Political Uncertainty and Bank Loan Contracts: Does Government Quality Matter?
Journal of Financial Services Research,
We investigate the relation between political uncertainty and bank loan spreads using a sample of loan contracts for the G20 firms during the period from 1982 to 2015. We find that banks charge firms higher loan spreads and require more covenants during election years when domestic political risks are elevated. Greater differences in the support ratios of opinion polls on candidates lead to the lower cost of bank loans. This political effect also lessens when the government quality of the borrower’s country is better than that of the lender’s country. Better quality government can lower the political risk component of bank loan spreads.
The Real Impact of Ratings-based Capital Rules on the Finance-Growth Nexus
International Review of Financial Analysis,
We investigate whether ratings-based capital regulation has affected the finance-growth nexus via a foreign credit channel. Using quarterly data on short to medium term real GDP growth and cross-border bank lending flows from G-10 countries to 67 recipient countries, we find that since the implementation of Basel 2 capital rules, risk weight reductions mapped to sovereign credit rating upgrades have stimulated short-term economic growth in investment grade recipients but hampered growth in non-investment grade recipients. The impact of these rating upgrades is strongest in the first year and then reverses from the third year and onwards. On the other hand, there is a consistent and lasting negative impact of risk weight increases due to rating downgrades across all recipient countries. The adverse effects of ratings-based capital regulation on foreign bank credit supply and economic growth are compounded in countries with more corruption and less competitive banking sectors and are attenuated with greater political stability.
Crisis is Gradually being Overcome – Align Actions to Lower Growth In their autumn report, the leading German economic...
14.10.2020 • 22/2020
Economic slump in East Germany not as severe as in Germany as a whole ‒ Implications of the Joint Economic Forecast and new data for East Germany
The German economy started recovering quickly after the drastic pandemic-related slump in spring 2020. The recovery, however, loses much of its momentum in the second half of the year. The Joint Economic Forecast predicts that production levels seen before the crisis will not be reached again until the second half of 2021. In principle, the East German economy is following this pattern, although the economic slump is likely to be somewhat milder.
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14.10.2020 • 21/2020
Recovery Loses Momentum ‒ Economy and Politics Still Shaped by the Pandemic
The corona pandemic leaves substantial marks in the German economy and its impact is more persistent than assumed in spring. In their autumn report, the leading German economic research institutes have revised their economic outlook downwards by roughly one percentage point for both this and next year. They now expect gross domestic product to fall by 5.4% in 2020 (previously -4.2%) and to grow by 4.7% (5.8%) in 2021 and 2.7% in 2022.
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People Doctoral Students PhD...
The Economic Record of the Government and Sovereign Bond and Stock Returns Around National Elections
Journal of Banking and Finance,
This paper investigates the role of the fiscal and economic record of the incumbent government in shaping the price response of sovereign bonds and stocks to the election outcome in emerging markets and developed countries. For sovereign bonds in emerging markets, we find robust evidence for higher cumulative abnormal returns (CARs) if a government associated with a relatively low primary fiscal balance is voted out of office compared to elections where the fiscal balance was relatively high. This effect of the incumbent government's fiscal record is significantly more pronounced in the presence of high sovereign default risk and strong political veto players, whereas the quality of institutions does not explain differences in effects for different events. We do not find robust effects of the government's fiscal record for developed countries and stocks.
PhD Graduates Financial Markets
PhD Graduates of the Department of Financial Markets Hannes Böhm: "The Role of...
Joint Economic Forecast
Joint Economic Forecast The joint economic forecast is an instrument for evaluating...