Capital budgeting, information timing, and the value of abandonment options

This paper investigates how an abandonment option influences the optimal timing of information in a sequential adverse selection capital budgeting model. While the divisional manager has imperfect private pre-contract information, headquarters can time whether the manager obtains perfect project information before (timely information) or after (delayed information) the contract is signed. In the absence of the abandonment option, headquarters favors timely (delayed) information if the investment costs are high (low). The presence of the abandonment option favors delayed information because under the timely information regime the value of the abandonment option is zero, whereas under the delayed information regime the value of the option is positive.     

Determinants of heterogeneity in European credit ratings

In this study, we empirically analyze the determinants of heterogeneity in rating assessments across different segments of the European loan market. We conduct a benchmarking analysis using rating information on European corporate obligors from nine major Austrian banks that have a large share of foreign lending, particularly in the Central and Eastern European region. We provide evidence that, generally, overall heterogeneity among rating outcomes for foreign markets is higher than for domestic markets. Furthermore, we show that heterogeneity increases in transition economies and those markets where Austrian bank involvement is relatively low. Our evidence supports the hypothesis that heterogeneity in the assessment of credit risk is determined not only by the objective quality of information, which is deemed to be lower in transition economies, but also by the subjective access to information about obligors measured by the level of domestic bank involvement in the respective foreign market. Furthermore, we quantify potential effects on regulatory capital requirements.     

Groβe Summe – groβes Problem? Warum die Debatte um die Target-Salden so hitzig ist

The rise of the Bundesbank’s target balance to about one billion euro has revived the debate among German economists about the interpretation and the risks associated with these balances for the German taxpayer and Germany as a whole. This paper explains why this debate is so heated by revealing that the opponents have sharply different views a) about the riskiness of assets purchased by the ECB when acting as a lender of last resort and by engaging in quantitative easing and b) about the risks for the German taxpayer and the economy if the ECB had not engaged in these activities.     

Going Multinational: What are the Effects on Home‐Market Performance?

Abstract. This paper compares the home‐market performance of German multinational enterprises (MNEs) and national firms, both before and after switching from national to multinational activities. Regarding the former case, our results show that future multinationals outperform domestic firms. When assessing the ex post performance of multinationals, selectivity issues must be taken into account. Applying an endogenous treatment model, it turns out that after switching, both productivity and wage growth are higher at newly founded MNEs. While capital intensities increase compared with those of national firms, employment growth rates are negatively related to switching, suggesting that home and foreign employment are substitutes.     

Competition,regulation, and broadband access to the internet

This paper reexamines the effect of the regulatory regime on both penetration and coverage of broadband access to the internet. The framework allows for an evaluation of policy initiatives, guidelines and measures to bridge the digital divide and to promote investment. A welfare analysis compares service-based with facilities-based competition and asks whether and how high-speed access to the internet should be subsidized. Using an approach similar to Valletti, Barros, and Hoernig (2002), the paper highlights the importance of population density for whether firms invest to provide internet access. The analysis reveals a trade-off between coverage and penetration.     

The effect of the interbank network structure on contagion and common shocks

This paper proposes a dynamic multi-agent model of a banking system with central bank. Banks optimize a portfolio of risky investments and riskless excess reserves according to their risk, return, and liquidity preferences. They are linked via interbank loans and face stochastic deposit supply. Comparing different interbank network structures, it is shown that money-centre networks are more stable than random networks. Evidence is provided that the central bank stabilizes interbank markets in the short run only. Systemic risk via contagion is compared with common shocks and it is shown that both forms of systemic risk require different optimal policy responses.     

Exchange rate pass-through and credit constraints

The macroeconomic evidence of the short-term impact of exchange rates on exports and prices is notoriously weak. This paper examines the microfoundations of this disconnect. I study the response of firms' export and price setting decisions to fluctuations in exchange rates and credit conditions using firm-level survey data. Financially constrained firms pass through exchange rate changes to prices at almost twice the rate of unconstrained firms. Similarly, their export volumes are about twice as sensitive to exchange rate fluctuations. The effect of borrowing constraints is particularly strong during the recent financial crisis.     

Forecasting metal prices: Do forecasters herd?

We analyze more than 20,000 forecasts of nine metal prices at four different forecast horizons. We document that forecasts are heterogeneous and report that anti-herding appears to be a source of this heterogeneity. Forecaster anti-herding reflects strategic interactions among forecasters that foster incentives to scatter forecasts around a consensus forecast.     

The impact of infrastructure and service-based competition on the deployment of next generation access networks: Recent evidence from the European member states

This work identifies the most important determinants of next generation access (NGA) network deployment, using data from the EU27 member states for the years 2005–2011. Our results indicate that the more service-based competition is pronounced the more negative is the impact on NGA deployment, while competitive pressure from broadband cable and mobile affects NGA deployment in an inverted U-shaped manner. We further find that there are severe adjustment costs and stickiness towards the desired long-term level of NGA infrastructure. It appears that the approach of the European Commission to force service-based competition via cost-based access regulation will not elicit the huge new investment needed for a comprehensive NGA roll-out.