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Germany’s economy is so bad even sausage factories are closingIWHThe Economist, January 15, 2026
This paper shows that global banks transmit liquidity shocks via their network of foreign affiliates. We use the (unexpected) access of German banks' affiliates located in the United States to the Federal Reserve's Term Auction Facility. We condition on the parent banks' U.S. dollar funding needs in order to examine how affiliates located outside the United States adjusted their balance sheets when the U.S. affiliate of the same parent tapped into TAF liquidity. Our research has three main findings. First, affiliates tied to parents with higher U.S. dollar funding needs expanded their foreign assets during periods of active TAF borrowing. Second, the overall effects are driven by affiliates located in financial centers. Third, U.S.- dollar-denominated lending particularly increased in response to the TAF program.
We use mortgage loan application data of the Home Mortgage Disclosure Act (HMDA) to shed light on the role of banks’ market power on their presumably insufficient risk screening activities in the U.S. mortgage market in the pre-crisis era. We find that banks with higher market power protect their charter value. The effect is stronger for banks that have more information about local markets.
Voting rights were initially limited to wealthy elites providing political support for stock markets. The franchise expansion induces the median voter to provide political support for banking development, as this new electorate has lower financial holdings and benefits less from the riskiness and financial returns from stock markets. Our panel data evidence covering the years 1830–1999 shows that tighter restrictions on the voting franchise induce greater stock market development, whereas a broader voting franchise is more conducive to the banking sector, consistent with Perotti and von Thadden (2006). The results are robust to controlling for other institutional arrangements and endogeneity.
We examine the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. We examine these indicators jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once we subject the finance-growth regressions to model uncertainty, our results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from our global sample indicate that one newly developed indicator—the efficiency of financial intermediaries—is robustly related to long-term growth.
This study treats firm productivity as an accumulation of productive intangibles and posits that stakeholder engagement associated with better corporate social performance helps develop such intangibles. We hypothesize that because shareholders factor improved productive efficiency into stock price, productivity mediates the relationship between corporate social and financial performance. Furthermore, we argue that key stakeholders’ social considerations are more valuable for firms with higher levels of discretionary cash and income stream uncertainty. Therefore, we hypothesize that those two contingencies moderate the mediated process of corporate social performance with financial performance. Our analysis, based on a comprehensive longitudinal dataset of the U.S. manufacturing firms from 1992 to 2009, lends strong support for these hypotheses. In short, this paper uncovers a productivity-based, context-dependent mechanism underlying the relationship between corporate social performance and financial performance.
This study examines how national culture affects corporate investment. We argue that national culture affects corporate investment efficiency through the level of secrecy that national culture exhibits. Using a sample of firms from eight culturally-diverse European Union countries, we find that the level of secrecy that national culture exhibits is negatively related to corporate investment efficiency after controlling for a number of firm- and country-level factors. We also find that the negative relation between national culture and corporate investment efficiency is mitigated by an exogenous shock to the information asymmetry problem between managers and investors. Our study highlights the importance of the cultural value of secrecy/transparency as a determinant of investment efficiency at the firm-level.
This paper investigates whether or not private benefits of control by managers and large shareholders influence the financing cost of firms. Evidence shows that lending banks demand a significantly higher loan spread, higher fees, shorter loan maturity, smaller loan size, stricter covenants, and greater collateral on firms with greater private benefits of control. Results are stronger for firms with weak corporate governance quality, supporting the agency cost viewpoint. Such evidence implies that banks consider higher private benefits of control as a type of agency problem when they make lending decisions.
This paper examines the benefits to venture capital firms of their officers holding directorships in mature public companies in terms of fundraising and investment performance. Our empirical results show that venture capital firms raise more funds, set higher fund-raising targets, and are more likely to successfully exit their investments post-appointment of their officers to boards of directors of S&P 1500 companies. Directorship status in mature public firms provides venture capital firms with enhanced networks, visibility, and credibility, all of which facilitate their fundraising activities. In addition, the knowledge, expertise, and experience acquired through holding directorships in mature public firms are beneficial for their portfolio companies, as measured by the likelihood of successful exits.
Using variation in bank scope generated by the stepwise repeal of the Glass–Steagall Act in the US, we show that the deregulation of universal banks allowed them to finance firms with 14% higher volatility. This increase in risk is compensated by lasting improvements in firms’ total factor productivity of 3%. Using bank scope-expanding mergers to identify shocks to universal banks’ private information about borrower firms, we provide evidence that informational economies of scope across loans and non-loan products account for the firm-level real effects of universal banking.
We distinguish cost advantage at home from cost advantage vis-à-vis incumbent banks in destination markets to explain the probability of foreign bank affiliate lending. We combine detailed affiliate lending data of all German banks with public bank micro data from 59 destination markets. The likelihood to operate foreign affiliates depends positively on both types of cost advantage. Only cost advantage at home is economically significant. Generally, risk, return, and unobservable bank traits explain a larger share of the variation in foreign affiliate operations. Less profitable, more risky, and larger banks are more likely to operate affiliates abroad.
