Accounting for Distress in Bank Mergers
Michael Koetter, J. W. B. Bos, Frank Heid, James W. Kolari, Clemens J. M. Kool, Daniel Porath
Journal of Banking and Finance,
No. 10,
2007
Abstract
Most bank merger studies do not control for hidden bailouts, which may lead to biased results. In this study we employ a unique data set of approximately 1000 mergers to analyze the determinants of bank mergers. We use undisclosed information on banks’ regulatory intervention history to distinguish between distressed and non-distressed mergers. Among merging banks, we find that improving financial profiles lower the likelihood of distressed mergers more than the likelihood of non-distressed mergers. The likelihood to acquire a bank is also reduced but less than the probability to be acquired. Both distressed and non-distressed mergers have worse CAMEL profiles than non-merging banks. Hence, non-distressed mergers may be motivated by the desire to forestall serious future financial distress and prevent regulatory intervention.
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The Euro and Cross-Border Banking: Evidence from Bilateral Data
S. Blank, Claudia M. Buch
Comparative Economic Studies,
No. 3,
2007
Abstract
Has the introduction of the Euro fostered financial integration in Europe? We answer this question using a data set of banks’ bilateral foreign assets and liabilities provided by the Bank for International Settlements. The data cover the pre-Euro period (1995–1998) and the post-Euro period (1999–2005). We use information from 10 OECD reporting countries and all OECD recipient countries. Gravity regressions show a positive and significant impact of the Euro on bilateral financial linkages. This effect is stronger and more robust for banks’ foreign assets than for their foreign liabilities.
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Interbank Exposures: An Empirical Examination of Contagion Risk in the Belgian Banking System
Hans Degryse, Grégory Nguyen
International Journal of Central Banking,
No. 2,
2007
Abstract
Robust (cross-border) interbank markets are important for the proper functioning of modern financial systems. However, a network of interbank exposures may lead to domino effects following the event of an initial bank failure. We investigate the evolution and determinants of contagion risk for the Belgian banking system over the period 1993–2002 using detailed information on aggregate interbank exposures of individual banks, large bilateral interbank exposures, and cross-border interbank exposures. The "structure" of the interbank market affects contagion risk. We find that a change from a complete structure (where all banks have symmetric links) toward a "multiplemoney-center" structure (where money centers are symmetrically linked to otherwise disconnected banks) has decreased the risk and impact of contagion. In addition, an increase in the relative importance of cross-border interbank exposures has lowered local contagion risk. However, this reduction may have been compensated by an increase in contagion risk stemming from foreign banks.
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Local Public Utilities' Profits and Municipal Expenses in Germany: An Empirical Analysis
Peter Haug, Birger Nerré
Proceedings of the 99th Annual Conference on Taxation (November 16-18), Washington DC,
2006
Abstract
The article offers information on profits and municipal expenses of local public utilities in Germany. It reveals that cities and municipalities faced rising expenses over the last years and the only way for local governments to avoid budgetary bottlenecks is to postpone infrastructure investment and increase short-term borrowing. The countries municipalities tried to overcome such difficulties by increasing local public utilities' profits.
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Investment and Internal Finance: Asymmetric Information or Managerial Discretion?
Hans Degryse, Abe de Jong
International Journal of Industrial Organization,
No. 1,
2006
Abstract
This paper examines the investment-cash flow sensitivity of publicly listed firms in The Netherlands. Investment-cash flow sensitivities can be attributed to overinvestment resulting from the abuse of managerial discretion, but also to underinvestment due to information problems. The Dutch corporate governance structure presents a number of distinctive features, in particular the limited influence of shareholders, the presence of large blockholders, and the importance of bank ties. We expect that in The Netherlands, the managerial discretion problem is more important than the asymmetric information problem. We use Tobin's Q to discriminate between firms with these problems, where LOW Q firms face the managerial discretion problem and HIGH Q firms the asymmetric information problem. As hypothesized, we find substantially larger investment-cash flow sensitivity for LOW Q firms. Moreover, specifically in the LOW Q sample, we find that firms with higher (bank) debt have lower investment-cash flow sensitivity. This finding shows that leverage, and particularly bank debt, is a key disciplinary mechanism which reduces the managerial discretion problem.
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The integration of imperfect financial markets: Implications for business cycle volatility
Claudia M. Buch, C. Pierdzioch
Journal of Policy Modeling,
No. 7,
2005
Abstract
During the last two decades, the degree of openness of national financial systems has increased substantially. At the same time, asymmetries in information and other financial market frictions have remained prevalent. We study the implications of the opening up of national financial systems in the presence of financial market frictions for business cycle volatility. In our empirical analysis, we show that countries with more developed financial systems have lower business cycle volatility. Financial openness has no strong impact on business cycle volatility, in contrast. In our theoretical analysis, we study the implications of the opening up of national financial markets and of financial market frictions for business cycle volatility using a dynamic macroeconomic model of an open economy. We find that the implications of opening up national financial markets for business cycle volatility are largely unaffected by the presence of financial market frictions.
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Cross-border bank mergers: What lures the rare animal?
Claudia M. Buch, G. DeLong
Journal of Banking and Finance,
No. 9,
2004
Abstract
Although domestic mergers and acquisitions (M&As) in the financial services industry have increased steadily over the past two decades, international M&As were until recently relatively rare. Moreover, the share of cross-border mergers in the banking industry is low compared with other industries. This paper uses a novel dataset of over 3000 mergers that took place between 1985 and 2001 to analyze the determinants of international bank mergers. We test the extent to which information costs and regulations hold back merger activity. Our results suggest that information costs significantly impede cross-border bank mergers. Regulations also influence cross-border bank merger activity. Hence, policy makers can create environments that encourage cross-border activity, but information cost barriers must be overcome even in (legally) integrated markets.
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Information or Regulation: What Drives the International Activities of Commercial Banks?
Claudia M. Buch
Journal of Money Credit,
No. 6,
2003
Abstract
Information costs and regulatory barriers distinguish international financial markets from national ones. Using panel data on bilateral assets and liabilities of commercial banks, I empirically determine the impact of information, costs and regulations, and I isolate intra-EU financial linkages. I confirm that information costs and regulations are important factors influencing international asset choices of banks, but their relative importance differs among countries.
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Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?
Axel Lindner
IWH Discussion Papers,
No. 178,
2003
Abstract
A recent strand of literature (see Morris and Shin 2001) shows that multiple equilibria in models of markets for pegged currencies vanish if there is slightly diverse information between traders. It is known that this approach works only if there is not too precise common knowledge in the market. This has led to the conclusion that central banks should try to avoid making their information common knowledge. We present a model in which more transparency of the central bank means better private information, because each trader utilizes public information according to her own private information. Thus, transparency makes multiple equilibria less likely.
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Recent Developments and Risks in the Euro Area Banking Sector
Reint E. Gropp, Jukka M. Vesala
ECB Monthly Bulletin,
2002
Abstract
This article provides an overview of euro area banks’ exposure to risk and examines the effects of the cyclical downturn in 2001. It describes the extent to which euro area banks’ risk profile has changed as a result of recent structural developments, such as an increase in investment banking, mergers, securitisation and more sophisticated risk management techniques. The article stresses that the environment in which banks operated in 2001 was fairly complex due to the relatively weak economic performance of all major economies as well as the events of 11 September in the United States. It evaluates the effects of these adverse circumstances on banks’ stability and overall performance. The article provides bank balance sheet information as well as financial market prices, arguing that the latter may be useful when assessing the soundness of the banking sector in a forward-looking manner. It concludes with a review of the overall stability of euro area banks, pointing to robustness in the face of the adverse developments in 2001 and the somewhat improved forward-looking indicators of banks’ financial strength in early 2002.
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