Andrea Schertler

The Dependency of the Banks' Assets and Liabilities: Evidence from Germany

Developments in risk-transfer instruments and risk management techniques in the last two decades have fundamentally changed how banks manage their assets and liabilities. In this document we show that, for all three sectors of German universal banks (private commercial banks, savings banks, and cooperative banks), asset-liability dependency declined over the period 1994-2007, the decline was strongest for those banks that use more than sector-average amounts of derivatives. Only in the case of private commercial banks, we do find that lower regulatory capital has coincided with higher asset-liability dependencies. Over our sample period, the difference has diminished since poorly-capitalized private commercial banks have reduced their asset-liability dependencies more intensively than their well-capitalized counterparts. Moreover, we find that profitability matters for the asset-liability dependency but not in the same way for all three sectors. Asset-liability dependency is lower for private commercial banks with higher provision income, savings banks with lower ROE volatilities and cooperative banks with higher ROEs.

Knowledge Capital and Venture Capital Investments: New Evidence from European Panel Data

Abstract Countries with a high amount of knowledge capital are likely to have higher volumes of venture capital (VC) investments because more researchers come up with innovative business ideas that require venture capital finance. Using panel data techniques, the paper finds evidence that VC investments depend strongly on the countries’ knowledge capital measured by the number of patents, or the number of R&D researchers, or gross domestic expenditures on R&D. In addition, the paper analyzes whether government-financed knowledge capital fulfills a special role for VC investments. It finds only weak evidence that VC investments depend, with a delay of several years, on government-financed knowledge capital.

European venture capital markets: fund providers and investment characteristics

Using a European panel data set, this paper presents evidence that fund providers’ investment preferences matter for venture capital investment characteristics. For example, pension funds more often prefer investments in firms at an early development stage than non-financial corporations and banks.

Sources of Predictability of European Stock Markets for High-Technology Firms

Abstract The paper reports on studies of return predictability of stock indexes of blue-chip firms and high-technology firms in Germany, France and the UK during the second half of the 1990s. Return predictability was measured in terms of first-order autocorrelation coefficients, and evidence was found for the return predictability of stock indexes of high-technology firms, but not for the return predictability of stock indexes of blue-chip firms. These findings suggest that a candidate for explaining the economic sources of the return predictability of these stock indexes of high-technology firms is transaction costs in the form of the costs of gathering and processing information in new technological fields.

Comparative Advantages of Public Loan and Public Equity Schemes in Venture Capital Markets

Using an agency framework, this paper examines advantages of offering venture capitalists a choice between public equity and loan schemes. Both schemes can be used to promote venture capital investments in hightechnology enterprises since they encourage inexperienced venture capitalists to accumulate experience. However, under both schemes, experienced venture capitalists save on management support. This paper shows that offering venture capitalists a choice between these two schemes can lead to a positive self-selection. Inexperienced venture capitalists choose public equity under which they have higher incentives to enter the market. Experienced venture capitalists choose public loans under which they have lower incentives to save on their management support.

Issuers’ credit risk and pricing of warrants in the recent financial crisis

Purpose - – The purpose of this paper is to investigate whether factor sensitivities of margins of bank-issued warrants depend on issuers’ credit risk during the period of economic turmoil between January 2008 and June 2010. Design/methodology/approach - – Therefore, first, Fama–MacBeth estimations were applied and it was demonstrate that the sensitivities of margins in terms of time to maturity and moneyness vary substantially over time; the average outcomes are similar to the results of classical pooled estimations. Findings - – Then, time-series tests were used and it was found that the steepness of the issuers’ credit default swap (CDS) spread curves correlates negatively with the time-to-maturity sensitivities as well as with the explanatory power of Fama–MacBeth estimations. Research limitations/implications - – These findings indicate that the life-cycle hypothesis is weakened when the issuers’ CDS spread curves become steeper. Originality/value - – Thus, this study offers a new approach to gain insights into the role of issuers’ credit risk on price setting behavior.

Bank Executives’ Outside Directorships and Career Outcomes

We employ a unique sample of 5000 outside directorships held by German executive bank directors over 1993-2015 to examine whether these directorships proxy reputational capital and/or bankers’ private information. We exploit various circumstances of executive directors’ appointments and bank performance with bank-fixed-effect and difference-in-differences estimations to show that outside directorships enhance value for the bank and improve executives’ career outcomes, mostly because these posts signal good managerial ability and access to valuable private information about clients. Overall, our results suggest that bankers’ outside directorships have a dual role in the German corporate governance system.

Bank lines of credit for small business clients: Cash substitution and funding source

Abstract We investigate whether small business clients could use revocable credit lines, firstly, in their cash management and, secondly, as a funding source. Since the medium-size bank that provided our unique sample has the right to call these lines and charges considerably high rates for using them, we argue that these lines are particularly suitable for managing short-term liquidity needs. From our findings on how the line terms (line availability, line limit, and charged line rate) depend on a client’s liquidity-at-risk, the duration of its relationship with the bank, and its limit overdrafts, we nonetheless conclude that these lines, although they are revocable, fulfill both purposes.

Direct and Indirect Competition Among Structured Financial Products: The Case of Discount Certificates in Germany

This article investigates effects of direct and indirect product competition on overpricing of discount certificates in Germany. The results indicate that whereas indirect competition reduces overpricing, certificates with direct competitors are more overpriced at their issuance than certificates without direct competitors. The study further documents that (1) certificates with direct competitors are more likely to be traded than certificates without, and (2) outstanding certificates whose prices have been increased recently are more likely to receive a direct competitor from another issuer than certificates whose prices have been decreased. Thus, this study indicates that it pays off for issuers to bring direct competitors to the market, and it indicates a potential link between issuers’ price setting and the issuance behavior of other issuers, which is new to the literature.