Armin Varmaz

The value relevance of “too-big-to-fail” guarantees

Purpose - – This paper aims to analyze the impact of conjectural “too-big-to-fail” (TBTF) guarantees on big and small US financial institutions’ stock prices during the 2008-2009 banking crisis. Design/methodology/approach - – The paper analyzes shocks to stock market investors’ expectations of government aid to banks in distress and respective spillover effects using an event study approach. We focus on three major events in late 2008, namely, the Lehman bankruptcy, the Citigroup bailout and the first announcement of the Capital Purchase Program (CPP) by the US Government. Findings - – The authors found significant differences in market reactions to the respective events between small and large banks. For both the Lehman and the CPP event, abnormal returns on big banks’ stocks are negative, while small banks’ stocks tend to generate positive abnormal returns. In contrast, large banks strongly outperform small banks in the case of the Citigroup bailout. Results for a control group of non-financial firms indicate that this behavior may be specific to the banking industry. The authors observed significant spillover effects to both competitors and non-competitors of Lehman and Citigroup, and concluded that while the Lehman event shook the widely held belief in an implicit TBTF subsidy to large banks, the TBTF doctrine was reinstated shortly thereafter. Originality/value - – This paper shows that conjectural TBTF guarantees are priced in by equity investors. While government aid to large banks in distress may prevent negative effects on the stability of the financial system, it may also create negative externalities by putting small banks at a competitive disadvantage. The findings suggest that US and European regulators’ recent policy measures directed at establishing reliable bank resolution schemes should be a step in the right direction to level the playing field for small and large financial institutions.

Zentrale Ressourcenverteilung in der Gesamtbanksteuerung: Eine DEA-Anwendung

Zusammenfassung Obwohl zahlreiche DEA-basierte Bewertungsmodelle entwickelt wurden, die den Einfluss bankinterner Strukturen auf die Gesamtbankleistung abbilden sollen, bleiben die Möglichkeit der Leistungssteigerung durch eine zentrale Ressourcenumverteilung zumeist unberücksichtigt. Lozano und Villa (2004) schlagen ein Modell vor, welches explizit der Optimierung der zentralen Ressourcenverteilung dient. Im vorliegenden Beitrag wird dieses Modell in den Kontext der Gesamtbanksteuerung übertragen. Es wird ferner eine Modifikation des Modells präsentiert, die es ermöglicht, gleichzeitig die internen Strukturen einer Bank und ihre relative Leistung im Interbankenvergleich zu verbessern. Am Beispiel von Filialen deutscher Genossenschaftsbanken wird im Rahmen einer Fallstudie gezeigt, wie man durch eine zentrale Ressourcenverteilung und eine simultane Leistungsbewertung erhebliche Potenziale zur Kostenvermeidung erschließen könnte.

Estimates and inferences in accounting panel data sets: comparing approaches

Purpose - The purpose of our paper is to review and evaluate the methods commonly used in the accounting literature to correct for cointegrated data and data that is neither stationary nor cointegrated. Design/methodology/approach - We conduct Monte Carlo simulations according to Baltagi et al. (2011), Petersen (2009) and Gow et al. (2010) to analyze how regression results are affected by the possible nonstationarity of the variables of interest. Findings - Our results suggest that biases in regression estimates can be reduced and valid inferences can be obtained by employing robust standard errors clustered by firm, clustered by firm and time or Fama-MacBeth t-statistics based on the mean and standard error of the cross-section of coefficients from time-series regressions. Originality/value - Our findings are suited to give researchers guidance as to which estimation methods are the most reliable given the possible nonstationarity of the variables of interest.

Announced versus canceled bank mergers and acquisitions: Evidence from the European banking industry

Purpose - This paper aims to empirically analyze the success of European bank mergers and acquisitions (M&As) by an analysis of the shareholder value implications of stock market reactions to announced and canceled M&As in the period from 1999 to 2015. Design/methodology/approach - The analysis of a sample of 467 announced and 54 canceled European bank M&As is conducted using event study methodology. The determinants of the shareholder value creations in M&A are observed in cross-sectional regressions. The likelihood of M&As being canceled is estimated in logit regressions. Findings - The paper finds that European bank M&As have not been successful in terms of shareholder value creation for acquiring banks, whereas targets experienced significant value gains. Abnormal returns for bidders and targets exhibit the same characteristics upon the announcement of M&As that are canceled at a later date, whereas the results for transaction cancelations deviate. Targets experience negative abnormal returns at a larger size than upon the transaction announcement. The findings for bidders are striking, as they destroy shareholder value upon the transaction cancelation, also, consequently they suffer twice. In particular, banks with higher profitability, higher efficiency and lower liquidity experience negative abnormal returns around the announcement dates. Negative abnormal returns prior to the transaction announcement and provision for loan losses increase significantly the likelihood of M&A cancelation. Originality/value - This paper contributes to the literature expanding existing analyses to the shareholder value implications of canceled European bank M&As in a 17-year long time period. The findings reveal the destructive characteristics of canceled bank M&As and provide innovative insights into European capital market reaction to canceled M&As.

An investor’s perspective on risk-models and characteristic-models

Purpose - In capital markets, research risk factor loadings and characteristics are considered as opposing explanations for the cross-sectional dispersion in average stock returns. However, there is little known about the performance an investor would obtain who believes either in the characteristics explanation (CB-investor) or in the risk factor loadings explanation (RB-investor). The purpose of this paper is to compare the performance of CB- and RB-investors. Design/methodology/approach - To compare the competing strategies, the authors propose a simple new approach to equity portfolio optimization in the style of Findings - The results show that investment strategies relying on characteristics (particularly on momentum) outperform risk-based investment strategies in horse races. These findings hold in- and out-of-sample. Furthermore, the characteristics-based investment strategies outperform a value-weighted market portfolio strategy in- and out-of-sample. Originality/value - The authors introduce a portfolio optimization approach that enables investors to directly link portfolio decisions to the firm’s characteristics or risk factor loadings.

Do Bank Deposits Require a Special Treatment: An Analysis of the Efficiency of German Cooperative Banks

Banking efficiency has been one of the most often studied subjects since the introduction of Data Envelopment Analysis. However, there is no broadly accepted model specification yet. Recently a new model, particularly addressing the ambiguous role of deposits in banking, has been presented by Holod and Lewis (2011). The objective of this article is to evaluate the applicability of this new model. Analyzing panel data on 1172 German cooperative banks in the period 1991-2009, this article finds the special treatment of deposits to be a valuable amendment to the evaluation of banking efficiency. However, the model of Holod and Lewis (2011) requires assumptions which cannot be made for any market.

Centralized Super-Efficiency and Yardstick Competition – Incentives in Decentralized Organizations

Due to deficient instruments of performance management, decentralized organizations often produce inefficiently. Promising approaches to dynamic incentives and performance management have recently been developed based on Data Envelopment Analysis (DEA). These, however, are not yet able to account for the specific needs of central performance management. We develop two new intra-organizational performance measures for defining dynamic incentive schemes and increasing overall performance. For suggestive evidence we evaluate the performances of 11 bank branches.

Technologischer Fortschritt in der deutschen Bankenwirtschaft

In dieser Arbeit wurde das Produktivitatswachstum von Genossenschaftsbanken mittels des Malmquistindex untersucht. Der besondere Beitrag dieser Arbeit liegt in einer Separierung des Malmquistindex auf eine managementbedingte Effizienzverbesserung und auf eine technologisch bedingte Verschiebung der Effizienzgrenze. Neben einer Messung der Produktivitat wurde ebenfalls ein positiver Zusammenhang zwischen IT-Nutzung und dem technologischen Fortschritt festgestellt. Im letzten Untersuchungsschritt wurde die Effizienzgrenze von Onlinebanken gegenuber der Effizienzgrenze herkommlicher Geno verglichen. Im Durchschnitt dominieren Onlinebanken die Geno.

Effizienzanalyse deutscher Banken mit Data Envelopment Analysis und Stabilitätsanalysen

In dieser Arbeit wurde auf die Problematik der Stabilitat der Ergebnisse einer DEA-Effizienzmessung eingegangen. Der besondere Beitrag der Arbeit liegt in der Vorstellung eines DEA-Modells zur Stabilitatsanalyse, mit dem simultan die Anderungen aller Daten fur jede EE betrachtet werden kann. Daneben kann dieses Modell in der betrieblichen Praxis zur Simulation verschiedener Szenarien und deren Auswirkung auf die Effizienz benutzt werden. Die Anwendung des Modells wurde in einer Fallstudie demonstriert.

Data Envelopment Analysis als Instrument für Zeitvergleiche

ZusammenfassungDie Data Envelopment Analysis (DEA) ist bisher als Instrument für Betriebsvergleiche genutzt worden und hat damit verschiedene Formen des Benchmarkings unterstützt. Dieser Beitrag zeigt, dass sich die DEA auch als Instrument für Zeitvergleiche nutzen und damit für vielfältige interne Analysen heranziehen lässt. Beispielsweise kann die Entwicklung der Produktivität verfolgt und auf verschiedene Einflussgrößen bezogen und auch der Erfolg von spezifischen Rationalisierungsmaßnahmen überprüft werden.SummaryUntil now Data Envelopment Analysis (DEA) has been used as an instrument for intercompany comparisons and it has thus supported different forms of benchmarking. This article shows that DEA can also be used as a tool for intertemporal comparisons. Hence DEA is applicable for various internal analysis purposes. For example, the development of productivity can be traced and related to different factors. Thus the success of specific rationalization efforts can also be verified.