17.12.2020 • 27/2020
Much more bankruptcies expected than currently observed in Germany
In a recession, the number of bankruptcies usually increases with some delay. However, despite the corona crisis, the number of bankruptcies in Germany is lower than predicted based on the long-term trend. The state aid packages and the suspension of the insolvency rules have led to fewer bankruptcies than expected. The Halle Institute for Economic Research (IWH) has estimated how many bankruptcies would actually have been likely to occur by industry because of the corona recession if the typical economic pattern had been in place. The results indicate that after the end of the state aid and exception rules bankruptcies are likely to pick up.
Oliver Holtemöller
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16.12.2020 • 26/2020
New wave of infections delays economic recovery in Germany
The lockdown is causing production in Germany to decline at the end of the year. When restrictions will be relaxed again, the recovery is likely to pick up pace only slowly, partly because the temporary reduction in value-added taxes is expiring. In spring, milder temperatures and an increasing portion of the population being vaccinated are likely to support the German economy to expand more strongly. The Halle Institute for Economic Research (IWH) forecasts that gross domestic product will increase by 4.4% in 2021, following a 5% decline in 2020. In East Germany, both the decline and the recovery will be significantly less pronounced.
Oliver Holtemöller
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Kommentar: Finanzstabilität in Zeiten von Corona
Reint E. Gropp
Wirtschaft im Wandel,
No. 3,
2020
Abstract
Die Corona-bedingte Wirtschaftskrise könnte den deutschen Bankensektor massiv in Mitleidenschaft ziehen, wenn die nationale und europäische Aufsicht nicht in den nächsten Monaten gegensteuert. Das ist die Aussage einer IWH-Studie, in der wir die Jahresabschlüsse von mehr als einer halben Million deutscher Unternehmen mit den Bilanzdaten von über 1 000 hiesigen Banken verknüpft haben. Die Stichprobe umfasst rund 90% der Bilanzsumme aller Banken und schließt alle großen systemrelevanten Geldhäuser mit ein. Wir benutzen dabei sektorspezifische Prognosen für die wirtschaftliche Entwicklung: Wir beziehen also die Tatsache mit ein, dass die Tourismusbranche besonders und die Baubranche relativ wenig von der Krise betroffen ist. Wir simulieren mehrere Szenarien: eines mit einer schnellen Erholung (V-förmig), eines mit einer relativ langsamen Erholung (U) und ein Szenario, in dem die Krise noch eine längere Zeit anhält (L).
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Decentralisation of Collective Bargaining: A Path to Productivity?
Daniele Aglio, Filippo di Mauro
IWH-CompNet Discussion Papers,
No. 3,
2020
Abstract
Productivity developments have been rather divergent across EU countries and particularly between Central Eastern Europe (CEE) and elsewhere in the continent (non-CEE). How is such phenomenon related to wage bargaining institutions? Starting from the Great Financial Crisis (GFC) shock, we analyse whether the specific set-up of wage bargaining prevailing in non-CEE may have helped their respective firms to sustain productivity in the aftermath of the crisis. To tackle the issue, we merge the CompNet dataset – of firm-level based productivity indicators – with the Wage Dynamics Network (WDN) survey on wage bargaining institutions. We show that there is a substantial difference in the institutional set-up between the two above groups of countries. First, in CEE countries the bulk of the wage bargaining (some 60%) takes place outside collective bargaining schemes. Second, when a collective bargaining system is adopted in CEE countries, it is prevalently in the form of firm-level bargaining (i. e. the strongest form of decentralisation), while in non-CEE countries is mostly subject to multi-level bargaining (i. e. an intermediate regime, only moderately decentralised). On productivity impacts, we show that firms’ TFP in the non-CEE region appears to have benefitted from the chosen form of decentralisation, while no such effects are detectable in CEE countries. On the channels of transmission, we show that decentralisation in non-CEE countries is also negatively correlated with dismissals and with unit labour costs, suggesting that such collective bargaining structure may have helped to better match workers with firms’ needs.
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Private Equity and Portfolio Companies: Lessons From the Global Financial Crisis
Shai B. Bernstein, Josh Lerner, Filippo Mezzanotti
Journal of Applied Corporate Finance,
No. 3,
2020
Abstract
Critics of private equity have warned that the high leverage often used in PE-backed companies could contribute to the fragility of the financial system during economic crises. The proliferation of poorly structured transactions during booms could increase the vulnerability of the economy to downturns. The alternative hypothesis is that PE, with its operating capabilities, expertise in financial restructuring, and massive capital raised but not invested ("dry powder"), could increase the resilience of PE-backed companies. In their study of PE-backed buyouts in the U.K. - which requires and thereby makes accessible more information about private companies than, say, in the U.S. - the authors report finding that, during the 2008 global financial crisis, PE-backed companies decreased their overall investments significantly less than comparable, non-PE firms. Moreover, such PE-backed firms also experienced greater equity and debt inflows, higher asset growth, and increased market share. These effects were especially notable among smaller, riskier PE-backed firms with less access to capital, and also for those firms backed by PE firms with more dry powder at the crisis onset. In a survey of the partners and staff of some 750 PE firms, the authors also present compelling evidence that PEs firms play active financial and operating roles in preserving or restoring the profitability and value of their portfolio companies.
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06.07.2020 • 13/2020
IWH issues warning of a new banking crisis
The coronavirus recession could mean the end for dozens of banks across Germany – even if Germany survives the economic crisis relatively unscathed. An analysis by the Halle Institute for Economic Research (IWH) shows that many savings banks and cooperative banks are particularly at risk. Loans worth hundreds of billions of euros are on the balance sheets of the financial institutions concerned. IWH President Gropp warns of a potentially high additional burden for the already weakened real economy.
Reint E. Gropp
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The Corona Recession and Bank Stress in Germany
Reint E. Gropp, Michael Koetter, William McShane
IWH Online,
No. 4,
2020
Abstract
We conduct stress tests for a large sample of German banks across different recoveries from the Corona recession. We find that, depending on how quickly the economy recovers, between 6% to 28% of banks could become distressed from defaulting corporate borrowers alone. Many of these banks are likely to require regulatory intervention or may even fail. Even in our most optimistic scenario, bank capital ratios decline by nearly 24%. The sum of total loans held by distressed banks could plausibly range from 127 to 624 billion Euros and it may take years before the full extent of this stress is observable. Hence, the current recession could result in an acute contraction in lending to the real economy, thereby worsening the current recession , decelerating the recovery, or perhaps even causing a “double dip” recession. Additionally, we show that the corporate portfolio of savings and cooperative banks is more than five times as exposed to small firms as that of commercial banks and Landesbanken. The preliminary evidence indicates small firms are particularly exposed to the current crisis, which implies that cooperative and savings banks are at especially high risk of becoming distressed. Given that the financial difficulties may seriously impair the recovery from the Covid-19 crisis, the pressure to bail out large parts of the banking system will be strong. Recent research suggests that the long run benefits of largely resisting these pressures may be high and could result in a more efficient economy.
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Corona Shutdown and Bankruptcy Risk
Oliver Holtemöller, Yaz Gulnur Muradoglu
IWH Online,
No. 3,
2020
Abstract
This paper investigates the consequences of shutdowns during the Corona crisis on the risk of bankruptcy for firms in Germany and United Kingdom. We use financial statements from the period 2014 to 2018 to predict how pervasive risk of bankruptcy becomes for micro, small, medium, and large firms due to shutdown measures. We estimate distress for firms using their capacity to service their debt. Our results indicate that under three months of shutdown almost all firms in shutdown industries face high risk of bankruptcy. In Germany, about 99% of firms in shutdown industries and in the UK about 98% of firms in shutdown industries are predicted to be under distress. The furlough schemes reduce the risk of bankruptcy only marginally to 97% of firms in shutdown industries in Germany and 95% of firms in shutdown industries in the United Kingdom in case of a three-month shutdown. In sectors that are not shutdown under conservative estimates of contagion of sales losses, our results indicate considerable risk of widespread bankruptcies ranging from 76% of firms in Germany to 69% of firms in the United Kingdom. These early findings suggest that the impact of corona crisis on corporate sector via shutdowns can be severe and subsequent policy should be designed accordingly.
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16.06.2020 • 9/2020
The economy adapts to the pandemic
In the first half of 2020, the pandemic has exacted a heavy toll on the German economy, causing a slump in production that will not be fully recovered within the next year. According to IWH summer economic forecast, gross domestic product is expected to contract by 5.1% in 2020 and to increase by 3.2% in 2021. The decline in production in Eastern Germany is likely to be less pronounced compared to Germany as a whole and estimated at 3.2% in 2020.
Oliver Holtemöller
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