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

Research Interests

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

Reint E. Gropp joined the Institute as President in November 2014. He is also a Professor of Economics at the Otto von Guericke University Magdeburg. He is Associate Fellow of the Centre for Economic Policy Research (CEPR) and serves as consultant for various central banks.

Reint E. Gropp studied economics at the universities of Freiburg and Wisconsin-Madison, where he obtained a PhD in 1994. Prior to his appointment at the IWH, he held the endowed Chair for Sustainable Banking and Finance at 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

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Financial Incentives and Loan Officer Behavior: Multitasking and Allocation of Effort under an Incomplete Contract

P. Behr A. H. Drexler Reint E. Gropp Andre Guettler

in: Journal of Financial and Quantitative Analysis, forthcoming

Abstract

In this paper we investigate the implications of providing loan officers with a compensation structure that rewards loan volume and penalizes poor performance versus a fixed wage unrelated to performance. We study detailed transaction information for more than 45,000 loans issued by 240 loan officers of a large commercial bank in Europe. We examine the three main activities that loan officers perform: monitoring, originating, and screening. We find that when the performance of their portfolio deteriorates, loan officers increase their effort to monitor existing borrowers, reduce loan origination, and approve a higher fraction of loan applications. These loans, however, are of above-average quality. Consistent with the theoretical literature on multitasking in incomplete contracts, we show that loan officers neglect activities that are not directly rewarded under the contract, but are in the interest of the bank. In addition, while the response by loan officers constitutes a rational response to a time allocation problem, their reaction to incentives appears myopic in other dimensions.

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Banks’ Funding Stress, Lending Supply and Consumption Expenditure

H. Evren Damar Reint E. Gropp A. Mordel

in: Journal of Money, Credit and Banking, forthcoming

Abstract

We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank funding stress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of non-mortgage liabilities. This, however, only translates into lower levels of consumption for low income households. Hence, adverse credit supply shocks are associated with significant heterogeneous effects.

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Deleveraging and Consumer Credit Supply in the Wake of the 2008-2009 Financial Crisis

Reint E. Gropp J. Krainer E. Laderman

in: International Journal of Central Banking, forthcoming

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Working Papers

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Banks' Funding Stress, Lending Supply and Consumption Expenditure

H. Evren Damar Reint E. Gropp A. Mordel

in: IWH Discussion Papers, No. 11, 2019

Abstract

We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank funding stress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of nonmortgage liabilities. This, however, only translates into lower levels of consumption for low income households. Hence, adverse credit supply shocks are associated with significant heterogeneous effects.

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What Drives Banks‘ Geographic Expansion? The Role of Locally Non-diversifiable Risk

Reint E. Gropp Felix Noth Ulrich Schüwer

in: IWH Discussion Papers, No. 6, 2019

Abstract

We show that banks that are facing relatively high locally non-diversifiable risks in their home region expand more across states than banks that do not face such risks following branching deregulation in the 1990s and 2000s. These banks with high locally non-diversifiable risks also benefit relatively more from deregulation in terms of higher bank stability. Further, these banks expand more into counties where risks are relatively high and positively correlated with risks in their home region, suggesting that they do not only diversify but also build on their expertise in local risks when they expand into new regions.

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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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