Insider Trading and Corporate Governance: The Case of Germany

We analyse transactions by corporate insiders in Germany. We find that insider trades are associated with significant abnormal returns. Insider trades that occur prior to an earnings announcement have a larger impact on prices. This result provides a rationale for the UK regulation that prohibits insiders from trading prior to earnings announcements. Both the ownership structure and the accounting standards used by the firm affect the magnitude of the price reaction. The position of the insider within the firm has no effect, which is inconsistent with the informational hierarchy hypothesis.     

The real effects of credit default swaps

We examine the effect of introducing credit default swaps (CDSs) on firm value. Our model allows for dynamic investment and financing, and bondholders can trade in the CDS market. The model incorporates both negative and positive effects of CDSs. CDS markets lead to more liquidations, but they also reduce the probability of costly debt renegotiation and reduce costly equity financing. After calibrating the model, we find that firm value increases by 2.9% on average with the introduction of a CDS market. Firms also invest more and increase leverage. The effect on firm value is strongest for small, financially constrained, and low productivity firms.     

ENTREPRENEURSHIP OVER THE LIFE CYCLE: WHERE ARE THE YOUNG ENTREPRENEURS?

Most individuals do not start a business and, if they do, they start well into their 30s. To explain these stylized facts, I estimate a dynamic Roy model with experience accumulation, risk aversion, and imperfect information about ability using the Panel Study of Income Dynamics. Information frictions and income risk reduce entrepreneurship by up to 40% and 35%, respectively. Entry costs and information frictions explain most of the delayed entry. Results from counterfactual policies targeting delayed entry suggest that entrepreneurship education can yield higher returns than subsidies. Fostering young entrepreneurship yields higher returns than fostering old entrepreneurship.     

Global financial cycle and Brazil’s financial integration

ABSTRACT

Recent studies have discussed the influence of the global financial cycle on capital flows to emerging and developing countries. This paper evaluates the relationship between the greater degree of financial integration, and macroeconomic performance over the last two decades in Brazil. The literature has highlighted the Brazilian experience as being paradigmatic among emerging countries regarding the relationship between financial integration and regulation of capital flows to deal with boom and bust cycles. Methodologically, we employ a vector autoregressive model with error correction that allows us to evaluate the cointegration between the variables. Our main hypothesis is that a greater degree of financial integration is associated with negative developments in variables such as gross domestic product, country risk, interest rates, and exchange rate volatility. In addition, this study presents a further contribution by observing the existence of the interaction between the consequences of financial integration and the global financial cycle. More specifically, we found that: (i) an increase in the degree of financial integration generates deeper effects in downward periods of the global financial cycle; and (ii) a decline in that cycle generates greater impacts when a higher degree of financial integration is present.     

Green Hydrogen in Europe: Do Strategies Meet Expectations?

Intereconomics - Against the backdrop of the EU’s more ambitious climate targets, the technology of green hydrogen production has gained increasing importance in national plans to implement...     

Learning to save in a voluntary pension system: toward an agent-based model

Mandatory pension systems partially replace old-age income, therefore the government matches additional life-cycle savings in a voluntary pension system. Though the individual saving decisions are apparently independent, the earmarked taxes (paid to finance the matching) connect them. Previous models either neglected the endogenous tax expenditures (e.g. Choi et al., in: Wise (ed) Perspectives in the economics of aging, University of Chicago Press, Chicago, pp 81–121, 2004) or assumed very sophisticated saving strategies (e.g. Fehr et al. in FinanzArchiv Pub Finance Anal 64:171–198, 2008). We create twin models: myopic workers learn (i) from farsighted workers using public information (analytic model) and (ii) also from each other (agent-based model). These models provide more realistic results on saving behavior and the impact of matching on the income redistribution than the earlier models.

     

Mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts’ forecasts

Drawing on a large sample of European firms, we examine whether variant compliance levels with mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets are value relevant and affect analysts’ forecasts. Our results indicate a mean (median) compliance level of about 84% (86%) but high variation among firms and disclosure levels regarding IAS 36 being much lower than those regarding IAS 38. In depth, analysis reveals that non-compliance relates mostly to proprietary information and information that reveals managers’ judgment and expectations. Furthermore, we find a positive (negative) relationship between average disclosure levels and market values (analysts’ forecast dispersion). Results, however, hold more specifically for disclosures related to IAS 36, and these also improve analysts’ forecast accuracy. Our findings add knowledge regarding the economic consequences of mandatory disclosures, have an appeal to regulators and financial statement preparers and reflect on the IASB’s concerns to increase the guidance and principles on presentation and disclosure.     

Zero-intelligence agents looking for a job

We study a simple agent-based model of a decentralized matching market game in which agents (workers or job seekers) make proposals to other agents (firms) in order to be matched to a position within the firm. The aggregate result of agents interactions can be summarised in the form of a Beveridge curve, which determines the relationship between unmatched agents, unemployed job seekers and vacancies in firms. We open the black box of matching technology, by modelling how agents behave (make proposals) according to their information perception. We observe more efficient results—in the form of a downward shift of the Beverage curve in the case of simple zero-intelligent agents. Our comparative statics indicate that market conditions, such as the heterogeneity of agents’ preferences, will also shift the Beveridge curve downwards. Moreover, market thickness affects movement along the Beverage curve. Movement right-down along the curve if there is an increasing number of agents compared to positions within firms. Furthermore, we show that frictions in re-matching, such as commitment to a match, could be another factor shifting the Beveridge curve toward the origin.