Claudio Porzio

Competition, specialization and bank–firm interaction: what happens in credit crunch periods?

This article empirically investigates the relationship between interbank competition, bank orientation and credit availability for a sample of more than 30 000 loans granted by a large banking group operating in the Italian credit market. We test whether and how, during a credit crunch period, competition affects bank orientation and how relationship lending and interbank competition can mitigate the credit crunch problem, for financially distressed firms. Using a unique and large bank–firm level data set, the main results show that an increase in competition is associated with a stronger relationship in terms of the length of the bank–borrower interaction, whereas the distance bank branch-headquarter negatively affects it. Moreover, a strong lender–borrower relationship, in terms of length and exclusivity, is found positively significant in determining the change in the amount of credit granted. Nonlinearity and sector specialization effects are tested, too, and report interesting results, supporting the crucial role of relationship lending during a financial crisis.

Real Estate Investments: the Case of the Italian Market

With reference to the Italian market, in this chapter we discuss the results of an empirical survey that considers the size of real estate weight in a mixed-asset portfolio. The absence of data for the Italian public market has forced us to restrict the survey only to the impact of private segment inclusion in a portfolio invested in stocks and bonds (both short and long term). Although the Italian real estate public market officially started in 1994 with the institution of the specialized closed fund (‘fondi comuni di investimento immobiliari’, Law 86/1994), the illiquidity of the market and the limited number of listed funds determine the lack of a meaningful literature about the role of such investment’s channel as portfolio diversifier. Previous studies on the public market from a portfolio approach point of view have referred only to the inclusion in an asset-mixed portfolio of Italian real estate company’s shares and ABS derived from domestic properties securitization.

The Determinants and the Effect of Soft Information 'Loss' in Bank Lending.

In this paper, we examine who holds the decision-making power for credit approval in small business lending and the determinants of shifting this power from a local branch to an upper organizational level. Since soft information is usually collected by local branches, shifting the decision-making power may lead to a loss of soft information because it is difficult to transmit soft information across organizational levels. We discover that when the local bank operates with a relationship lending strategy, it tends to handle loan requests, and soft information loss is less likely to occur. Furthermore, we observe that the organizational level at which loan requests are handled has a significant effect on the approval/rejection of a loan request.

Mala tempora currunt: how do PE-backed firms react to financial crises?

How has PE backing influenced the operating performance of firms (primarily in terms of ROA and ROE) during the recent financial crisis (2006–2010)? In this study, the authors use a dataset of 939 European PE-backed firms and a control sample of 2,516 European non-PE-backed firms. They find that PE-backed firms are more profitable than non-PE-backed firms. Even though the recent financial crisis had a negative effect on the operating performance of both PE- and non-PE-backed firms, the authors report strong evidence that the former have a greater ability to withstand turbulent economic environments.

Competition and Relationship Lending: What Happens in Credit Crunch Periods?

This paper empirically investigates the relationship between interbank competition, bank orientation and credit availability for a sample of more than 30,000 loans granted by a large banking group operating in the Italian credit market. We test whether and how, during a credit crunch period, competition affects bank orientation and how relationship lending and interbank competition can mitigate the credit crunch problem, for financially distressed firms. Using a unique and large bank-firm level dataset, the main results show that an increase in competition is associated with a stronger relationship in terms of the length of bank-borrower interaction, whereas the distance bank branch-headquarter negatively affect it. Moreover, a strong lender-borrower relationship, in terms of length and exclusivity, is found positively significant in determining the change in the amount of credit granted. Non-linearity and sector specialization effects are tested, too, and report interesting results, supporting the crucial role of relationship lending during a financial crisis.

The Quality of Real Estate Data: The Italian Case

The chapter1 discusses issues concerning the quality of property data from different sources and resulting implications for market participants. It is divided into two sections. In the first section, we discuss the nature and availability of property data for the Italian market. Our initial exploration of the quality and accessibility of some domestic data documents the presence of many property data sources, each of which uses different methods of data collection. The high number of data sources and their methodological heterogeneity produce excessive data discrepancies, hardly compatible with efficient research and professional investment processes. Using a set of longitudinal aggregated property values, we proceed to estimate the level of uniformity of data using correlation and cointegration analysis.

Dealing with the quality of real estate data: some issues for financial institutions

This paper addresses the issue of data quality in the real estate market. In many countries, the returns indices for direct markets are provided by several sources differing in terms of the methodology adopted and index weights. These differences produce a lack of informative standardisation, which could negatively affect the ability of market participants to make predictions. By focusing on the Italian real estate market, the aim of the paper is therefore twofold: to investigate the reliability of property data sources and to assess the impact for financial intermediaries involved in real estate investments. Our results show a significant level of divergence between the data, and considerable implications for those financial institutions dealing with them. These findings conflict with the requirements of an efficient (or at least sub-efficient) market.

Financial Turmoil and Asymmetric Information Theory: Evidence from the e-Mid Platform

The industrial countries have been severely affected by the financial crisis because of the high degree of financial engineering of their economies. In order to understand the transmission effect of sub-prime mortgage default on the financial system and, consequently, on the economic system, it is necessary to retrace some key stages (as in Cassola et al., 2008b).

Data Quality Issues in the Property Market: Some Evidence and Implications for Financial Intermediaries

The aim of the paper is an investigation on the reliability of historical returns for the Italian property market, where the quality of information seems not standardized. In Italy, such as for many other countries, the returns’ indices for direct markets are provided by several sources that differ among them in terms of methodology adopted (appraisal-based vs transaction-based approaches) and in term of index’s composition. These differences produce a lack of informative standardization that could negatively affects the predictability of market and that can be explained by a strong real estate market’s fragmentation, as well as informative and market’s organizational inefficiency. The implications arising from the existence of not homogeneous indices involve the main market operators such as: real estate funds (referring to their IRR forecasting ability); banks (referring to the estimation of LGD for mortgage loans); investors (referring to their investment’s choices). By using the historical returns provided by four index provider (the period is 2002-2008, returns are quarterly), we submit data to some quantitative tests, designed to investigate the following topics: 1) the smoothing degree of returns caused by appraisal based methodologies 2) the lack of a sufficient degree of homogeneity among the returns of all the property indices. Our results seem to underline a significant level of smoothing of the returns for the main sectors of market (residential, commercial, office) and a divergence of the quality among the sources of data that appear not consistent with an efficient market. Finally, we give an example of how the lack of standardization of real estate database affects the LGD’s banks forecast process and the expected IRR of real estate funds.