V. Acharya, Matteo Crosignani, T. Eisert, Christian Eufinger
We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, “zombie credit” can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in zombie credit post 2012, annual inflation in Europe during 2012-2016 would have been 0.45 percentage points higher.
{"title":"Zombie Credit and (Dis-)Inflation: Evidence from Europe","authors":"V. Acharya, Matteo Crosignani, T. Eisert, Christian Eufinger","doi":"10.2139/ssrn.3562737","DOIUrl":"https://doi.org/10.2139/ssrn.3562737","url":null,"abstract":"We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, “zombie credit” can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in zombie credit post 2012, annual inflation in Europe during 2012-2016 would have been 0.45 percentage points higher.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131400659","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the determinants of sovereign credit risk in the euro area in a time period that includes the financial and sovereign debt crisis, as well as the unconventional monetary policy adopted by the European Central Bank. First, we detect the presence of commonality in sovereign credit spreads of different countries, justifying the search for the common factors that drive CDS prices. Building on the work of Longstaff et al. (2011), we employ the econometric model used in Cecchetti (2017) to decompose sovereign credit default swap spreads into expected default losses and risk premia, finding evidence of a significant contribution of the latter component. We use the model to understand to what extent the variations in CDS spreads and in the two embedded components of selected euro-area countries are more linked to local or euro area economic variables. The results point to the importance of both global and local factors, which have a greater impact on the risk premium component. Finally, we estimate the contribution of the objective probability and risk premium components of redenomination risk (as measured by the ISDA basis) to the related CDS spread components, detecting some differences between countries.
我们研究了一段时间内欧元区主权信用风险的决定因素，包括金融危机和主权债务危机，以及欧洲央行采取的非常规货币政策。首先，我们发现不同国家的主权信用利差存在共性，证明寻找驱动CDS价格的共同因素是合理的。基于Longstaff et al.(2011)的工作，我们采用Cecchetti(2017)中使用的计量经济学模型将主权信用违约互换息差分解为预期违约损失和风险溢价，并发现后者的显著贡献的证据。我们使用该模型来了解CDS息差和选定欧元区国家的两个嵌入成分的变化在多大程度上与当地或欧元区的经济变量联系更紧密。结果表明，全球和本地因素对风险溢价成分的影响更大。最后，我们估计了重计价风险的客观概率和风险溢价成分(以ISDA为基础衡量)对相关CDS价差成分的贡献，发现了国家之间的一些差异。
{"title":"An Analysis of Sovereign Credit Risk Premia in the Euro Area: Are They Explained by Local or Global Factors?","authors":"Sara Cecchetti","doi":"10.2139/ssrn.3612941","DOIUrl":"https://doi.org/10.2139/ssrn.3612941","url":null,"abstract":"We study the determinants of sovereign credit risk in the euro area in a time period that includes the financial and sovereign debt crisis, as well as the unconventional monetary policy adopted by the European Central Bank. First, we detect the presence of commonality in sovereign credit spreads of different countries, justifying the search for the common factors that drive CDS prices. Building on the work of Longstaff et al. (2011), we employ the econometric model used in Cecchetti (2017) to decompose sovereign credit default swap spreads into expected default losses and risk premia, finding evidence of a significant contribution of the latter component. We use the model to understand to what extent the variations in CDS spreads and in the two embedded components of selected euro-area countries are more linked to local or euro area economic variables. The results point to the importance of both global and local factors, which have a greater impact on the risk premium component. Finally, we estimate the contribution of the objective probability and risk premium components of redenomination risk (as measured by the ISDA basis) to the related CDS spread components, detecting some differences between countries.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"18 2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130915141","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the effect of time-varying stock market correlations on the abrupt and persistent decrease of the reciprocal foreign investments by Euro area member countries after 2007. A strong stock market correlation reduces the diversification opportunities and it may therefore have affected the reciprocal investment by EMU countries. The 2007 represents both the outbreak of the global financial crisis and the beginning of the enlargement process. The two events have had a very different impact on the stock returns’ correlation among EMU members. While the enlargement to new countries has reduced the average returns’ correlation within the Euro area as a whole, the financial crisis and the sovereign debt crisis have led to an increase in stock returns’ correlation among old member states. We find that, among old EMU countries, core countries have been particularly affected by stock returns’ correlation. They reduced their equity investments both in foreign EMU core and in foreign EMU periphery economies after the crisis, with a particularly pronounced contraction witnessed by those country-pairs that displayed highly correlated asset returns. These results highlight the importance of the diversification motive for international portfolio investments and complement the institution-based explanation of the decline of the Euro area investments.
{"title":"The Decline of EMU Core Countries' Portfolio Equity Investments in the Euro Area: The Role of Stock Return Correlations","authors":"Maela Giofré","doi":"10.2139/ssrn.3805118","DOIUrl":"https://doi.org/10.2139/ssrn.3805118","url":null,"abstract":"This paper investigates the effect of time-varying stock market correlations on the abrupt and persistent decrease of the reciprocal foreign investments by Euro area member countries after 2007. A strong stock market correlation reduces the diversification opportunities and it may therefore have affected the reciprocal investment by EMU countries. The 2007 represents both the outbreak of the global financial crisis and the beginning of the enlargement process. The two events have had a very different impact on the stock returns’ correlation among EMU members. While the enlargement to new countries has reduced the average returns’ correlation within the Euro area as a whole, the financial crisis and the sovereign debt crisis have led to an increase in stock returns’ correlation among old member states. We find that, among old EMU countries, core countries have been particularly affected by stock returns’ correlation. They reduced their equity investments both in foreign EMU core and in foreign EMU periphery economies after the crisis, with a particularly pronounced contraction witnessed by those country-pairs that displayed highly correlated asset returns. These results highlight the importance of the diversification motive for international portfolio investments and complement the institution-based explanation of the decline of the Euro area investments.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115353262","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine how the language used by central bank officials in public press conferences influences stock returns in the euro area. In line with the concept of Odyssean Forward Guidance, we find that using constraining language to express policy commitment increases the effectiveness of Forward Guidance in times of unconventional monetary policy. In further analysis, we provide strong evidence that market participants interpret higher levels of uncertain language in the economic outlook as a sign of Delphic Forward Guidance, indicated by positive intraday stock returns. In addition, we find that in a period of high economic uncertainty, tone sensitivities of financial market participants increase as they find it hard to grasp the future path of monetary policy. Finally, by proposing a novel rule-based approach to identify forward-looking statements of ECB press conferences, we provide first evidence that forward-looking statements in the answers given by ECB officials in the Q&A Sessions significantly affect Euro area stock returns.
{"title":"ECB Language and Stock Returns – A Textual Analysis of ECB Press Conferences","authors":"Rouven Möller, Doron Reichmann","doi":"10.2139/ssrn.3638215","DOIUrl":"https://doi.org/10.2139/ssrn.3638215","url":null,"abstract":"We examine how the language used by central bank officials in public press conferences influences stock returns in the euro area. In line with the concept of Odyssean Forward Guidance, we find that using constraining language to express policy commitment increases the effectiveness of Forward Guidance in times of unconventional monetary policy. In further analysis, we provide strong evidence that market participants interpret higher levels of uncertain language in the economic outlook as a sign of Delphic Forward Guidance, indicated by positive intraday stock returns. In addition, we find that in a period of high economic uncertainty, tone sensitivities of financial market participants increase as they find it hard to grasp the future path of monetary policy. Finally, by proposing a novel rule-based approach to identify forward-looking statements of ECB press conferences, we provide first evidence that forward-looking statements in the answers given by ECB officials in the Q&A Sessions significantly affect Euro area stock returns.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130111601","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Piet Eichholtz, M. Korevaar, Thies Lindenthal, Ronan Tallec
We estimate total returns to rental housing by studying over 170,000 hand-collected archival observations of prices and rents for individual houses in Paris (1809–1943) and Amsterdam (1900–1979). The annualized real total return, net of costs and taxes, is 4.0% for Paris and 4.8% for Amsterdam and entirely comes from rental yields. Our returns weakly correlate with the implied returns in Jordà et al. (2019) and are substantially lower. We decompose total return risk at the individual asset level and find that yield risk becomes an increasingly important component of property-level risk for longer investment horizons.
{"title":"The Total Return and Risk to Residential Real Estate","authors":"Piet Eichholtz, M. Korevaar, Thies Lindenthal, Ronan Tallec","doi":"10.2139/ssrn.3549278","DOIUrl":"https://doi.org/10.2139/ssrn.3549278","url":null,"abstract":"\u0000 We estimate total returns to rental housing by studying over 170,000 hand-collected archival observations of prices and rents for individual houses in Paris (1809–1943) and Amsterdam (1900–1979). The annualized real total return, net of costs and taxes, is 4.0% for Paris and 4.8% for Amsterdam and entirely comes from rental yields. Our returns weakly correlate with the implied returns in Jordà et al. (2019) and are substantially lower. We decompose total return risk at the individual asset level and find that yield risk becomes an increasingly important component of property-level risk for longer investment horizons.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"162 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124540378","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The bilateral foreign portfolio equities among Euro area members have shrunk by 40 percent after 2007. While both the financial crisis and the enlargement are potentially responsible of this abrupt and persistent contraction in financial integration, our work detects a major role for the crisis. The deterioration of the control of corruption mechanisms in Euro periphery economies occurred during the crisis is identified as a plausible driver of this shrinkage.
{"title":"The Shrinkage after the Enlargement? The Effect of Financial Crises and Enlargement on Stock Market Integration in the Euro Area","authors":"Maela Giofré, O. Sokolenko","doi":"10.2139/ssrn.3542470","DOIUrl":"https://doi.org/10.2139/ssrn.3542470","url":null,"abstract":"The bilateral foreign portfolio equities among Euro area members have shrunk by 40 percent after 2007. While both the financial crisis and the enlargement are potentially responsible of this abrupt and persistent contraction in financial integration, our work detects a major role for the crisis. The deterioration of the control of corruption mechanisms in Euro periphery economies occurred during the crisis is identified as a plausible driver of this shrinkage.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122041000","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Conor Hickey, John R. O'Brien, Ben Caldecott, C. McInerney, Brian Ó'Gallachóir
This paper develops methodologies to assess the ability of electric utilities to sustain the forced impairment of carbon emitting power plants and applies those methods to the European market. We present a new method to measure asset impairment, for both the company and the industry, based on a database of power plants. We develop a novel framework to analyse a utility’s ability to transition by investing in renewables through the impact on its credit rating metrics. Finally, we apply our framework to European utilities under scenarios set out by the European Commission to limit global warming by imposing net zero carbon emissions constraints on companies. We conclude that most European utilities have the financial capacity to meet the requirements of net zero carbon emissions under the scenarios with timely action. However, a delay of as little as five years will cause serious financial problems across the sector.
{"title":"Can European Electric Utilities Manage Asset Impairments Arising From Net Zero Carbon Targets?","authors":"Conor Hickey, John R. O'Brien, Ben Caldecott, C. McInerney, Brian Ó'Gallachóir","doi":"10.2139/ssrn.3531724","DOIUrl":"https://doi.org/10.2139/ssrn.3531724","url":null,"abstract":"This paper develops methodologies to assess the ability of electric utilities to sustain the forced impairment of carbon emitting power plants and applies those methods to the European market. We present a new method to measure asset impairment, for both the company and the industry, based on a database of power plants. We develop a novel framework to analyse a utility’s ability to transition by investing in renewables through the impact on its credit rating metrics. Finally, we apply our framework to European utilities under scenarios set out by the European Commission to limit global warming by imposing net zero carbon emissions constraints on companies. We conclude that most European utilities have the financial capacity to meet the requirements of net zero carbon emissions under the scenarios with timely action. However, a delay of as little as five years will cause serious financial problems across the sector.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132404726","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
D. Cogan, J. Coony, Alex Hazoury, Dana Rysankova, M. Cosgrove-Davies, Michel Rauchs, Tibor Kludovacz, Tania Ziegler, B. Zhang, R. Wardrop, Kieran Garvey, P. Rau, Martino Recanatini, F. Rostand
This report elucidates the role of financial innovation in the off-grid solar sector and provides a roadmap for practitioners, financiers, and entrepreneurs navigating capital raises for companies active in the sector. It examines a full range of established and frontier financing options. It illustrates that some technology-enabled financial innovations, such as peer-to-peer business lending, are already playing an important role in the sector. It was prepared by the World Bank Group and the Cambridge Centre for Alternative Finance, the University of Cambridge Judge Business School, with support from ESMAP.
{"title":"Funding the sun: New Paradigms for Financing Off-Grid Solar Companies","authors":"D. Cogan, J. Coony, Alex Hazoury, Dana Rysankova, M. Cosgrove-Davies, Michel Rauchs, Tibor Kludovacz, Tania Ziegler, B. Zhang, R. Wardrop, Kieran Garvey, P. Rau, Martino Recanatini, F. Rostand","doi":"10.2139/SSRN.3771502","DOIUrl":"https://doi.org/10.2139/SSRN.3771502","url":null,"abstract":"This report elucidates the role of financial innovation in the off-grid solar sector and provides a roadmap for practitioners, financiers, and entrepreneurs navigating capital raises for companies active in the sector. It examines a full range of established and frontier financing options. It illustrates that some technology-enabled financial innovations, such as peer-to-peer business lending, are already playing an important role in the sector. It was prepared by the World Bank Group and the Cambridge Centre for Alternative Finance, the University of Cambridge Judge Business School, with support from ESMAP.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"183 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116857036","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines several dimensions of the relationship between diversification and performance. Specifically, we investigate the link between related and unrelated diversification and performance. We also study the effect of the potential redeployment of ‘plastic’ assets on unrelated diversification. To investigate this, we estimated a dynamic panel on a data set of 2,396 diversified firms from the euro area, over the 2010-2017 sampling period. Empirical results indicate that an increase in the level of unrelated diversification, is significantly associated with an 0.32 percent improvement in performance, and related diversification with an 0.41 percent increase in performance. Additionally, we found that an increment in the level of asset plasticity is significantly associated with a 1.54 percent increase in the level of unrelated diversification, and a 0.84 percent increase in the level of related diversification. Overall, our findings contribute to the corporate diversification literature by documenting that both, related and unrelated diversification, impact positively performance. Moreover, providing evidence consistent with the intuition that asset plasticity may be a positive factor for unrelated and related diversification strategies.
{"title":"Does Diversification Matter for Economic Performance? An Empirical Analysis","authors":"Jorge H. F. Mota, Mário Coutinho dos Santos","doi":"10.2139/ssrn.3529894","DOIUrl":"https://doi.org/10.2139/ssrn.3529894","url":null,"abstract":"This paper examines several dimensions of the relationship between diversification and performance. Specifically, we investigate the link between related and unrelated diversification and performance. We also study the effect of the potential redeployment of ‘plastic’ assets on unrelated diversification. To investigate this, we estimated a dynamic panel on a data set of 2,396 diversified firms from the euro area, over the 2010-2017 sampling period. Empirical results indicate that an increase in the level of unrelated diversification, is significantly associated with an 0.32 percent improvement in performance, and related diversification with an 0.41 percent increase in performance. Additionally, we found that an increment in the level of asset plasticity is significantly associated with a 1.54 percent increase in the level of unrelated diversification, and a 0.84 percent increase in the level of related diversification. Overall, our findings contribute to the corporate diversification literature by documenting that both, related and unrelated diversification, impact positively performance. Moreover, providing evidence consistent with the intuition that asset plasticity may be a positive factor for unrelated and related diversification strategies.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114235351","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze institutional ownership in listed ADRs over the last two decades and investigate new determinants of institutional ownership in these ADRs. Using a unique dataset, we find that institutional investors invest more in ADRs without underlying stocks listed in the home market (i.e., single ADRs). We also document that institutional investors invest less in ADRs whose underlying stocks attract more foreign investors, and invest more in ADRs with more concentrated institutional ownership structure. Our results are statistically and economically meaningful and are robust to a battery of sensitivity checks.
{"title":"The Geography and Determinants of ADR Holdings","authors":"Anis Samet, W. Abdallah, A. A. Abdallah","doi":"10.2139/ssrn.3517972","DOIUrl":"https://doi.org/10.2139/ssrn.3517972","url":null,"abstract":"We analyze institutional ownership in listed ADRs over the last two decades and investigate new determinants of institutional ownership in these ADRs. Using a unique dataset, we find that institutional investors invest more in ADRs without underlying stocks listed in the home market (i.e., single ADRs). We also document that institutional investors invest less in ADRs whose underlying stocks attract more foreign investors, and invest more in ADRs with more concentrated institutional ownership structure. Our results are statistically and economically meaningful and are robust to a battery of sensitivity checks.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116971999","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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