Professor Reint E. Gropp, PhD

Professor Reint E. Gropp, PhD
Current Position

since 11/14

President

Halle Institute for Economic Research (IWH) – Member of the Leibniz Association

since 10/14

Professor of Economics

Otto von Guericke University Magdeburg


since 10/08

Fellow

Center for Financial Studies (CFS), Frankfurt

Research Interests

  • financial economics
  • macroeconomics
  • corporate finance
  • money and banking

Since November 2014, Reint E. Gropp has been President at the Halle Institute for Economic Research (IWH) and has been Professor of Economics at the Otto von Guericke University Magdeburg. He is Fellow of the Center for Financial Studies, Frankfurt, and Associate Editor of the Review of Finance. He serves as a consultant for the Bank of Canada and the Federal Reserve Bank of San Francisco.

Reint E. Gropp studied Economics at the Universities of Freiburg and Wisconsin, where he obtained his PhD in Economics from the University of Wisconsin, Madison, in 1994. Prior to his appointment at the IWH, he held the chair for Sustainable Banking and Finance at the Goethe-University Frankfurt am Main and worked for the International Monetary Fund (IMF) as well as the European Central Bank (ECB), where he was Deputy Head of the Financial Research Division.

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Professor Reint E. Gropp, PhD
Professor Reint E. Gropp, PhD
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Publications

Spillover Effects among Financial Institutions: A State-Dependent Sensitivity Value-at-Risk Approach

Z. Adams R. Füss Reint E. Gropp

in: Journal of Financial and Quantitative Analysis , No. 3, 2014

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). 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.

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The Effect of Personal Bankruptcy Exemptions on Investment in Home Equity

S. Corradin Reint E. Gropp H. Huizinga Luc Laeven

in: Journal of Financial Intermediation , 2016

Abstract

Homestead exemptions to personal bankruptcy allow households to retain their home equity up to a limit determined at the state level. Households that may experience bankruptcy thus have an incentive to bias their portfolios towards home equity. Using US household data for the period 1996 to 2006, we find that household demand for real estate is relatively high if the marginal investment in home equity is covered by the exemption. The home equity bias is more pronounced for younger and less healthy households that face more financial uncertainty and therefore have a higher ex ante probability of bankruptcy. These results suggest that homestead exemptions have an important bearing on the portfolio allocation of US households and the extent to which they insure against bad shocks.

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The Dynamics of Bank Spreads and Financial Structure

Reint E. Gropp C. Kok J.-D. Lichtenberger

in: Quarterly Journal of Finance , No. 4, 2014

Abstract

This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.

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Working Papers

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Bank Response To Higher Capital Requirements: Evidence From A Quasi-natural Experiment

Reint E. Gropp Thomas Mosk Steven Ongena Carlo Wix

in: IWH Discussion Papers , No. 33, 2016

Abstract

We study the impact of higher capital requirements on banks’ balance sheets and its transmission to the real economy. The 2011 EBA capital exercise provides an almost ideal quasi-natural experiment, which allows us to identify the effect of higher capital requirements using a difference-in-differences matching estimator. We find that treated banks increase their capital ratios not by raising their levels of equity, but by reducing their credit supply. We also show that this reduction in credit supply results in lower firm-, investment-, and sales growth for firms which obtain a larger share of their bank credit from the treated banks.

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Suppliers as Liquidity Insurers

Reint E. Gropp Daniel Corsten Panos Markou

in: 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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The Forward-looking Disclosures of Corporate Managers: Theory and Evidence

Reint E. Gropp Rasa Karapandza Julian Opferkuch

in: IWH Discussion Papers , No. 25, 2016

Abstract

We consider an infinitely repeated game in which a privately informed, long-lived manager raises funds from short-lived investors in order to finance a project. The manager can signal project quality to investors by making a (possibly costly) forward-looking disclosure about her project’s potential for success. We find that if the manager’s disclosures are costly, she will never release forward-looking statements that do not convey information to external investors. Furthermore, managers of firms that are transparent and face significant disclosure-related costs will refrain from forward-looking disclosures. In contrast, managers of opaque and profitable firms will follow a policy of accurate disclosures. To test our findings empirically, we devise an index that captures the quantity of forward-looking disclosures in public firms’ 10-K reports, and relate it to multiple firm characteristics. For opaque firms, our index is positively correlated with a firm’s profitability and financing needs. For transparent firms, there is only a weak relation between our index and firm fundamentals. Furthermore, the overall level of forward-looking disclosures declined significantly between 2001 and 2009, possibly as a result of the 2002 Sarbanes-Oxley Act.

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