01.04.2019 • 8/2019
Bank profitability increases after eliminating consolidation barriers
When two banks merge because political consolidation barriers are abolished, the combined entity is considerably more profitable and useful to the real economy. This is the headline result of an analysis of compulsory savings banks mergers carried out by the Halle Institute for Economic Research (IWH). The study yields important insights for the German and the European banking market.
Michael Koetter
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May the Force Be with You: Exit Barriers, Governance Shocks, and Profitability Sclerosis in Banking
Michael Koetter, Carola Müller, Felix Noth, Benedikt Fritz
Deutsche Bundesbank Discussion Paper,
No. 49,
2018
Abstract
We test whether limited market discipline imposes exit barriers and poor profitability in banking. We exploit an exogenous shock to the governance of government-owned banks: the unification of counties. County mergers lead to enforced government-owned bank mergers. We compare forced to voluntary bank exits and show that the former cause better bank profitability and efficiency at the expense of riskier financial profiles. Regarding real effects, firms exposed to forced bank mergers borrow more at lower cost, increase investment, and exhibit higher employment. Thus, reduced exit frictions in banking seem to unleash the economic potential of both banks and firms.
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Taken by Storm: Business Financing and Survival in the Aftermath of Hurricane Katrina
Emek Basker, Javier Miranda
Journal of Economic Geography,
No. 6,
2018
Abstract
We use Hurricane Katrina’s damage to the Mississippi coast in 2005 as a natural experiment to study business survival in the aftermath of a capital-destruction shock. We find very low survival rates for businesses that incurred physical damage, particularly for small firms and less-productive establishments. Conditional on survival, larger and more-productive businesses that rebuilt their operations hired more workers than their smaller and less-productive counterparts. Auxiliary evidence from the Survey of Business Owners suggests that the differential size effect is tied to the presence of financial constraints, pointing to a socially inefficient level of exits and to distortions of allocative efficiency in response to this negative shock. Over time, the size advantage disappeared and market mechanisms seem to prevail.
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Innovation, Reallocation, and Growth
Daron Acemoglu, Ufuk Akcigit, Harun Alp, Nicholas Bloom, William R. Kerr
American Economic Review,
No. 11,
2018
Abstract
We build a model of firm-level innovation, productivity growth, and reallocation featuring endogenous entry and exit. A new and central economic force is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using US Census microdata on firm-level output, R&D, and patenting. The model provides a good fit to the dynamics of firm entry and exit, output, and R&D. Taxing the continued operation of incumbents can lead to sizable gains (of the order of 1.4 percent improvement in welfare) by encouraging exit of less productive firms and freeing up skilled labor to be used for R&D by high-type incumbents. Subsidies to the R&D of incumbents do not achieve this objective because they encourage the survival and expansion of low-type firms.
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Do Venture Capital Firms Benefit from a Presence on Boards of Directors of Mature Public Companies?
Iftekhar Hasan, Arif Khurshed, Abdulkadir Mohamed, Fan Wang
Journal of Corporate Finance,
2018
Abstract
This paper examines the benefits to venture capital firms of their officers holding directorships in mature public companies in terms of fundraising and investment performance. Our empirical results show that venture capital firms raise more funds, set higher fund-raising targets, and are more likely to successfully exit their investments post-appointment of their officers to boards of directors of S&P 1500 companies. Directorship status in mature public firms provides venture capital firms with enhanced networks, visibility, and credibility, all of which facilitate their fundraising activities. In addition, the knowledge, expertise, and experience acquired through holding directorships in mature public firms are beneficial for their portfolio companies, as measured by the likelihood of successful exits.
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Insolvenzen in Deutschland: Deutliche Spuren in den Biografien der Beschäftigten
Manfred Antoni, Daniel Fackler, Eva Hank, Jens Stegmaier
IAB-Kurzbericht 05/2018, Nürnberg,
2018
Abstract
Wenn große Unternehmen vor der Insolvenz stehen, ist das öffentliche Interesse am Schicksal der Firma wie auch am Verbleib der Mitarbeiter meist beträchtlich. Dennoch liegen bisher nur wenige Informationen zu den Folgen einer Insolvenz für die Beschäftigten vor. Insbesondere die Insolvenzen kleiner Betriebe bleiben oft unbeachtet. Dieser Kurzbericht informiert nicht nur über das generelle Risiko der Beschäftigten, von einer Insolvenz betroffen zu sein. Er zeigt auch, mit welchen kurz- und mittelfristigen Auswirkungen die betroffenen Beschäftigten rechnen müssen. Dabei werden insbesondere die Effekte einer Insolvenz auf die Erwerbseinkommen und auf die Beschäftigungschancen der Betroffenen untersucht.
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Identifying Bankruptcies in German Social Security Data
Daniel Fackler, Eva Hank, Steffen Müller, Jens Stegmaier
FDZ-Methodenreport,
No. 10,
2017
Abstract
In empirischen Studien über Firmenschließungen wird häufig die Notwendigkeit betont, zwischen verschiedenen Arten von Schließungen, z.B. freiwilligen und unfreiwilligen, zu unterscheiden. Dieser Methodenreport erläutert vor diesem Hintergrund, wie im Betriebs-Historik-Panel (BHP) Betriebsstillegungen aufgrund von Insolvenzen identifiziert werden können. Insolvenzen können im Gegensatz zu anderen Schließungen eindeutig als Ausdruck ökonomischen Scheiterns und somit als unfreiwillige Schließungen interpretiert werden. (Autorenreferat, IAB-Doku)
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The Impact of Venture Capital Monitoring
Shai B. Bernstein, Xavier Giroud, Richard R. Townsend
Journal of Finance,
No. 4,
2016
Abstract
We show that venture capitalists' (VCs) on-site involvement with their portfolio companies leads to an increase in both innovation and the likelihood of a successful exit. We rule out selection effects by exploiting an exogenous source of variation in VC involvement: the introduction of new airline routes that reduce VCs' travel times to their existing portfolio companies. We confirm the importance of this channel by conducting a large-scale survey of VCs, of whom almost 90% indicate that direct flights increase their interaction with their portfolio companies and management, and help them better understand companies' activities.
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