdfunding campaigns from market inception in May 2016 to Q2, 2021 in the United States provides strong support for these propositions.
Correctness of program transformations and translations in concurrent programming is the focus of our research. In this case study the relation of the synchronous pi-calculus and a core language of Concurrent Haskell (CH) with asynchronous communication is investigated. We show that CH embraces the synchronous pi-calculus. The formal foundations are contextual semantics in both languages, where may- as well as should-convergence are observed. We succeed in defining and proving smart properties of a particular translation mapping the synchronous pi-calculus into CH. This implies that pi-processes are error-free if and only if their translation is an error-free CH-program Our result shows that the chosen semantics is not only powerful, but can also be applied in concrete and technically complex situations. The developed translation uses private names. We also automatically check potentially correct translations that use global names instead of private names. As a complexity parameter we use the number of MVars introduced by the transformation, where MVars are synchronized 1-place buffers. The automated refutation of incorrect translations leads to a classification of potentially correct translations, and to the conjecture that one global MVar is insufficient.
Correctness of program transformations and translations in concurrent programming is the focus of our research. In this case study the relation of the synchronous pi-calculus and a core language of Concurrent Haskell (CH) with asynchronous communication is investigated. We show that CH embraces the synchronous pi-calculus. The formal foundations are contextual semantics in both languages, where may- as well as should-convergence are observed. We succeed in defining and proving smart properties of a particular translation mapping the synchronous pi-calculus into CH. This implies that pi-processes are error-free if and only if their translation is an error-free CH-program Our result shows that the chosen semantics is not only powerful, but can also be applied in concrete and technically complex situations. The developed translation uses private names. We also automatically check potentially correct translations that use global names instead of private names. As a complexity parameter we use the number of MVars introduced by the transformation, where MVars are synchronized 1-place buffers. The automated refutation of incorrect translations leads to a classification of potentially correct translations, and to the conjecture that one global MVar is insufficient.