International Bank Portfolios: Short- and Long-Run Responses to Macroeconomic Conditions
S. Blank, Claudia M. Buch
Review of International Economics,
No. 2,
2010
Abstract
International bank portfolios constitute a large component of international country portfolios. Yet, banks’ response to international macroeconomic conditions remains largely unexplored.We use a novel dataset on banks’ international portfolios to answer three questions. First, what are the long-run determinants of banks’ international portfolios? Second, how do banks’ international portfolios adjust to short-run macroeconomic developments? Third, does the speed of adjustment change with the degree of financial integration?We find that, in the long-run, market size has a positive impact on foreign assets and liabilities. An increase in the interest differential between the home and the foreign economy lowers foreign assets and increases foreign liabilities. Foreign trade has a positive impact on international bank portfolios, which is independent from the effect of other macroeconomic variables. Short-run dynamics show heterogeneity across countries, but these dynamics can partly be explained with gravity-type variables.
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How an IPO Helps in M&A
Ugur Celikyurt, Merih Sevilir, Anil Shivdasani
Journal of Applied Corporate Finance,
No. 2,
2010
Abstract
An initial public offering (IPO) can often provide a powerful stimulus to private companies seeking to pursue an acquisition-driven growth strategy. Based on a comprehensive analysis of U.S. IPOs, the authors show that newly public companies are prolific acquirers. Over 30% of companies conducting an IPO make at least one acquisition in their IPO year, and the typical IPO firm makes about four acquisitions during its first five years as a public company. IPOs facilitate M&A not only by providing infusions of capital but also by creating ongoing access to equity and debt markets for cash-financed deals. In addition, IPOs create an acquisition currency that can prove valuable in stock-financed deals when the shares are attractively priced. The authors also argue that IPOs improve the ability of companies to conduct M&A by resolving some of the valuation uncertainty facing privately held companies.
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A New Metric for Banking Integration in Europe
Reint E. Gropp, A. K. Kashyap
Europe and the Euro,
2010
Abstract
Most observers have concluded that while money markets and government bond markets are rapidly integrating following the introduction of the common currency in the euro area, there is little evidence that a similar integration process is taking place for retail banking. Data on cross-border retail bank flows, cross-border bank mergers and the law of one price reveal no evidence of integration in retail banking. This paper shows that the previous tests of bank integration are weak in that they are not based on an equilibrium concept and are neither necessary nor sufficient statistics for bank integration. The paper proposes a new test of integration based on convergence in banks' profitability. The new test emphasises the role of an active market for corporate control and of competition in banking integration. European listed banks profitability appears to converge to a common level. There is weak evidence that competition eliminates high profits for these banks, and underperforming banks tend to show improved profitability. Unlisted European banks differ markedly. Their profits show no tendency to revert to a common target rate of profitability. Overall, the banking market in Europe appears far from being integrated. In contrast, in the U.S. both listed and unlisted commercial banks profits converge to the same target, and high profit banks see their profits driven down quickly.
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Cross-border Diversification in Bank Asset Portfolios
Claudia M. Buch, J.C. Driscoll, C. Ostergaard
International Finance,
forthcoming
Abstract
We compute optimally diversified international asset portfolios for banks located in France, Germany, Italy, the United Kingdom and the United States using the mean–variance portfolio model with currency hedging. We compare these benchmark portfolios with the actual cross-border asset positions of banks from 1995 to 2003 and ask whether the differences are best explained by regulations, institutions, cultural conditions or other financial frictions. Our results suggest that both culture and regulations affect the probability of a country's being overweighted in banks' portfolios: countries whose residents score higher on a survey measure of trust are more likely to be overweighted, while countries that have tighter capital controls are less likely to be overweighted. From a policy standpoint, the importance of culture suggests a limit to the degree of financial integration that may be achievable by the removal of formal economic barriers.
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Characteristics of Business Cycles: Have they Changed?
Oliver Holtemöller, J. Rahn, M. H. Stierle
IWH-Sonderhefte,
No. 5,
2009
Abstract
The most recent economic downturn has shown that economic activity nowadays is still prone to large fluctuations. Despite a long tradition of research, the understanding of such fluctuations, namely business cycles, is still far from comprehensive. Moreover, in a developing world with new technologies, faster communication systems, a higher integration of world markets and increasingly better-skilled people the nature of business cycles changes continuously and new insights can be drawn from recent experience.
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Returning to East Germany: Labour Market Success Reduces Re-migration Potential
D. Wiest, Lutz Schneider, Alexander Kubis
Wirtschaft im Wandel,
No. 9,
2009
Abstract
Die Abwanderung überwiegend junger gebildeter Menschen aus Ostdeutschland wird häufig, vor allem vor dem Hintergrund der bedenklichen demographischen Entwicklung, als nachteilig für die Entwicklungsfähigkeit und den Aufholprozess der Neuen Länder betrachtet. Das Phänomen der Zuwanderung und dabei nicht zuletzt der Rückwanderung vormals Abgewanderter fand in diesem Zusammenhang bisher vergleichsweise wenig Beachtung, obwohl einiges darauf hindeutet, dass hierin das eigentliche Migrationsproblem Ostdeutschlands liegt.
Die vorliegende Arbeit analysiert auf Basis eines im Rahmen des DFG-Forschungsprojektes „Brain drain aus Ostdeutschland“ am Lehrstuhl für Sozialgeographie der Martin-Luther-Universität Halle-Wittenberg erhobenen Datensatzes zu den Einstellungen und Motivlagen aus Sachsen-Anhalt abgewanderter junger Menschen, welche Faktoren die Neigung zu einer Rückkehr nach Sachsen-Anhalt erklären. Dabei wird auf zwei Aspekte besonderer Wert gelegt: erstens auf die Wirkung des Arbeitsmarkterfolges nach der Abwanderung, zweitens auf den Einfluss sozialer Bindungen in der Herkunfts- und der Zielregion auf die Rückkehrbereitschaft der abgewanderten Menschen.
Im Ergebnis bestätigt die ökonometrische Analyse des Rückkehrpotenzials die aus der Theorie heraus erwarteten Wirkungsrichtungen der untersuchten Einflussgrößen. Zum einen dämpft der individuelle Arbeitsmarkterfolg in der Zielregion die Rückkehrneigung, was im Umkehrschluss eine „Negativselektion“ bzw. eine erhöhte Rückkehrbereitschaft derer bedeutet, deren Erwartungen an die Zielregion enttäuscht wurden. Zum anderen konnte die rückwanderungsfördernde Wirkung bestehender sozialer Bindungen zum Herkunftsgebiet nachgewiesen werden.
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Openness and Growth: The Long Shadow of the Berlin Wall
Claudia M. Buch, Farid Toubal
Journal of Macroeconomics,
No. 3,
2009
Abstract
The question whether international openness causes higher domestic growth has been subject to intense discussions in the empirical growth literature. This paper addresses the issue in the context of the fall of the Berlin Wall in 1989. We analyze whether the slow convergence in per capita incomes between East and West Germany and the lower international openness of East Germany are linked. We address the endogeneity of openness by adapting the methodology proposed by Frankel and Romer (1999) to a panel framework. We instrument openness with time-invariant exogenous geographic variables and time-varying exogenous policy variables. We also distinguish the impact of different channels of integration. Our paper has three main findings. First, geographic variables have a significant impact on regional openness. Second, controlling for geography, East German states are less integrated into international markets along all dimensions of integration considered. Third, the degree of openness for trade has a positive impact on regional income per capita.
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Is the European Monetary Union an Endogenous Currency Area? The Example of the Labor Markets
Herbert S. Buscher, Hubert Gabrisch
IWH Discussion Papers,
No. 7,
2009
Abstract
Our study tries to find out whether wage dynamics between Euro member countries became more synchronized through the adoption of the common currency. We calculate bivarate correlation coefficients of wage and wage cost dynamics and run a model of endogenously induced changes of coefficients, which are explained by other variables being also endogenous: trade intensity, sectoral specialization, financial integration. We used a panel data structure to allow for cross-section weights for country-pair observations. We use instrumental variable regressions in order to disentangle exogenous from endogenous influences. We applied these techniques to real and nominal wage dynamics and to dynamics of unit labor costs. We found evidence for persistent asymmetries in nominal wage formation despite a single currency and monetary policy, responsible for diverging unit labor costs and for emerging trade imbalances among the EMU member countries.
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Banking Integration, Bank Stability, and Regulation: Introduction to a Special Issue of the International Journal of Central Banking
Reint E. Gropp, H. Shin
International Journal of Central Banking,
No. 1,
2009
Abstract
The link between banking integration and financial stability has taken center stage in the wake of the current financial crisis. To what extent is the banking system in Europe integrated? What role has the introduction of the common currency played in this context? Are integrated banking markets more vulnerable to contagion and financial instability? Does the fragmented regulatory framework in Europe pose special problems in resolving bank failures? What policy reforms may become necessary? These questions are of considerable policy interest as evidenced by the extensive discussions surrounding the design and implementation of a new regulatory regime and by the increasing attention coming from academia.
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