Foreign Ownership, Bank Information Environments, and the International Mobility of Corporate Governance
Yiwei Fang, Iftekhar Hasan, Woon Sau Leung, Qingwei Wang
Journal of International Business Studies,
No. 9,
2019
Abstract
This paper investigates how foreign ownership shapes bank information environments. Using a sample of listed banks from 60 countries over 1997–2012, we show that foreign ownership is significantly associated with greater (lower) informativeness (synchronicity) in bank stock prices. We also find that stock returns of foreign-owned banks reflect more information about future earnings. In addition, the positive association between price informativeness and foreign ownership is stronger for foreign-owned banks in countries with stronger governance, stronger banking supervision, and lower monitoring costs. Overall, our evidence suggests that foreign ownership reduces bank opacity by exporting governance, yielding important implications for regulators and governments.
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Trade, Misallocation, and Capital Market Integration
Laszlo Tetenyi
IWH-CompNet Discussion Papers,
No. 8,
2019
Abstract
I study how cross-country capital market integration affects the gains from trade in a model with financial frictions and heterogeneous, forward-looking firms. The model predicts that misallocation among exporters increases as trade barriers fall, even as misallocation decreases in the aggregate. The reason is that financially constrained productive exporters increase their production only marginally, while unproductive exporters survive for longer and increase their size. Allowing capital inflows magnifies misallocation, because unproductive firms expand even more, leading to a decline in aggregate productivity. Nevertheless, under integrated capital markets, access to cheaper capital dominates the adverse effect on productivity, leading to higher output, consumption and welfare than under closed capital markets. Applied to the period of European integration between 1992 and 2008, I find that underdeveloped sectors experiencing higher export exposure had more misallocation of capital and a higher share of unproductive firms, thus the data is consistent with the model’s predictions. A key implication of the model is that TFP is a poor proxy for consumption growth after trade liberalisation.
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Firm-level Employment, Labour Market Reforms, and Bank Distress
Moritz Stieglitz, Ralph Setzer
Abstract
We explore the interaction between labour market reforms and financial frictions. Our study combines a new cross-country reform database on labour market reforms with matched firm-bank data for nine euro area countries over the period 1999 to 2013. While we find that labour market reforms are overall effective in increasing employment, restricted access to bank credit can undo up to half of long-term employment gains at the firm-level. Entrepreneurs without sufficient access to credit cannot reap the full benefits of more flexible employment regulation.
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Deleveraging and Consumer Credit Supply in the Wake of the 2008–09 Financial Crisis
Reint E. Gropp, J. Krainer, E. Laderman
International Journal of Central Banking,
No. 3,
2019
Abstract
We explore the sources of the decline in household nonmortgage debt following the collapse of the housing market in 2006. First, we use data from the Federal Reserve Board's Senior Loan Officer Opinion Survey to document that, post-2006, banks tightened consumer lending standards more in counties that experienced a more pronounced house price decline (the pre-2006 "boom" counties). We then use the idea that renters did not experience an adverse wealth or collateral shock when the housing market collapsed to identify a general consumer credit supply shock. Our evidence suggests that a tightening of the supply of non-mortgage credit that was independent of the direct effects of lower housing collateral values played an important role in households' non-mortgage debt reduction. Renters decreased their non-mortgage debt more in boom counties than in non-boom counties, but homeowners did not. We argue that this wedge between renters and homeowners can only have arisen from a general tightening of banks' consumer lending stance. Using an IV approach, we trace this effect back to a reduction in bank capital of banks in boom counties.
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Kommentar: Die Krise von 2008/2009 ist noch nicht vorbei
Reint E. Gropp
Wirtschaft im Wandel,
No. 2,
2019
Abstract
Kurzfristig war die Finanzkrise, ursprünglich ausgelöst durch exzessive Vergabe von Hypotheken an weniger kreditwürdige Haushalte, verbunden mit der weitverbreiteten Verbriefung dieser Hypotheken, mit schweren realwirtschaftlichen Konsequenzen verbunden. Die Volkswirtschaften aller Industrieländer schrumpften stark, die Arbeitslosigkeit stieg kräftig an. Firmen waren nicht in der Lage, neue Investitionen zu finanzieren, da es für Banken in vielen Ländern nicht möglich war, Kredite zu vergeben. Gleichzeitig führten die Rettungsaktionen der Regierungen zu einer starken Erhöhung der Schuldenstände und zu einer Nullzinspolitik, verbunden mit Anleihekäufen, der wichtigsten Zentralbanken.
Wo stehen wir heute, über zehn Jahre nach der Pleite von Lehman, die symbolisch noch immer eng mit der Krise verbunden ist? Und gibt es langfristige Auswirkungen auf die Wirtschaft – Auswirkungen, die wir noch heute spüren und möglicherweise noch viele Jahre spüren werden?
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Firm-level Employment, Labour Market Reforms, and Bank Distress
Ralph Setzer, Moritz Stieglitz
Abstract
We explore the interaction between labour market reforms and financial frictions. Our study combines a new cross-country reform database on labour market reforms with matched firm-bank data for nine euro area countries over the period 1999 to 2013. While we find that labour market reforms are overall effective in increasing employment, restricted access to bank credit can undo up to half of long-term employment gains at the firm-level. Entrepreneurs without sufficient access to credit cannot reap the full benefits of more flexible employment regulation.
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26.06.2019 • 14/2019
Study: How financial crises lower life satisfaction and how to prevent this
Financial crises not only result in severe disruptions to the economic system, they also affect people’s life satisfaction. A new study by Martin Luther University Halle-Wittenberg (MLU) and the Halle Institute for Economic Research (IWH) shows that weaker members of society are more affected by increased uncertainty during crisis times, even if they may not be speculating on the stock market themselves. This could potentially also lower their propensity to consume, thereby intensifying the impact of a financial crisis. The study was recently published in “The B.E. Journal of Economic Analysis & Policy”.
Lena Tonzer
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Delay Determinants of European Banking Union Implementation
Michael Koetter, Thomas Krause, Lena Tonzer
European Journal of Political Economy,
2019
Abstract
Most countries in the European Union (EU) delay the transposition of European Commission (EC) directives, which aim at reforming banking supervision, resolution, and deposit insurance. We compile a systematic overview of these delays to investigate if they result from strategic considerations of governments conditional on the state of their financial, regulatory, and political systems. Transposition delays pertaining to the three Banking Union directives differ considerably across the 28 EU members. Bivariate regression analyses suggest that existing national bank regulation and supervision drive delays the most. Political factors are less relevant. These results are qualitatively insensitive to alternative estimation methods and lag structures. Multivariate analyses highlight that well-stocked deposit insurance schemes speed-up the implementation of capital requirements, banking systems with many banks are slower in implementing new bank rescue and resolution rules, and countries with a more intensive sovereign-bank nexus delay the harmonization of EU deposit insurance more.
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Lock‐in Effects in Relationship Lending: Evidence from DIP Loans
Iftekhar Hasan, Gabriel G. Ramírez, Gaiyan Zhang
Journal of Money, Credit and Banking,
No. 4,
2019
Abstract
Do prior lending relationships result in pass‐through savings (lower interest rates) for borrowers, or do they lock in higher costs for borrowers? Theoretical models suggest that when borrowers experience greater information asymmetry, higher switching costs, and limited access to capital markets, they become locked into higher costs from their existing lenders. Firms in Chapter 11 seeking debtor‐in‐possession (DIP) financing often fit this profile. We investigate the presence of lock‐in effects using a sample of 348 DIP loans. We account for endogeneity using the instrument variable (IV) approach and the Heckman selection model and find consistent evidence that prior lending relationship is associated with higher interest costs and the effect is more severe for stronger existing relationships. Our study provides direct evidence that prior lending relationships do create a lock‐in effect under certain circumstances, such as DIP financing.
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Price-cost Margin and Bargaining Power in the European Union
Ana Cristina Soares
IWH-CompNet Discussion Papers,
No. 4,
2019
Abstract
Using firm-level data between 2004 and 2012 for eleven countries of the European Union (EU), we document the size of product and labour market imperfections within narrowly defined sectors including services which are virtually undocumented. Our findings suggest that perfect competition in both product and labour markets is widely rejected. Levels of the price-cost margin and union bargaining power tend to be higher in some service sectors depicting however substantial heterogeneity. Dispersion within sector and across countries tends to be higher in some services sectors assuming a less tradable nature which suggests that the Single Market integration is partial particularly relaxing the assumption of perfect competition in the labour market. We report also figures for the aggregate economy and show that Eastern countries tend to depict lower product and labour market imperfections compared to other countries in the EU. Also, we provide evidence in favour of a very limited adjustment of both product and labour market imperfections following the international and financial crisis.
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