Clustering or Competition? The Foreign Investment Behavior of German Banks
Claudia M. Buch, A. Lipponer
International Journal of Central Banking,
2006
Abstract
Banks often concentrate their foreign direct investment (FDI) in certain countries. This clustering of activities could reflect either the attractiveness of a particular country or agglomeration effects. To find out which of the two phenomena dominates, we need to control for country-specific factors. We use new bank-level data on German banks’ FDI for the 1996-2003 period.We test whether the presence of other banks has a positive impact on the entry of new banks. Once we control for the attractiveness of a country through fixed effects, the negative impact of competition dominates. Hence, pure clustering effects are rather unimportant.
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Investment and Internal Finance: Asymmetric Information or Managerial Discretion?
Hans Degryse, Abe de Jong
International Journal of Industrial Organization,
No. 1,
2006
Abstract
This paper examines the investment-cash flow sensitivity of publicly listed firms in The Netherlands. Investment-cash flow sensitivities can be attributed to overinvestment resulting from the abuse of managerial discretion, but also to underinvestment due to information problems. The Dutch corporate governance structure presents a number of distinctive features, in particular the limited influence of shareholders, the presence of large blockholders, and the importance of bank ties. We expect that in The Netherlands, the managerial discretion problem is more important than the asymmetric information problem. We use Tobin's Q to discriminate between firms with these problems, where LOW Q firms face the managerial discretion problem and HIGH Q firms the asymmetric information problem. As hypothesized, we find substantially larger investment-cash flow sensitivity for LOW Q firms. Moreover, specifically in the LOW Q sample, we find that firms with higher (bank) debt have lower investment-cash flow sensitivity. This finding shows that leverage, and particularly bank debt, is a key disciplinary mechanism which reduces the managerial discretion problem.
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Technological capability of foreign and West German investors in East Germany
Jutta Günther
IWH Discussion Papers,
No. 189,
2004
Abstract
Foreign direct investment (FDI) plays an important role for countries or regions in the process of economic catching-up since it is assumed – among other things – that FDI brings in new production technology and knowledge. This paper gives an overview about the development of FDI in East Germany based on official data provided by the Federal Bank of Germany. The investigation also includes a comparison of FDI in East Germany to Central East European countries. But the main focus of the paper is an analysis of the technological capability comparing majority foreign and West German owned firms to majority East German owned firms. It shows that foreign and West German subsidiaries in East Germany are indeed characterized by superior technological capability with respect to all indicators looked at (product innovation, research & development, organizational changes etc.).
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Cross-border Mergers in European Banking and Bank Efficiency: Discussion
Reint E. Gropp
Foreign Direct Investment in the Real and Financial Sector of Industrial Countries,
2003
Abstract
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Recent Developments and Risks in the Euro Area Banking Sector
Reint E. Gropp, Jukka M. Vesala
ECB Monthly Bulletin,
2002
Abstract
This article provides an overview of euro area banks’ exposure to risk and examines the effects of the cyclical downturn in 2001. It describes the extent to which euro area banks’ risk profile has changed as a result of recent structural developments, such as an increase in investment banking, mergers, securitisation and more sophisticated risk management techniques. The article stresses that the environment in which banks operated in 2001 was fairly complex due to the relatively weak economic performance of all major economies as well as the events of 11 September in the United States. It evaluates the effects of these adverse circumstances on banks’ stability and overall performance. The article provides bank balance sheet information as well as financial market prices, arguing that the latter may be useful when assessing the soundness of the banking sector in a forward-looking manner. It concludes with a review of the overall stability of euro area banks, pointing to robustness in the face of the adverse developments in 2001 and the somewhat improved forward-looking indicators of banks’ financial strength in early 2002.
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Bank-Firm Relationships and International Banking Markets
Hans Degryse, Steven Ongena
International Journal of the Economics of Business,
No. 3,
2002
Abstract
This paper reviews how long-term relationships between firms and banks shape the structure and integration of banking markets worldwide. Bank relationships arise to span informational asymmetries that are endemic in financial markets. Firm-bank relationships not only entail specific benefits and costs for both the engaged firms and banks, but also directly affect the structure of banking markets. In particular, the sunk cost of screening and monitoring activities and the 'informational capital' collected by the incumbent banks may act as a barrier to entry. The intensity of the existing firm-bank relationships will determine the height of this barrier and shape the structure of international banking markets. For example, in Scandinavia where firms maintain few and strong relationships, foreign banks may only be able to enter successfully through mergers and acquisitions. On the other hand, Southern European firms maintain many bank relationships. Therefore, banks may consider entering Southern European banking markets through direct investment.
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Korean unification and banking system - An analysis in view of German experiences and Korean differences
Ralf Müller
IWH Discussion Papers,
No. 139,
2001
Abstract
One of the reforms that have to be launched in a future unification process in Korea, which seems possible after the political negotiations last year, is the transformation of the North Korean banking system. The question arises whether Korea could profit from the German experience where banking transformation was one of the rather few success stories in unification. In 1990 the East German banking transformation was achieved relatively fast and uncomplicated due to considerable direct investments of the West German banks compounded with state guarantees for bad loans resulting from the credit business with existing GDR-corporations. Unfortunately, South Korea currently lacks some major prerequesites that contributed to the German banking unification, among them – and probably the most important one – is the lack of a sound and efficient banking
system that could become active in the North. Consequently, depending on the circumstances of a future Korean unification either a more gradual process is recommended or, if inner-Korean migration requires a more dynamic transition, considerable investment by foreign banks and assistance from international organisations is recommended.
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