Cross-Border Bank Acquisitions: Is there a Performance Effect?

This paper uses a unique database that includes deal and bank balance sheet information for 220 cross-border acquisitions between 1996 and 2003 to analyze the characteristics and performance effects of international takeovers on target banks. A discrete choice estimation shows that banks are more likely to get acquired in a cross-border deal if they are large, bad performers, in a small country, and when the banking sector is concentrated. Post-acquisition performance for target banks does not improve in the first 2 years relative to domestically-owned financial institutions. This result is explained by a decrease in the banks’ net interest margin in developed countries and an increase in overhead costs in emerging economies.     

Have IFRS Affected Earnings Management in the European Union?

There has recently been considerable discussion of those features of IFRS that are likely to help improve financial reporting in the European Union. However, certain issues may also have a negative impact on the quality of information. This paper focuses on the effect of IFRS on earnings management. Its main purpose is to examine whether the adoption of IFRS in the European Union has increased or decreased the scope for discretionary accounting practices by comparing discretionary accruals in the periods preceding and immediately after the regulatory change. Another objective is to determine which firms' features and country factors may explain the accounting discretion observed before and after IFRS. We consider a sample of non-financial firms listed on 11 EU stock markets. The results obtained show that earnings management has intensified since the adoption of IFRS in Europe, as discretionary accruals have increased in the period following implementation. The variables explaining accounting discretion are the same before and after IFRS (business size, leverage, investor protection and legal enforcement). These results suggest that variations in earnings management might be due to some room for manipulation under international standards when compared with local standards.     

Corporation taxes in the European Union: Slowly moving toward comprehensive business income taxation?

This paper surveys and evaluates the corporation tax systems of the Member States of the European Union on the basis of a comprehensive taxonomy of actual and potential regimes, which have as their base either profits; profits, interest and royalties; or economic rents. The current regimes give rise to various instate and interstate spillovers, which violate the basic tenets—neutrality and subsidiarity—of the single market. The trade-offs between the implications of these tenets—harmonization and diversity, respectively—can be reconciled by a bottom-up strategy of strengthening source-based taxation and narrowing differences in tax rates. The strategy starts with dual income taxation, proceeds with final source withholding taxes and rate coordination, and is made complete by comprehensive business income taxation. Common base and cash flow taxation are not favored.     

Bank ownership and efficiency in China: What will happen in the world’s largest nation?

China is reforming its banking system, partially privatizing and taking on minority foreign ownership of three of its dominant “Big Four” state-owned banks. This paper helps predict the effects by analyzing the efficiency of Chinese banks over 1994–2003. Findings suggest that Big Four banks are by far the least efficient; foreign banks are most efficient; and minority foreign ownership is associated with significantly improved efficiency. We present corroborating robustness checks and offer several credible mechanisms through which minority foreign owners may increase Chinese bank efficiency. These findings suggest that minority foreign ownership of the Big Four will likely improve performance significantly.     

Regional growth and finance in Europe: Is there a quality effect of bank efficiency?

In this study, we test whether regional growth in 11 European countries depends on financial development and suggest the use of cost- and profit-efficiency estimates as quality measures of financial institutions. Contrary to the usual quantitative proxies of financial development, the quality of financial institutions is measured in this study as the relative ability of banks to intermediate funds. An improvement in bank efficiency spurs five times more regional growth then an identical increase in credit does. More credit provided by efficient banks exerts an independent growth effect in addition to direct quantity and quality channel effects.     

The European Union preventive restructuring framework: A hole in one?

While traditionally (Continental) Europe has not been known for an in particular debtor‐ or restructuring‐friendly insolvency practice, in recent decades, important reforms were implemented that would foster restructurings in Europe. In this article, we comparatively look a the status quo of insolvency and restructuring practice in five different European countries (Denmark, France, Germany, Netherlands, UK). We place our observations into the context of the preventive restructuring directive, to be implemented within the next two years after its publication on 26 June 2019. The directive leaves quite some room implementation, from a watered‐down restructuring tool with high access threshold to a pre‐insolvency debtor‐friendly US‐style restructuring procedure.     

Why are there time-varying comovements in the European stock market?

This paper analyzes the dynamics of pair comovements between different domestic European stock market returns (Spain, France, Germany, Switzerland and the United Kingdom) seeking to check whether there is a unique source of risk driving those dynamics. Once it is shown that the comovements are time-varying, the question is to find whether a global index such as the Euro Stoxx can be considered the main source of risk. To that end we estimate and test for time-varying global pair covariances and for time-varying remaining pair covariances once the effect of the Euro Stoxx is removed. The empirical results are obtained considering locally stationary variables, a family that includes variables with first and second time-varying moments. Under that framework time-varying means and covariances can be estimated using a spline-based procedure and Wald-type statistics can be computed to test for time-variations. A simulation study shows that the role of the mean estimation part is crucial to the good performance of the tests for second moments. The empirical results evidence that all global pair covariances for the European countries analyzed are time-varying, but also that the Euro Stoxx can be considered as the driving source of risk for these time-varying dynamics. This conclusion is very useful for modeling purpose and financial strategies. Finally, we repeat the analysis considering the Nasdaq as an alternative global index and find that it explains only a small part of the dynamics in the European pair comovements.     

Competition versus efficiency: What drives franchise values in European banking?

This paper investigates how stock market investors perceive the impact of market structure and efficiency on the long-run performance potential of European banks. To that end, a modified Tobin’s Q ratio is introduced as a measure of bank franchise value. This measure is applied to discriminate between the market structure and efficient-structure hypotheses in a coherent forward-looking framework, in which differences in banks’ horizontal and vertical differentiation strategies are controlled for. The results show that banks with better management or production technologies possess a long-run competitive advantage. In addition, bank market concentration does not affect all banks equally. Only the banks with a large market share in a concentrated market are able to generate non-competitive rents. The paper further documents that the forward-looking, long-run perspective and the noise-adjustment of the performance measure overcome most of the drawbacks associated with testing these hypotheses in a multi-country set-up. Finally, notwithstanding the international expansion of bank activities, the harmonization of regulation and the macroeconomic convergence in the European Union (EU15), we still find that country-specific macroeconomic variables have a significant impact on bank performance. The findings indicate that there is a trade-off between competition and stability that should be taken into account when assessing mergers or acquisitions.     

Central government accounting harmonization in EU member states: will EPSAS be enough?

A highly controversial topic in the EU is the need for harmonized accrual-based standards to improve the quality of public accounts and reduce differences (adjustments) between the micro-(governmental accounting) and macro- (national accounting) levels. This paper shows that a set of high-quality accounting standards, like the future EPSAS, are not going to be sufficient to overcome the present lack of harmonization. The authors explain why this is the case having researched accounting data from 28 EU member states.     

Bank efficiency and foreign ownership: Do good institutions matter?

This paper contributes to the literature on foreign ownership and bank efficiency by examining whether the efficiency of foreign banks depends on the institutional quality of the host country and on institutional differences between the home and host country. Using stochastic frontier analysis for a sample of 2095 commercial banks in 105 countries for the years 1998–2003, we find that foreign ownership negatively affects bank efficiency. However, in countries with good governance this negative effect is less pronounced. We also find that higher quality of the institutions in the home country and higher similarity between home and host country institutional quality reduce foreign bank inefficiency.     

Is Foreign Exchange Risk Priced in Bank Loan Spreads?

Review of Quantitative Finance and Accounting - This study investigates the effects of foreign exchange (FX) exposure on bank loan spreads. Private bank loans are a major form of corporate...     

Is there an Olympic gold medal rush in the stock market?

Investor sentiment and attention are often linked to the same non-economic events making it difficult to understand why and how asset prices are affected. We disentangle these two potential drivers of investment behaviour by analysing a new data-set of medals for the major participating countries and sponsor firms over four Summer Olympic Games. Our results show that trading volume and volatility are substantially reduced following Olympic success although returns appear to be largely unaffected. Analysis of data from online search volumes and surveys measuring investor sentiment also suggests that the market impact of the Olympics is linked to changes in attention.     

Is there price discovery in equity options?

We use tick-by-tick quote data for 39 liquid US stocks and options on them, and we focus on events when the two markets disagree about the stock price in the sense that the option-implied stock price obtained from the put-call parity relation is inconsistent with the actual stock price. Option market quotes adjust to eliminate the disagreement, while the stock market quotes behave normally, as if there were no disagreement. The disagreement events are typically precipitated by stock price movements and display signed option volume in the direction that tends to eliminate the disagreements. These results show that option price quotes do not contain economically significant information about future stock prices beyond what is already reflected in current stock prices, i.e., no economically significant price discovery occurs in the option market. We also find no option market price discovery using a much larger sample of disagreement events based on a weaker definition of a disagreement, which verifies that the findings for the primary sample are not due to unusual or unrepresentative market behavior during the put-call parity violations.     

Is the European Capital Market Ready for the Single Currency?

This paper defines, and investigates the extent of, capital market integration in the European Ecu government bond market sector utilising Johansen's (1992) multivariate analysis. Evidence suggests the yield system is driven by a unique common trend, although we reject the zero-sum restriction on the cointegrating vector. The former finding is consistent with our definition of full Ecu capital market integration, the latter is not, although it is explainable by failure of the expectations hypothesis. Our results support market utilisation of the extant Ecu yield curve as the initial benchmark for pricing euro-denominated debt securities following stage III EMU.     

Shaping sustainability: Is there an unreleased potential in utopian thought?

This article develops from the argument that sustainable development primarily will be restricted to rhetorical discourse if the utopian dimension of politics and planning is neglected. I will firstly discuss what is typical for utopian thought in general as well as its potential role in politics and planning. Secondly, I will briefly explore of the contemporary politics of sustainable development with the focus on its utopian dimensions, and thirdly, I will also comment on the different kinds and forms of utopian thought that should be relevant for sustainability projects on different levels. My conclusions are that the utopian language is flourishing in many of the discourses on sustainable development, especially in comparison to other fields of politics, but that the role of utopian thought in this area needs to be reflected on and more thoroughly recognized in the practical endeavors taken in this area.     

Deferred Shareholder Taxation – Implementing a Neutral Business Tax in the European Union

This paper proposes the replacement of the corporate income tax by shareholder-based capital income taxation. Our proposal would guarantee investment neutrality of taxation and reduced tax compliance costs. The proposal is based on the S-base cash flow tax. Under the S-base tax, transactions within the corporate sector are not taxable and only transactions between shareholders and corporations are subject to tax. In contrast to existing S-base cash flow tax systems, tax deductibility of investments is deferred. Rather, the acquisition costs and capital endowments are compounded at the capital market rate and are set off against future capital gains. Dividends and withdrawals are fully taxable at the shareholder level. Because of the deferral of the tax payments our proposal is called ‘Deferred Shareholder Tax’ (DST). The DST exhibits the same neutrality properties as the traditional cash flow tax. Moreover, the compounded inter-temporal credit method ensures that it is neutral with respect to the decision between domestic and foreign investment. To increase acceptance of the DST, current taxpayers’ documentation requirements will be reduced rather than extended. Our proposal could be realised in a single EU country or in all member states of the EU.     

Is there a postnormal time? From the illusion of normality to the design for a new normality

Ziauddin Sardar's characterization of ‘postnormal times’ elegantly captures the mood of despair, uncertainty and insecurity in the West due to the multiple shocks of terrorism, economic recession and climate change. However, the prevailing mood in India, most of Asia and developing countries in general is confidence and optimism for the future. The label ‘postnormal times’ is inappropriate for resurgent Asia and other ‘emerging markets’. Similarly, these countries - as illustrated by examples from India - need more modernization and efficiency to save and improve the lives of their citizens. This paper argues that the seeming normality of twentieth century in the West was an illusion arising out of the ignorance and neglect of environmental and health consequences of unbridled industrial growth. The distorted assumptions of neoclassical economics are largely to blame for this. It is now time to pay back for those excesses. A new normality will emerge only by addressing these distortions and by creating democratic global institutions that can reflect the changed global balance of power of the 21st century. The intellectuals, opinion-makers and leaders of the world have to exercise their ethical responsibility and creative imagination to enable this new normality to emerge.     

The measurement of harmonization in the form and content of the auditor’s report in the European Union

This study attempts to determine the degree of harmonization in the form and content of the auditor’s report in the European Union. To accomplish this goal, audit reports from 1995 annual reports of the largest industrial companies in Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden and the United Kingdom are analyzed. The analysis uses the basic elements of the auditor’s report listed in the International Standard on Auditing, “The Auditor’s Report on Financial Statements” as the control. Comparability is tested using the chi-square statistic which tests for equality of the proportions of the various elements in the auditor’s report across the Member States. The results reveal that harmonization exists in three of the five elements in the auditor report relating to form (appropriate title, the dating of the report and the listing of the location of the auditor’s office). Harmonization does not exist for the remaining two elements related to form, nor does it exist for any of elements related to content.