Suppliers as Liquidity Insurers
Reint E. Gropp, Daniel Corsten, Panos Markou
IWH Discussion Papers,
No. 8,
2017
Abstract
We examine how financial constraints in portfolios of suppliers affect cash holdings at the level of the customer. Utilizing a data set of private and public French companies and their suppliers, we show that customers rely on their financially unconstrained suppliers to provide them with backup liquidity, and that they stockpile approximately 10% less cash than customers with constrained suppliers. This effect persisted during the global financial crisis, highlighting that suppliers may be viable insurers of liquidity even when financing from banks and other external channels is unavailable. We further show that customers with unconstrained suppliers also simultaneously receive more trade credit; that the reduction in cash holdings is greater for firms with stronger ties to their unconstrained suppliers; and that customers reduce their cash holdings following a significant relaxation in their suppliers’ financial constraints through an IPO. Taken together, the results provide important nuance regarding the implications of supplier portfolios and financial constraints on firm liquidity management.
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Uncertainty, Financial Crises, and Subjective Well-being
Lena Tonzer
IWH Discussion Papers,
No. 2,
2017
Abstract
This paper focuses on the effect of uncertainty as reflected by financial market variables on subjective well-being. The analysis is based on Eurobarometer surveys, covering 20 countries over the period from 2000 to 2013. Individuals report lower levels of life satisfaction in times of higher uncertainty approximated by stock market volatility. This effect is heterogeneous across respondents: The probability of being unsatisfied is higher for respondents who are older, less educated, and live in one of the GIIPS countries of the euro area. Furthermore, higher uncertainty in combination with a financial crisis increases the probability of reporting low values of life satisfaction.
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05.01.2017 • 3/2017
Secretariat for research network CompNet gets new home at IWH
The Halle Institute for Economic Research (IWH) – Member of the Leibniz Association is pleased to announce that it will be hosting the Secretariat for the Competitiveness Research Network (CompNet), an international network of scholars and practitioners, who share interest for top-notch research and policy analysis on competitiveness and productivity.
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Complexity and Bank Risk During the Financial Crisis
Thomas Krause, Talina Sondershaus, Lena Tonzer
Economics Letters,
January
2017
Abstract
We construct a novel dataset to measure banks’ complexity and relate it to banks’ riskiness. The sample covers stock listed Euro area banks from 2007 to 2014. Bank stability is significantly affected by complexity, whereas the direction of the effect differs across complexity measures.
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29.09.2016 • 40/2016
Joint Economic Forecast: German Economy on Track – Economic Policy needs to be Realigned
Thanks to a stable job market and solid consumption, the German economy is experiencing a moderate upswing. The GDP is expected to increase by 1.9 percent this year, 1.4 percent in 2017, and 1.6 percent in 2018, according to the Gemeinschaftsdiagnose (GD, joint economic forecast) that was prepared by five of Europe’s leading economic research institutes on behalf of the Federal Government. The most recent GD, which was released in April, predicted a GDP growth rate of 1.6 percent for 2016 and 1.5 percent for 2017.
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Finanzmarktwissen bei Selbstständigen besonders ausgeprägt
Aida Ćumurović, Walter Hyll
Wirtschaft im Wandel,
No. 3,
2016
Abstract
Unternehmerische Aktivität ist ein dynamischer Treiber wirtschaftlicher Entwicklung. Finanzmarktwissen befähigt Individuen zu einer besseren Abwägung von Chancen und Risiken. In diesem Beitrag wird geprüft, ob ein höheres Maß an Finanzmarktwissen auch einen Einfluss auf die Entscheidung hat, sich selbstständig zu machen. Dieser Zusammenhang wird auf der Basis von Umfragedaten für Deutschland empirisch bestätigt.
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Informal or Formal Financing? Evidence on the Co-Funding of Chinese Firms
Hans Degryse, Liping Lu, Steven Ongena
Journal of Financial Intermediation,
2016
Abstract
Different modes of external finance provide heterogeneous benefits for the borrowing firms. Informal finance offers informational advantages whereas formal finance is scalable. Using unique survey data from China, we find that informal finance is associated with higher sales growth for small firms but lower sales growth for large firms. We identify a complementary effect between informal and formal finance for the sales growth of small firms, but not for large firms. Co-funding, thereby simultaneously using the informational advantage of informal finance and the scalability of formal finance, is therefore the optimal choice for small firms.
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The Role of Complexity for Bank Risk during the Financial Crisis: Evidence from a Novel Dataset
Thomas Krause, Talina Sondershaus, Lena Tonzer
Abstract
We construct a novel dataset to measure banks’ business and geographical complexity. Using these measures of complexity, we evaluate how they relate to banks’ idiosyncratic and systemic riskiness. The sample covers stock listed banks in the euro area from 2007 to 2014. Our results show that banks have increased their total number of subsidiaries while business and geographical complexity have declined. Bank stability is significantly affected by our complexity measures, whereas the direction of the effect differs across the complexity measures: Banks with a higher degree of geographical complexity and a higher share of foreign subsidiaries seem to be less stable. In contrast, a higher share of non-bank subsidiaries significantly decreases the probability for a state aid request during the recent crisis period. This heterogeneity advises against the use of a single complexity measure when evaluating the implications of bank complexity.
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Regional Capital Flows and Economic Regimes: Evidence from China
Liuchun Deng, Boqun Wang
Economics Letters,
April
2016
Abstract
Using provincial data from China, this paper examines the pattern of capital flows in relation to the transition of economic regimes. We show that fast-growing provinces experienced less capital inflows before the large-scale market reform, contrary to the prediction of the neoclassical growth theory. As China transitioned from the central-planning economy to the market economy, the negative correlation between productivity growth and capital inflows became much less pronounced. From a regional perspective, this finding suggests domestic institutional factors play an important role in shaping the pattern of capital flows.
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Financial Literacy and Self-employment
Aida Ćumurović, Walter Hyll
Abstract
In this paper, we study the relationship between financial literacy and self-employment. We use established financial knowledge-based questions to measure financial literacy levels. The analysis shows a highly significant correlation between selfemployment and financial literacy scores. To investigate the impact of financial literacy on being self-employed, we apply instrumental variable techniques based on information on economic education before entering the labour market and education of parents. Our results reveal that financial literacy positively affects the probability of being self-employed. As financial literacy is acquirable, findings suggest that entrepreneurial activities may be raised via enhancing financial knowledge.
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