Cross-listing and the long-term performance of ADRs: Revisiting European evidence

In this paper, we examine several cross-listing theories employing a sample of over 250 European ADRs representing 19 countries during the 1970–2002 period. We find that, first, though both Levels II and III listings underperform over the 3 years subsequent to the US listing, the determinants of long-term performance are significantly different for the non-IPO and IPO firms. Second, there is a strong support for investor recognition in the non-IPO sample, for window-of-opportunity in the IPO sample, and for bonding in both samples, but little support for the market segmentation hypothesis. Overall, our results support the notion that different cross-listing theories are complementary and not mutually exclusive, in explaining the long-term performance.     

How crosslisting affects merger and acquisition activity

Consistent with crosslisting decreasing the cost of capital, we find that firms which issue American Depositary Receipts (ADRs) are much more likely to undertake an acquisition than non-crosslisted firms. The results do not appear to be driven by self-selection, as the increase in acquisitions is robust to a Heckman correction as well as to a fixed-effect analysis. Adding the home country’s shareholder rights to the analysis, we find that crosslisted firms increase their takeover activity primarily if they are from weak shareholder rights countries. This evidence is consistent with crosslisting reducing the cost of capital of firms from weak governance countries significantly, and this reduction in cost of capital allows these firms to pursue more domestic and international takeovers.     

Post‐merger strategy and performance: evidence from the US and European banking industries

The banking industry has one of the most active markets for mergers and acquisitions. However, little is known about the type of operational strategies adopted by banking firms in the years following a deal. For a sample of bidding banks in the USA and Europe, this study compares the design and performance implications of different post‐merger strategies in both geographical regions. Using accounting data, we show that European banks pursue a cost‐cutting strategy by increasing efficiency levels vis‐à‐vis non‐merging banks and by cutting back on both labour costs and lending activities. US banks, on the other hand, raise both interest and non‐interest income in the post‐merger period.     

Revisiting the European Asset Management Industry

During the last decade, the European asset management industry has undergone a period of unprecedented change. Europe has witnessed ten years of financial integration, driven in particular by various regulatory initiatives. But Europe has also been transformed in the geopolitical sense, with 12 new Member States and millions of new citizens of the European Union. Add to that a decade of rapid globalization and one financial crisis of historical proportions. But while Europe and its financial markets have evolved and the asset management industry has transformed itself, academic research has not kept pace. During the last ten years or so, the lack of systematic research on the structural dimensions of the asset management industry is striking. This article fills this gap by providing a comprehensive overview of the European asset management industry at the end of the first decade of the 21^st century. We seek to provide explanations to the various differences observed between European countries. Using prior research as a basis, we also compare the characteristics of the industry to their standing at the turn of the century. This also includes assessing whether and to what extent the forecasts provided in prior research did materialize. We also try to find reasons for cases in which they did not. Finally, we ourselves offer a number of prognoses on the development of the European asset management over the coming years.     

Analysing the determinants of performance of best and worst European banks: A mixed logit approach

Using a dataset of 7635 observations on 1384 commercial banks operating in the EU between 1993 and 2001, we utilise a mixed logit model to identify factors that explain the probability of a bank being a best [worst] performer. The empirical evidence confirms the importance of country-level characteristics (location and legal tradition), and firm-level features (bank ownership, balance sheet structure and size). Specifically, smaller sized banks with higher loan-intensity, and foreign banks from countries upholding common law traditions have a higher probability of best performance.     

Value creation and the probability of success in merger and acquisition transactions

This paper presents and tests a hypothesis that expands existing explanations of value creation in merger and acquisition (M&A) transactions. The main premise is that value creation is determined by not only the target’s pre-acquisition value, as indicated by numerous studies in extant literature, but also by the acquirer’s competency (among other factors) demonstrated by their pre-merger financial ratios. The paper shows that M&A transactions create value in the longer-run and the gain is commensurate with the acquirer’s historical performance and the target’s pre-acquisition value. Further, the paper employs statistical procedures and model-building techniques in order to develop and validate parsimonious Altman-style predictive models. The models reasonably identify successful M&A deals and are statistically significant and consistent with a few existing theories. Specifically, the evidence on liquidity supports internal capital markets hypothesis but does not support the theories of agency problems, while the evidence on financial leverage supports the view that lower debt enhances corporate control.     

Pairwise X-efficiency combinations of merging banks: analysis of the fifth merger wave

Using the non-parametric data envelopment approach, the long-run profit efficiency of nine pre-classified merger deals of merging and non-merging U.S. banks is investigated during the period from 1992 to 2003 for a sample of 359 merger deals. The findings show that, in general, large acquirers have and maintain higher efficiency scores than targets and non-merging banks. The results also show that merger deals that match least efficient acquirers with the least efficient targets could improve their profit efficiency 4 years following the merger event, which is different than all other merger deals. Finally, value-maximizing mergers are determined to be mostly large and match banks with clear opportunities to increase their future efficiency rankings.     

Predicting distress in European banks

The paper develops an early-warning model for predicting vulnerabilities leading to distress in European banks using both bank and country-level data. As outright bank failures have been rare in Europe, the paper introduces a novel dataset that complements bankruptcies and defaults with state interventions and mergers in distress. The signals of the early-warning model are calibrated not only according to the policymaker’s preferences between type I and II errors, but also to take into account the potential systemic relevance of each individual financial institution. The key findings of the paper are that complementing bank-specific vulnerabilities with indicators for macro-financial imbalances and banking sector vulnerabilities improves model performance and yields useful out-of-sample predictions of bank distress during the current financial crisis.     

Toward a complete definition of relatedness in merger and acquisition transactions

The interrelation between different sources of relatedness in M&A transactions has been largely overlooked in extant literature. This paper offers theoretical and empirical investigation and introduces a few new measures of relatedness. We find that single-dimensional measures of relatedness are complements, not substitutes, of each other, and their impacts on the market’s reaction are additive and interdependent. Specifically, each measure contains unique relatedness information and the market’s perception of, and reaction to, the presence of relatedness in M&A deals is more sophisticated than the extant literature prescribes. The market seems to reward operational and marketing relatedness in small-vicinity mergers and out-of-state mergers. In contrast, related in-state mergers seem to be associated with a significantly negative market reaction. Similarly, technology affiliation induces an additional positive market reaction that is separate from simple industry matching, and the market seems to reward the acquisition of high-technology targets by high-technology acquirers and to penalize the acquisition of high-technology targets by non-high-technology acquirers. Furthermore, we find that horizontally and vertically related mergers are relatively more likely to be completed, while in-state and large-vicinity mergers are less likely to be completed. We also find that when the target is incorporated in a target-friendly state, the merger is less likely to be completed, though state-specific merger laws do not contribute significantly to mergers’ valuation. Taken together, our results indicate that relatedness is a multidimensional metric composed of several interrelated components, and, thus, single-dimensional proxies are not sufficient to capture relatedness accurately and completely.

     

SPAC merger announcement returns and subsequent performance

Special purpose acquisition companies (SPACs) are created to raise capital and then find non-listed operating companies with which to merge. While most of the extant research has focused on SPAC initial public offerings, we study what happens when SPACs announce business combinations. Our analysis of 236 ‘deSPACs’ completed between January 2012 and June 2021 in the United States documents an average short-term announcement return of +7.4% and a 1-year abnormal return of −14.1% (−18.0% over 2 years) for public investors beginning from the merger announcement. Short-term returns decrease with longer times from initial public offering until announcement.     

Market reaction to the merger announcements of US banks: A non-parametric X-efficiency framework

This paper investigates the short-term market reaction of nine profit-efficiency, pre-classified merger deals of US banks over the time period from 1992 to 2003. The findings show that mergers combining low efficiency acquirers and targets create significant market returns following the merger event, while mergers combining the least efficient acquirers with moderately efficient targets diminish the acquirer's wealth more than any other type of merger. Furthermore, findings show that acquirers generally lose about 2.5% of their wealth upon the merger announcement while targets experience, on average, significant market returns of 15.5% following the merger announcement.The findings of the cross sectional analysis show that the CARs of acquirers are positively related to their technical efficiency and geographic diversification, while targets' CARs are negatively related to both target size and revenue efficiency.     

Income smoothing among European systemic and non-systemic banks

There is scant research on the financial reporting behaviour of global systemically-important banks (G-SIBs) and non-global systemically-important banks (non-G-SIBs). We examine the link between financial reporting and financial system stability given the understanding that income smoothing is a stability mechanism for banks. We empirically examine whether the way G-SIBs use loan loss provisions (LLPs) to smooth income differ compared to non-G-SIBs and the incentive to do so. We examine 231 European banks and find that income smoothing is pronounced among G-SIBs in the post-crisis period and pronounced among non-G-SIBs in the pre-crisis period. Also, G-SIBs exhibit greater income smoothing when they: (i) have substantial non-performing loans, (ii) are more profitable and meet/exceed minimum regulatory capital ratios (iii) engage in forward-looking loan-loss provisioning and during recessionary periods. The implication of our findings is that capital regulation and abnormal economic fluctuations create incentives for systemic banks to use accounting numbers (loan loss provisions) to smooth income, which also align with the financial system stability objective of bank regulators. Our findings are useful to accounting standard setters in their evaluation of the role of reported accounting numbers for financial system stability, given the current regulatory environment in Europe which focuses on systemic banks.     

Competition and financial stability in European cooperative banks

Cooperative banks are a driving force for socially committed business at the local level, accounting for around one fifth of the European Union (EU) bank deposits and loans. Despite their importance, little is known about the relationship between bank stability and competition for these small credit institutions. Does competition affect the stability of cooperative banks? Does the financial stability of banks increase/decrease when competition is higher? We assess the dynamic relationship between competition and bank soundness (both in the short and long run) among European cooperative banks between 1998 and 2009. We obtain three main results. First, we provide evidence in line with the competition-stability view proposed by Boyd and De Nicolò (2005). Bank market power negatively “Granger-causes” banks' soundness, meaning that there is a positive relationship between competition and stability. Second, we find that this fundamental relationship does not change during the 2007–2009 financial crisis. Third, we show that increased homogeneity in the cooperative banking sector positively affects bank soundness. Our findings have important policy implications for designing and implementing regulations that enhance the overall stability of the financial system and in particular of the cooperative banking sector.     

Leverage and acquisition performance

From an agency perspective, leverage may have a positive effect on firm performance by limiting managers’ ability to allocate resources to unproductive uses, as well as increasing pressure on them to perform well. Consequently, we might expect leverage to have a positive impact on acquisition performance. However, the increased risks associated with higher leverage, combined with the other risks inherent in an acquisition, could also cause managers to take actions to reduce risk even if doing so is contrary to value maximization. High debt levels might also limit managerial discretion over how resources are allocated during the acquisition process, which can have a negative impact on performance. We investigate the effect of leverage on post-acquisition stock performance and find that post-acquisition performance is decreasing in leverage brought by the target firm and in additional leverage taken on to execute the acquisition. This negative performance is clustered among acquirers who are already financially constrained. Our results are robust to various returns measurement methodologies and to the inclusion of several controls known to predict future returns. Our results also represent viable investment strategies, and suggest that the market underestimates difficulties that arise from acquisition-related increases in leverage.     

Systemic risk and diversification across European banks and insurers

The mutual and cross company exposures to fat-tail distributed risks determine the potential impact of a financial crisis on banks and insurers. We examine the systemic interdependencies within and across the European banking and insurance sectors during times of stress by means of extreme value analysis. While insurers exhibit a slightly higher interdependency in comparison with banks, the interdependency across the two sectors turns out to be considerably lower. This suggests that downside risk can be lowered through financial conglomeration.     

Revisiting mutual fund performance evaluation

Mutual fund manager excess performance should be measured relative to their self-reported benchmark rather than the return of a passive portfolio with the same risk characteristics. Ignoring the self-reported benchmark results in different measurement of stock selection and timing components of excess performance. We revisit baseline empirical evidence fund performance evaluation utilizing stock selection and timing measures that incorporate the self-reported benchmark. We introduce a new factor exposure based approach for measuring the – static and dynamic – timing capabilities of mutual fund managers. We overall conclude that current studies are likely to be misstating skill because they ignore the managers’ self-reported benchmark in the performance evaluation process.     

欧洲主权债务危机给我国商业银行带来的机遇与挑战

本文对以希腊主权债务问题为代表的新一轮欧洲主权债务危机进行了专题研究,辩证地分析了危机给我国商业银行发展带来的挑战与机遇,并对下一步应采取的措施与转变等提出了相应的政策性建议。     

The efficiency and the conduct of European banks: Developments after 1992

We assess the efficiency of the European banking sector in the 5-year period following the implementation of the Second Banking Directive of the European Union (EU). We first determine the degree of cost efficiency of EU banks in 1993-1997. After that, we explore to what extent efficient European banks are managed differently than their inefficient peers. Our datasets comprise 5 years of observations on 1347 savings and 873 commercial banks. We use the new recursive thick frontier approach (RTFA) method to establish our results. We find that structural factors, such as technological progress or increased bank competition, have lowered the cost base of banks by about 5% annually during the sample period. Managerial inability to control costs (X-inefficiency) is with 17-25% the main source of bank inefficiency in the EU. Managerial efficiency varies a great deal within Europe, and there seems to be no tendency towards convergence. We find that small savings banks can exploit economies of scale. The EU savings bank sector would cut costs by about 3% if small savings banks merged.     

Credit spread interdependencies of European states and banks during the financial crisis

We investigate the interdependence of the default risk of several Eurozone countries (France, Germany, Italy, Ireland, the Netherlands, Portugal, and Spain) and their domestic banks during the period between June 2007 and May 2010, using daily credit default swaps (CDS). Bank bailout programs changed the composition of both banks’ and sovereign balance sheets and, moreover, affected the linkage between the default risk of governments and their local banks. Our main findings suggest that in the period before bank bailouts the contagion disperses from bank credit spreads into the sovereign CDS market. After bailouts, a financial sector shock affects sovereign CDS spreads more strongly in the short run. However, the impact becomes insignificant in the long term. Furthermore, government CDS spreads become an important determinant of banks’ CDS series. The interdependence of government and bank credit risk is heterogeneous across countries, but homogeneous within the same country.     

The return to retail and the performance of US banks

The US banking industry is experiencing a renewed focus on retail banking, a trend often attributed to the stability and profitability of retail activities. This paper examines the impact of banks’ retail intensity on performance from 1997 to 2004 by developing three complementary definitions of retail intensity (retail loan share, retail deposit share, and branches per dollar of assets) and comparing these measures with both equity market and accounting measures of performance. We find that an increased focus on retail banking across US banks is linked with significantly lower equity market and accounting returns for all banks, but lower volatility for only the largest banking companies. We conclude that retail banking may be a relatively stable activity, but it is also a low return one.