Marcel Tyrell

Financial Systems, Corporate Finance and Corporate Governance

Financial systems of industrialised countries are usually classified as being either capital market‐ or bank‐dominated. This paper tries to shed some light on the validity of this distinction. In order to do this, it analyses two specific roles of the financial sector vis‐a‐vis the enterprise sector: the role of financing or funding business and the role of capital markets and banks, respectively, in the context of corporate governance. Our analysis of the relevant findings in the literature shows that financing patterns are quite similar between countries, while corporate governance systems are quite dissimilar. The paper discusses how these divergent findings could be made compatible with existing theories and what implications they may have for the question of whether there is a tendency for corporate governance systems in different countries to become as similar as corporate financing patterns seem to be.

Banks and German Corporate Governance: on the way to a capital market‐based system?

The German corporate governance system has long been cited as the standard example of an insider-controlled and stakeholder-oriented system. We argue that despite important reforms and substantial changes of individual elements of the German corporate governance system, the main characteristics of the traditional German system as a whole are still in place. However, in our opinion the changing role of big universal banks in governance undermines the stability of the corporate governance system in Germany. Therefore a breakdown of the traditional system leading to a control vacuum or a fundamental change to a capital market-based system could be in the offing.

Determinants of Bank Liquidity Creation

This paper measures liquidity creation of German savings banks over the period of 1997-2006 and tries to detect possible influence factors thereof. Using two recently developed techniques to measure liquidity creation, the so called “BB-Measure” as developed by Berger and Bouwman in 2009 and the “Liquidity Transformation” (LT) Gap as developed by Deep and Schaefer in 2004, we are able to determine both absolute amounts of liquidity created for the economy as well as relative magnitudes of maturity transformation the observed banks perform to create liquidity. Using a multivariate dynamic panel regression framework we differentiate between two different sets of potential liquidity determinants: macroeconomic factors, such as monetary policy or economic strength indicators, as well as bank characteristic factors, such as size or business focus. We additionally account for most recent legal developments in the German banking sector by measuring the effects of the abolishment of state guarantees in the public banking sector on liquidity creation. Analyzing a proprietary dataset comprised of all 457 German savings banks containing detailed balance sheet as well as profit & loss account variables, we show that over the given period, the total amount of liquidity created by the savings banks increased by 51% (from 120.7 billion Euro in 1997 to 182.2 billion Euro in 2006). In terms of influence factors we find highly significant and robust values for economy and monetary policy indicators. It can be shown that liquidity creation seems to depend strongly negatively on monetary policy tightness: a monetary policy tightening induces a decrease in created liquidity. We do not find any bank specific factors, such as financial performance or size, to have any influence on liquidity creation.

Intra-Industry Effects of Shareholder Activism in Germany - Is There a Difference between Hedge Fund and Private Equity Investments?

We investigate the valuation effects of industry rivals on german firms targeted by hedge funds and private equity investors. We argue that both types of investors differ from other blockholders due to their strong motivation and ability to actively engage and monitor. We find that the announcement of a change in ownership structure generates statistically significant short- and long-term intra-industry effects for rivals to the respective private equity and hedge fund targets. however, these effects differ markedly between hedge fund investments and private equity investments. We conclude that hedge funds are more aggressive than private equity investors in implementing a shareholder orientation.

The Legacy of Surveillance: An Explanation for Social Capital Erosion and the Persistent Economic Disparity between East and West Germany

This paper presents an exemplary case of social capital destruction through state action. We investigate the patterns of economic backwardness in East Germany and put forward a formal model and empirical evidence in favor of an intuitive yet novel conjecture: the differences in the scale and depth of state security penetration of peoples private lives as well as of the institutions of state and society across the regions in the former GDR have significant bearing on the social capital patterns observed in East Germany today. Our empirical evidence suggests that a one standard deviation increase in Stasi informer density is associated with a 0.6 percentage point decrease in electoral turnout, a 10% decrease in organizational involvement, and a 50% reduction in the number of organs donated across the districts in East Germany. We furthermore find robust evidence that surveillance intensity has a strong negative effect via social capital on current economic performance, and may explain approximately 7% of the East-West differential in income per capita and 26% of the unemployment gap. Our results are rare empirical evidence towards a better understanding of the mechanisms through which social capital accumulates and depreciates, and thus informative for policy-makers.

Investment Behavior of Stock Exchanges and the Rationale for Demutualization - Theory and Empirical Evidence

This paper deals with two, potentially intertwined issues of stock exchange governance. First, we demonstrate in a static global games model that investment propensity will vary across different types of organizational forms and competition scenarios. Exchanges organized as mutuals are particularly ill-suited compared to trading venues owned by outside investors, when investments result in potential rents for only few of their members. These circumstances are likely when exchanges invest in related business activities such as derivatives trading, post-trading and software development services. Second, we explain in a dynamic overlapping-generations framework the rationale for the recent wave of demutualization, which describes the process of converting a mutual, not-for-profit stock exchange into an outsider-owned, commercial firm. Our model shows that a mutual exchange, facing competition from a for-profit, outsider-owned platform, can only survive by adopting a similar governance structure. Our paper will also provide empirical evidence for the two main predictions derived from the models. For that purpose, we employ bivariate probit regressions to simultaneously estimate the propensity to invest and to demutualize, thereby accounting for potential endogeneity issues. We show that competitive pressure indeed increases the likelihood of demutualization and that outsider-owned exchanges have a stronger propensity to invest into related business activities.

Die Fünf-Prozent-Hürde – Sind Aktien für Bausparkassen eine gute Wahl?

Zusammenfassung Die anhaltende Niedrigzinsphase setzt Bausparkassen mit ihrem spezifischen Geschäftsmodell und der damit verbundenen Abhängigkeit vom Einlagen- und Kreditgeschäft zunehmend unter Druck. Darauf hat der Gesetzgeber im Jahr 2015 im Rahmen der Bausparkassengesetzesnovelle reagiert, indem die Ertragsmöglichkeiten erweitert werden, um die Risikotragfähigkeit dieser Institute zu stärken. Eine Neuerung der Gesetzesnovelle, die zum 1. 1. 2017 in Kraft getreten ist, räumt den Bausparkassen das Recht ein, bis zu 5 % ihrer freien Mittel in Aktien zu investieren, um eine größere Anlagediversifikation zu erzielen und Ertragschancen zu steigern. Diese Maßnahme wird in Bezug auf die potenzielle Risikosteigerung auch kritisch reflektiert. Die vorliegende Studie untersucht unter Kreditrisikoaspekten die Hinzunahme von Aktien in die Anlageportefeuilles der Bausparkassen gemäß der von der Europäischen Bankenaufsichtsbehörde (EBA) vorgegebenen Stresstestsystematik.

Specialized Financial Intermediaries and the Impact of Savings and Loan Contracts on Real Estate Finance

The significant macroeconomic importance of housing market stability has been prominently highlighted in the context of the 2008 US sub-prime mortgage financial crisis. Evaluating the aftermath of this global economic crisis, the notorious stability of German housing markets in comparison to other industrialised nations is a particularly interesting case for empirical investigation. An idiosyncratic and yet vital institutional characteristic of German housing financing markets, regularly neglected in the academic literature, are building and loan associations (“Bausparkassen”). These institutions constitute a special case of financial intermediaries because they exclusively sell the rather unique mortgage financing instrument of savings and loan contracts (SLCs). Based on an overlapping-generation model, these contracts give their holders the option to take out a housing loan in the future at an interest rate fixed on the date of conclusion of contract.In this paper, we empirically examine whether this mortgage financing instrument creates the anti-cyclic incentive mechanisms that its peculiar option-like structure would theoretically suggest. More specifically, we investigate whether SLC contract holders indeed have a higher propensity to borrow under increasing interest rate regimes, thereby supposedly serving as an important stabiliser of housing market liquidity in crunching environments. Controlling for important macroeconomic covariates, we show that both SLC savings deposits and SLC loans taken by households precisely reflect this counter cyclicality to interest rate changes. These findings thus broadly corroborate SLCs as an important specificity of German mortgage financing contributing to the overall stability of corresponding housing markets.

Angleichung der Finanzsysteme in Europa

Das Finanzsystem eines Landes ist mehr als dessen Finanzsektor; es umfasst auch die Art und Weise, wie Haushalte Vermogen bilden und halten und wie sich Unternehmen finanzieren, sowie das Corporate-Governance-System eines Landes. In diesem Beitrag wird untersucht, ob und wie sich die Finanzsysteme Deutschlands, Grosbritanniens und Frankreichs in den letzten 20 Jahren verandert haben und insbesondere ob sie sich an einander angeglichen haben. Auf der Basis von gesamtwirtschaftlichen Finanzierungsrechnungen lasst sich zeigen, dass sich die Rolle der Banken als Finanzintermediare zwischen den drei Landern deutlich unterscheiden. Der Unterschied zwischen Deutschland und Grosbritannien ist im Zeitablauf stabil, wenn nicht sogar zunehmend. Auch hinsichtlich der Finanzierungsstrukturen von Unternehmen und der Funktionsweisen der landerspezifischen Corporate-Governance-Systeme scheint es ahnliche grundlegende und stabile Unterschiede zu geben. Jedenfalls bis zur Einfuhrung des Euro sprechen die empirischen Befunde eher gegen als fur die haufig geauserte Vermutung, dass die europaische Integration zu einer Angleichung der Finanzsysteme in Europa fuhren wurde.