Size, Productivity, and International Banking
Claudia M. Buch, C. T. Koch, Michael Koetter
Journal of International Economics,
No. 2,
2011
Abstract
Heterogeneity in size and productivity is central to models that explain which manufacturing firms export. This study presents descriptive evidence on similar heterogeneity among international banks as financial services providers. A novel and detailed bank-level data set reveals the volume and mode of international activities for all German banks. Only a few, large banks have a commercial presence abroad, consistent with the size pecking order documented for manufacturing firms. However, the relationship between internationalization and productivity also yields two inconsistencies with recent trade models. First, virtually all banks hold at least some foreign assets, irrespective of size or productivity. Second, some fairly unproductive banks maintain commercial presences abroad.
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Central and Eastern European Countries in the Global Financial Crisis: A Typical Twin Crisis?
Diemo Dietrich, Tobias Knedlik, Axel Lindner
Post-Communist Economies,
No. 4,
2011
Abstract
This paper shows that during the Great Recession, banking and currency crises occurred simultaneously in Central and Eastern Europe. Events, however, differed widely from what happened during the Asian crisis that usually serves as the model case for the concept of twin crises. We look at three elements that help explaining the nature of events in Central and Eastern Europe: the problem of currency mismatches, the relation between currency and banking crises, and the importance of multinational banks for financial stability. It is shown that theoretical considerations concerning internal capital markets of multinational banks help understand what happened on capital markets and in the financial sector of the region. We discuss opposing effects of multinational banking on financial stability and find that institutional differences are the key to understand differing effects of the global financial crisis. In particular, we argue that it matters if international activities are organized by subsidiaries or by cross-border financial services, how large the share of foreign currency-denominated credit is and whether the exchange rate is fixed or flexible. Based on these three criteria we give an explanation why the pattern of the crisis in the Baltic States differed markedly from that in Poland and the Czech Republic, the two largest countries of the region.
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Human Capital Investment, New Firm Creation and Venture Capital
Merih Sevilir
Journal of Financial Intermediation,
No. 4,
2010
Abstract
This paper studies the relation between firm investment in general human capital, new firm creation and financial development for new firm financing, such as the existence of a venture capital industry. On one hand, firm investment in general human capital leads employees to generate new innovative ideas for starting their own firm. Since employees need a venture capitalist to start their new firm, firm investment in general human capital encourages the creation of venture capitalists by increasing the need for their services, such as providing advice and monitoring. On the other hand, as new firm financing becomes available, firms' willingness to invest in general human capital increases, and as a by-product, the creation of employee-founded and venture capital-backed new firms increases in the economy. Hence, our model provides a rational explanation for the emergence of new firms created by employees of established firms, which represents one of the most common type of new firms in many industries.
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Liberalization and Rules on Regulation in the Field of Financial Services in Bilateral Trade and Regional Integration Agreements
Diemo Dietrich, J. Finke, C. Tietje
Beiträge zum Transnationalen Wirtschaftsrecht Nr. 97,
2010
Abstract
The recent international financial crisis has sparked a fierce debate about its causes and about how to prevent a recurrence. As liberalization and deregulation were widely considered being among the major culprits, de-liberalization and re-regulation seemed a natural response. However, an economic approach to this issue does not support such black-and-white solutions. Although liberalizing financial services sectors may threaten a developing country's financial stability in the short run, it also fosters long-run economic growth if sound legal and economic institutions are in place that can mitigate the adverse side-effects of liberalization. For achieving this objective, states need the policy space to implement such regulatory measures. Contrary to a wide-spread belief, states are not unduly hampered by bilateral or multilateral agreements. Instead, by providing a far-reaching exception concerning prudential regulation states can define their own regulatory approach. The challange for developing countries thus is to install regulatory capacities.
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Exports Versus FDI Revisited: Does Finance Matter?
Claudia M. Buch
Bundesbank Discussion Paper 03/2010,
2010
Abstract
This paper explores the impact of financial constraints on the internationalization
strategies of firms. It contributes to the literature by focusing on three aspects: First, the paper studies the impact of financial constraints on exporting relative to FDI. Consistent with theory, the empirical results confirm that the impact of financial constraints is stronger for FDI than for exporting. Second, the paper analyzes the extensive and the intensive margins and finds that financial frictions matter for both. Third, the paper explores the impact on manufacturing as compared to service industries and shows that firms in service industries are affected more than firms in manufacturing. The paper also identifies a threshold effect: Financial constraints do not matter for small firms whose productivity seems to be too low to consider international expansions.
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International Banking and Liquidity Allocation: Cross-border Financial Services versus Multinational Banking
Diemo Dietrich, Uwe Vollmer
Journal of Financial Services Research,
2010
Abstract
This paper explores the comparative advantage of multinational banking over cross-border financial services in terms of capitalizing on a global access to funding sources. We argue that this advantage depends on the benefit and the cost of multinational banks' intimacy with local markets. The benefit is that it allows multinational banks to create more liquidity. The cost is that it causes inefficiencies in internal capital markets, on which a bank relies to allocate liquidity across countries. We analyze the conditions under which multinational banking is then likely to arise and show that capital requirements have an effect as they influence the degree of inefficiency in internal capital markets for alternative organization structures differently.
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Municipal Enterprises as Shadow Budgets – How do they Affect the Actual Budgetary Situation of Germany´s Local Governments?
Peter Haug
Wirtschaft im Wandel,
No. 5,
2009
Abstract
Outsourcing of municipal tasks from the core budget to municipal enterprises tends to distort the perception of the actual financial position, net assets and results of operations of the German local governments. Excess supply or -demand of/for local public services might be possible consequences of this development. Hence, this article attempts to develop a more comprehensive picture of the municipal budgetary position by a simultaneous analysis of selected indicators. Furthermore, the methodological problems of the calculations are illustrated.
If these shadow budgets are taken into account, the total per capita revenues, -investments and -debts will increase by approximately one third to 50%. However, the share of the municipal employees belonging to the core administration in the total number of municipal employees is 75%. Although only about 22% of the expenditures for certain voluntary municipal tasks have been outsourced, there seems to be an upward trend.
The study also indicates that there are significant differences between Eastern and Western German cities. These include the higher revenues from municipal enterprises, the higher debts per capita and the higher expenditures on culture, sports, leisure services or the promotion of science in Eastern Germany.
The results should be interpreted carefully due to some shortcomings of the official statistics. For example, internal cash flows cannot be totally eliminated. Moreover, indirect municipal majority holdings as well as the municipal savings banks are not included in the results.
All in all, it remains to be seen whether the initiated reforms concerning the introduction of double-entry accounting into the local government budgeting system will help to achieve the ideal goal of a meaningful “consolidated financial statement” for the “city company”.
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Eastern German Economy: No Catching-up in 2008 and 2009
Wirtschaft im Wandel,
No. 6,
2008
Abstract
In the New Lander, growth of production is characterized by two diverging developments. On the one hand, the manufacturing sector has expanded strongly while the public service sector as well as the retail sectors has considerably damped economic activity. On the other hand, those firms primarily bound to local markets have gained hardly any momentum, whereas others have been stimulated by external markets in Western Germany and abroad. These differences are mainly due to weak local demand in the wake of a low purchasing power and an ongoing reduction in the population. At the same time, export-oriented firms in the manufacturing sector have benefited from strong external demand, and they will further benefit from it, although somewhat less owing to the slowing world economy. However, as East German exporting firms are less exposed to those countries where the ongoing crisis in the real estate and the financial sector has unfolded its dampening effects the most, they are also less prone to it. Accordingly, gross domestic product will increase by 1,7% this year and 0,8% in 2009. This translates into further improvements on labor markets. Registered unemployment will fall below one million. In particular, manufacturing firms and the private business service sector will increase their demand for labor.
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Business cycle forecast 2008: German upswing takes a break
Wirtschaft im Wandel,
No. 1,
2008
Abstract
Economic growth in the industrial countries will be much more muted in 2008 than in the past year. One cause is the prolonged oil price hike during 2007. The second and more important cause is the intensification of tensions on world financial markets. Due to problems in the financial sector, credit expansion will slow next year in the euro area as well as in the US. This will dampen demand in the real economy. A significant downswing in the industrial countries, however, is not the most likely scenario: in the US, expansive economic policy and a weak dollar that gives production in the US a competitive edge will prevent the economy from sliding into recession. In the euro area, high profitability of firms and structural improvements in the working of labour markets will help the economy cope with the stronger euro and with higher costs of external financing due to the turmoil in the financial sector. In Germany, the upswing has still not reached the demand of private households. The main reason is that real wages were stagnating in 2007 and will not rise by much in 2008, since inflation has accelerated considerably at the end of last year. In addition, weaker dynamics of external demand will dampen export growth. This and the end of tax incentives for investment at the end of 2007 will dampen investment activity. All in all, the economy will slow down in the first half of 2008. However, chances are good that the upswing will only have taken a break: when the dampening external shocks have ceased, the driving powers of the upswing will prevail; dynamic employment growth is a reflection of the strong confidence of firms. A major risk for employment and for the German economy in general is, however, the possibility that the policy concerning the labour markets changes course; bad omens are the recent the introduction of minimum wages for postal services and the announced extension of unemployment benefits for persons older than 50.
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FDI versus exports: Evidence from German banks
Claudia M. Buch, A. Lipponer
Journal of Banking and Finance,
No. 3,
2007
Abstract
We use a new bank-level dataset to study the FDI-versus-exports decision for German banks. We extend the literature on multinational firms in two directions. First, we simultaneously study FDI and the export of cross-border financial services. Second, we test recent theories on multinational firms which show the importance of firm heterogeneity [Helpman, E., Melitz, M.J., Yeaple, S.R., 2004. Export versus FDI. American Economic Review 94 (1), 300–316]. Our results show that FDI and cross-border services are complements rather than substitutes. Heterogeneity of banks has a significant impact on the internationalization decision. More profitable and larger banks are more likely to expand internationally than smaller banks. They have more extensive foreign activities, and they are more likely to engage in FDI in addition to cross-border financial services.
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