Financial Markets

Research in this department centres on institutional changes in Europe’s financial markets. The department analyses the causes and consequences of banks’ international expansions, the link between market structures in banking and aggregate (financial) stability, contagion effects on international financial markets and the role of the financial system for the real economy.

The interdependence of the financial services sector with innovation and productivity in the real economy are of particular interest. Methodologically, research focuses on empirical methods that support analyses of feedback from the micro to the macro level and that allow for causal evaluations of regulatory interventions into financial systems.

IWH-FIN-FIRE Workshop

IWH Research Seminar in Economics

FYI – Insides for Young Researchers in Finance

PhD Graduates of the Department

FIN Brown Bag Seminar (until 2020)

Your contact

Professor Michael Koetter, PhD
Professor Michael Koetter, PhD
Leiter - Department Financial Markets
Send Message +49 345 7753-727 Personal page

Refereed Publications

cover_management-science.jpg

"Let Me Get Back to You" — A Machine Learning Approach to Measuring NonAnswers

Andreas Barth Sasan Mansouri Fabian Wöbbeking

in: Management Science, forthcoming

Abstract

Using a supervised machine learning framework on a large training set of questions and answers, we identify 1,364 trigrams that signal nonanswers in earnings call questions and answers (Q&A). We show that this glossary has economic relevance by applying it to contemporaneous stock market reactions after earnings calls. Our findings suggest that obstructing the flow of information leads to significantly lower cumulative abnormal stock returns and higher implied volatility. As both our method and glossary are free of financial context, we believe that the measure is applicable to other fields with a Q&A setup outside the contextual domain of financial earnings conference calls.

read publication

cover_the-review-of-corporate-finance-studies.png

Credit Supply Shocks: Financing Real Growth or Takeovers?

Tobias Berg Daniel Streitz Michael Wedow

in: Review of Corporate Finance Studies, forthcoming

Abstract

How do firms invest when financial constraints are relaxed? We document that firms affected by a large positive credit supply shock predominantly increase borrowing for transaction-based purposes. These treated firms have larger asset and employment growth rates; however, growth entirely stems from the increased takeover activity. Announcement returns indicate a low quality of the credit-supply-induced takeover activity. These results offer the possibility that credit-driven growth can simply reflect redistribution, rather than net gains in assets or employment.

read publication

cover_journal-of-financial-and-Quantitative-Analysis.gif

The Effects of Antitrust Laws on Horizontal Mergers: International Evidence

Chune Young Chung Iftekhar Hasan JiHoon Hwang Incheol Kim

in: Journal of Financial and Quantitative Analysis, forthcoming

Abstract

This study examines how antitrust law adoptions affect horizontal merger and acquisition (M&A) outcomes. Using the staggered introduction of competition laws in 20 countries, we find antitrust regulation decreases acquirers’ five-day cumulative abnormal returns surrounding horizontal merger announcements. A decrease in deal value, target book assets, and industry peers' announcement returns are consistent with the market power hypothesis. Exploiting antitrust law adoptions addresses a downward bias to an estimated effect of antitrust enforcement (Baker (2003)). The potential bias from heterogeneous treatment effects does not nullify our results. Overall, antitrust policies seem to deter post-merger monopolistic gains, potentially improving customer welfare.

read publication

cover_journal-of-accounting-and-economics.jpg

Compensation Regulation in Banking: Executive Director Behavior and Bank Performance after the EU Bonus Cap

Stefano Colonnello Michael Koetter Konstantin Wagner

in: Journal of Accounting and Economics, forthcoming

Abstract

The regulation that caps executives’ variable compensation, as part of the Capital Requirements Directive IV of 2013, likely affected executive turnover, compensation design, and risk-taking in EU banking. The current study identifies significantly higher average turnover rates but also finds that they are driven by CEOs at poorly performing banks. Banks indemnified their executives by off-setting the bonus cap with higher fixed compensation. Although our evidence is only suggestive, we do not find any reduction in risk-taking at the bank level, one purported aim of the regulation.

read publication

cover_the-review-of-corporate-finance-studies.png

Creditor-control Rights and the Nonsynchronicity of Global CDS Markets

Iftekhar Hasan Miriam Marra Eliza Wu Gaiyan Zhang

in: Review of Corporate Finance Studies, forthcoming

Abstract

We analyze how creditor rights affect the nonsynchronicity of global corporate credit default swap spreads (CDS-NS). CDS-NS is negatively related to the country-level creditor-control rights, especially to the “restrictions on reorganization” component, where creditor-shareholder conflicts are high. The effect is concentrated in firms with high investment intensity, asset growth, information opacity, and risk. Pro-creditor bankruptcy reforms led to a decline in CDS-NS, indicating lower firm-specific idiosyncratic information being priced in credit markets. A strategic-disclosure incentive among debtors avoiding creditor intervention seems more dominant than the disciplining effect, suggesting how strengthening creditor rights affects power rebalancing between creditors and shareholders.

read publication

Working Papers

cover_DP_2023-10.jpg

Long-run Competitive Spillovers of the Credit Crunch

William McShane

in: IWH Discussion Papers, No. 10, 2023

Abstract

Competition in the U.S. appears to have declined. One contributing factor may have been heterogeneity in the availability of credit during the financial crisis. I examine the impact of product market peer credit constraints on long-run competitive outcomes and behavior among non-financial firms. I use measures of lender exposure to the financial crisis to create a plausibly exogenous instrument for product market credit availability. I find that credit constraints of product market peers positively predict growth in sales, market share, profitability, and markups. This is consistent with the notion that firms gained at the expense of their credit constrained peers. The relationship is robust to accounting for other sources of inter-firm spillovers, namely credit access of technology network and supply chain peers. Further, I find evidence of strategic investment, i.e. the idea that firms increase investment in response to peer credit constraints to commit to deter entry mobility. This behavior may explain why temporary heterogeneity in the availability of credit appears to have resulted in a persistent redistribution of output across firms.

read publication

cover_bank-of-finland-discussion-papers.png

Banking Market Deregulation and Mortality Inequality

Iftekhar Hasan Thomas Krause Stefano Manfredonia Felix Noth

in: Bank of Finland Research Discussion Papers, No. 14, 2022

Abstract

This paper shows that local banking market conditions affect mortality rates in the United States. Exploiting the staggered relaxation of branching restrictions in the 1990s across states, we find that banking deregulation decreases local mortality rates. This effect is driven by a decrease in the mortality rate of black residents, implying a decrease in the black-white mortality gap. We further analyze the role of mortgage markets as a transmitter between banking deregulation and mortality and show that households' easier access to finance explains mortality dynamics. We do not find any evidence that our results can be explained by improved labor outcomes.

read publication

cover_DP_2022-26.jpg

Real Estate Transaction Taxes and Credit Supply

Michael Koetter Philipp Marek Antonios Mavropoulos

in: IWH Discussion Papers, No. 26, 2022

Abstract

We exploit staggered real estate transaction tax (RETT) hikes across German states to identify the effect of house price changes on mortgage credit supply. Based on approximately 33 million real estate online listings, we construct a quarterly hedonic house price index (HPI) between 2008:q1 and 2017:q4, which we instrument with state-specific RETT changes to isolate the effect on mortgage credit supply by all local German banks. First, a RETT hike by one percentage point reduces HPI by 1.2%. This effect is driven by listings in rural regions. Second, a 1% contraction of HPI induced by an increase in the RETT leads to a 1.4% decline in mortgage lending. This transmission of fiscal policy to mortgage credit supply is effective across almost the entire bank capitalization distribution.

read publication

cover_DP_2022-25.jpg

Bitcoin Flash Crash on May 19, 2021: What Did Really Happen on Binance?

Tim Baumgartner Andre Guettler

in: IWH Discussion Papers, No. 25, 2022

Abstract

Bitcoin plunged by 30% on May 19, 2021. We examine the outage the largest crypto exchange Binance experienced during the crash, when it halted trading for retail clients and stopped providing transaction data. We find evidence that Binance back-filled these missing transactions with data that does not conform to Benford‘s Law. The Bitcoin futures price difference between Binance and other exchanges was seven times larger during the crash period compared to a prior reference period. Data manipulation is a plausible explanation for our findings. These actions are in line with Binance aiming to limit losses for its futures-related insurance fund.

read publication

cover_DP_2022-24.jpg

Firm Subsidies, Financial Intermediation, and Bank Stability

Aleksandr Kazakov Michael Koetter Mirko Titze Lena Tonzer

in: IWH Discussion Papers, No. 24, 2022

Abstract

We use granular project-level information for the largest regional economic development program in German history to study whether government subsidies to firms affect the quantity and quality of bank lending. We combine the universe of recipient firms under the Improvement of Regional Economic Structures program (GRW) with their local banks during 1998-2019. The modalities of GRW subsidies to firms are determined at the EU level. Therefore, we use it to identify bank outcomes. Banks with relationships to more subsidized firms exhibit higher lending volumes without any significant differences in bank stability. Subsidized firms, in turn, borrow more indicating that banks facilitate regional economic development policies.

read publication
Mitglied der Leibniz-Gemeinschaft LogoTotal-Equality-LogoWeltoffen Logo