Corporate Boards and Bank Loan Contracting
Bill Francis, Iftekhar Hasan, Michael Koetter, Qiang Wu
Journal of Financial Research,
No. 4,
2012
Abstract
We investigate the role of corporate boards in bank loan contracting. We find that when corporate boards are more independent, both price and nonprice loan terms (e.g., interest rates, collateral, covenants, and performance-pricing provisions) are more favorable, and syndicated loans comprise more lenders. In addition, board size, audit committee structure, and other board characteristics influence bank loan prices. However, they do not consistently affect all nonprice loan terms except for audit committee independence. Our study provides strong evidence that banks recognize the benefits of board monitoring in mitigating information risk ex ante and controlling agency risk ex post, and they reward higher quality boards with more favorable loan contract terms.
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The Determinants of Inward Foreign Direct Investment in Business Services Across European Regions
Davide Castellani
Finanza e Statistica 104/2012,
2012
Abstract
The paper accounts for the determinants of inward foreign direct investment in business services across the EU-27 regions. Together with the traditional variables considered in the literature (market size, market quality, agglomeration economies, labour cost, technology, human capital), we focus on the role of forward linkages with manufacturing sectors and other service sectors as
attractors of business services FDI at the regional level. This hypothesis is based on the evidence that the growth of business services is mostly due to increasing intermediate demand by other services industries and by manufacturing industries and on the importance of geographical proximity for forward linkages in services.
To our knowledge, there are no studies investigating the role of forward linkages for the location of FDI. This paper aims therefore to fill this gap and add to the FDI literature by providing a picture of the specificities of the determinants of FDI in business services at the regional level. The empirical analysis draws upon the database fDi Markets, from which we selected projects having as a destination NUTS 2 European regions in the sectors of Business services over the period 2003-2008. Data on FDI have been matched with data drawn from the Eurostat Regio
database. Forward linkages have been constructed using the OECD Input/Output database. By estimating a negative binomial model, we find that regions specialised in those (manufacturing) sectors that are high potential users of business services attract more FDI than other regions. This confirms the role of forward linkages for the localisation of business service FDI, particularly in the case of manufacturing.
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Spillover Effects among Financial Institutions: A State-dependent Sensitivity Value-at-Risk Approach
Z. Adams, R. Füss, Reint E. Gropp
Abstract
In this paper, we develop a state-dependent sensitivity value-at-risk (SDSVaR) approach that enables us to quantify the direction, size, and duration of risk spillovers among financial institutions as a function of the state of financial markets (tranquil, normal, and volatile). Within a system of quantile regressions for four sets of major financial institutions (commercial banks, investment banks, hedge funds, and insurance companies) we show that while small during normal times, equivalent shocks lead to considerable spillover effects in volatile market periods. Commercial banks and, especially, hedge funds appear to play a major role in the transmission of shocks to other financial institutions. Using daily data, we can trace out the spillover effects over time in a set of impulse response functions and find that they reach their peak after 10 to 15 days.
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Determinants of Evolutionary Change Processes in Innovation Networks – Empirical Evidence from the German Laser Industry
Muhamed Kudic, Andreas Pyka, Jutta Günther
Abstract
We seek to understand the relationship between network change determinants, network change processes at the micro level and structural consequences at the overall network level. Our conceptual framework considers three groups of determinants – organizational, relational and contextual. Selected factors within these groups are assumed to cause network change processes at the micro level – tie formations and tie terminations – and to shape the structural network configuration at the overall network level. We apply a unique longitudinal event history dataset based on the full population of 233 German laser source manufacturers and 570 publicly-funded cooperation projects to answer the following research question: What kind of exogenous or endogenous determinants affect a firm’s propensity and timing to cooperate and enter the network? Estimation results from a non-parametric event history model indicate that young micro firms enter the network later than small-sized and large firms. An in-depth analysis of the size effects for medium-sized firms provides some unexpected yet quite interesting findings. The choice of cooperation type makes no significant difference for the firms’ timing to enter the network. Finally, the analysis of contextual determinants shows that cluster membership can, but do not necessarily, affect a firm’s timing to cooperate.
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Do Government Owned Banks Trade Market Power for Slack?
Andreas Hackethal, Michael Koetter, Oliver Vins
Applied Economics,
No. 33,
2012
Abstract
The ‘Quiet Life Hypothesis (QLH)’ posits that banks with market power have less incentives to maximize revenues and minimize cost. Especially government owned banks with a public mandate precluding profit maximization might succumb to a quiet life. We use a unified approach that simultaneously measures market power and efficiency to test the quiet life hypothesis of German savings banks. We find that average local market power declined between 1996 and 2006. Cost and profit efficiency remained constant. Nonparametric correlations are consistent with a quiet life regarding cost efficiency but not regarding profit efficiency. The quiet life on the cost side is negatively correlated with bank size, quality of loan portfolio and local per capita income. The last result indicates that the quiet cost life is therefore potentially due to benevolent excess consumption of local input factors by public savings banks.
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The Impact of Firm and Industry Characteristics on Small Firms’ Capital Structure
Hans Degryse, Peter de Goeij, Peter Kappert
Small Business Economics,
No. 4,
2012
Abstract
We study the impact of firm and industry characteristics on small firms’ capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. The firm characteristics suggest that the capital structure decision is consistent with the pecking-order theory: Dutch SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. We further document that profits reduce in particular short-term debt, whereas growth increases long-term debt. We also find that inter- and intra-industry effects are important in explaining small firms’ capital structure. Industries exhibit different average debt levels, which is in line with the trade-off theory. Furthermore, there is substantial intra-industry heterogeneity, showing that the degree of industry competition, the degree of agency conflicts, and the heterogeneity in employed technology are also important drivers of capital structure.
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What Drives Innovation Output from Subsidized R&D Cooperation? — Project-level Evidence from Germany
Michael Schwartz, Michael Fritsch, Jutta Günther, François Peglow
Technovation,
No. 6,
2012
Abstract
Using a large dataset of 406 subsidized R&D cooperation projects, we provide detailed insights into the relationship between project characteristics and innovation output. Patent applications and publications are used as measures for the innovation output of an R&D project. We find that large-firm involvement is strongly positively related with the number of patent applications, but not with the number of publications. Conversely, university involvement has positive effects on projects’ innovation output in terms of the number of publications but not in terms of patent applications. In general, projects’ funding as measure of projects’ size is an important predictor of the innovation output of R&D cooperation projects. No significant effects are found for the number of partners as (an alternative) measure of projects’ size, for spatial proximity between cooperation partners, for the involvement of a public institute for applied research, and for prior cooperation experiences. We derive conclusions for the design of R&D cooperation support schemes.
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Effects of Fiscal Stimulus in Structural Models
Mathias Trabandt, Günter Coenen, Christopher J. Erceg, Charles Freedman, Davide Furceri, Michael Kumhof, René Lalonde, Douglas Laxton, Jesper Lindé, Annabelle Mourougane, Dirk Muir, Susanna Mursula, Carlos de Resende, John Roberts, Werner Roeger, Stephen Snudden, Jan in't Veld
American Economic Journal: Macroeconomics,
No. 1,
2012
Abstract
The paper subjects seven structural DSGE models, all used heavily by policymaking institutions, to discretionary fiscal stimulus shocks using seven different fiscal instruments, and compares the results to those of two prominent academic DSGE models. There is considerable agreement across models on both the absolute and relative sizes of different types of fiscal multipliers. The size of many multipliers is large, particularly for spending and targeted transfers. Fiscal policy is most effective if it has moderate persistence and if monetary policy is accommodative. Permanently higher spending or deficits imply significantly lower initial multipliers.
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Local Economic Structure and Sectoral Employment Growth in German Cities
Annette Illy, Michael Schwartz, Christoph Hornych, Martin T. W. Rosenfeld
Tijdschrift voor economische en sociale geografie,
No. 5,
2011
Abstract
This study systematically examines the impact of fundamental elements of urban economic structure on sectoral employment growth in German cities (“urban growth”). We test four elements simultaneously – sectoral specialisation, diversification of economic activities, urban size and the impact of local competition. To account for the effect of varying spatial delimitations in the analysis of urban growth, we further differentiate between cities and planning regions as geographical units. Our regression results show a U-shaped relationship between localisation economies and urban growth and positive effects of local competition on urban growth. With respect to diversification, we find positive effects on urban growth on the city level, but insignificant results on the level of the planning regions. The impact of urban size also differs between free cities and planning regions; in the former, a U-shaped relationship is found, whereas the effect is inversely U-shaped for the latter.
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Municipality Size and Efficiency of Local Public Services: Does Size Matter?
Peter Bönisch, Peter Haug, Annette Illy, L. Schreier
IWH Discussion Papers,
No. 18,
2011
published in: FinanzArchiv
Abstract
Similarly to western Germany in the 1960s and 1970s, the eastern part of Germany has experienced a still ongoing process of numerous amalgamations among counties, towns and municipalities since the mid-1990s. The evidence in the economic literature is mixed with regard to the claimed expenditure reductions and efficiency gains from municipal mergers. We therefore analyze the global efficiency of the municipalities in Saxony-Anhalt, for the first time in this context, using a double-bootstrap procedure combining DEA and truncated regression. This allows including environmental variables to control for exogenous determinants of municipal efficiency. Our focus thereby is on institutional and fiscal variables. Moreover, the scale efficiency is estimated to find out whether large units are necessary to benefit from scale economies. In contrast to previous studies, we chose the aggregate budget of municipal associations (“Verwaltungsgemeinschaften”) as the object of our analysis since important competences of the member municipalities are settled on a joint administrative level. Furthermore, we use a data set that has been carefully adjusted for bookkeeping items and transfers within the communal level. On the “eve” of a mayor municipal reform the majority of the municipalities were found to have an approximately scale-efficient size and centralized organizational forms (“Einheitsgemeinden”) showed no efficiency advantage over municipal associations.
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