Steindl on instability and stabilization policy

Steindl worked all of his life to intergrate the explanation of cycles and trends. In his most elaborate model, stochastic innovations trigger off a dynamic process among innovators and their competitors acting through multiplier distribution of income, accumulation of profit and utilization of capacities. History and institutions find ample room in this model and so stabilization policy becomes a complex process. Demand management appears secondary to income policy, competition policy, technology policy and to stabilization of expectations. Steindl refused to give direct policy advice, but indirectly the Austrian policy of Austrokeynesianism heavily learned from Steindl.     

What Do We Know about Success and Failure of Mergers?

Collecting the most important results of about 80 empirical merger studies, this study condenses the bewildering spectrum of results to 18 stylized facts. Most important, no more than a quarter of the mergers increase consumer welfare; another quarter increase profits at the cost of consumers; half of the mergers reduce the value of the firm. Targets' shareholders win, while bidders' shareholders break even upon the announcement of a merger, but lose significantly in the long run. Seen relatively, horizontal mergers fare best, especially if they are focus-increasing. Cash-financed mergers fare better than stock-financed and strategic mergers fare better than financial ones. Confronting the stylized facts with existing merger theory reveals some major paradoxes; confronting them with existing competition policy reveals the need for a modification and intensification, as mergers increase concentration, and corporate policy strives towards still higher concentration. As a summary ten lessons are extracted on what we may have learnt, and on what is still open.     

Hedge-Fonds: Risiken für die internationalen Finanzmärkte?

Die Ungleichgewichte auf den internationalen Finanzm?rkten werden von den Finanzministern und Notenbankchefs der Industriel?nder mit zunehmendem Unbehagen betrachtet. In Hinblick auf Hedge-Fonds soll bis zum G-8-Gipfel im Juni dieses Jahres ein Verhaltenskodex erarbeitet werden. Inwieweit k?nnen Hedge-Fonds zur Instabilit?t der Finanzm?rkte beitragen? Welche Strategien zur Krisenvermeidung sollten verfolgt werden? Welche Institutionen sollten aktiv werden? Die Autoren unseres Zeitgespr?chs: Prof. Dr. Ralf-M. Marquardt, 45, lehrt Volkswirtschaftslehre und quantitative Methoden an der FH-Gelsenkirchen, Abteilung Recklinghausen. Prof. Dr. Carsten Hefeker, 43, lehrt Volkswirtschaftslehre, insbesondere Europ?ische Wirtschaftspolitik an der Universit?t Siegen. Prof. Dr. Gunther Schnabl, 40, ist Direktor des Instituts für Wirtschaftspolitik an der Universit?t Leipzig; Andreas Hoffmann, 26, Dipl.-Volkswirt, ist dort wissenschaftlicher Mitarbeiter.     

Reply to Professor Yongding Yu

We are indebted to Professor Yu for his careful reading of our paper, and are pleased that he sympathizes with our argument that controls on purely financial capital inflows should not be relaxed so long as world interest rates remain unduly low. We agree that direct ＂real＂ investments into, and increasingly out of, China＇s economy need not be limited. These direct investment flows are now more or less balanced, without threatening a loss of monetary control by the People＇s Bank of China （PBC）.     

China's Exchange Rate and International Adjustment in Wages, Prices and Interest Rates: Japan Deja Vu?

China's fixed its exchange rate at 8.28 yuan to the dollar from1994 to July 2005, and has only allowed for a small appreciationsince then. China's productivity growth has been very high relativeto most other countries: its trade surplus has been rising andit continues to accumulate large dollar exchange reserves. Manyobservers, including high officials in the US government, takethis as per se evidence that the renminbi is undervalued. Tobalance China's international competitiveness and reduce itstrade surplus, they want the renminbi to appreciate much more.This common presumption of renminbi undervaluation is wrong,and its appreciation need not reduce China's trade surplus butwould cause serious deflation in China. To show this, we considerinternational adjustment between China and the US from bothan asset market and a labor market perspective, and comparethis to Japan's unsuccessful appreciation of the yen from 1971to 1995. During a time of economic catch-up and rapid financialtransformation, fixing the exchange rate is the preferred wayof anchoring the domestic price level. (JEL codes: F15, F31,F33)     

IS THE CAPITAL STRUCTURE LOGIC OF CORPORATE FINANCE APPLICABLE TO INSURERS? REVIEW AND ANALYSIS

Since the financial crisis of 2008, next to banks, insurers have received increasing attention from researchers and regulators because of their crucial role in the financial system. A key point for a stable insurer is its capital structure, i.e. the choice between equity, debt and provisions in financing its operations. Based on earlier work a quickly developing literature has directly applied capital structure theories (in particular trade-off and pecking order) from corporate finance to insurers’ financing choices. Corporate finance concepts used herein however, are developed for industrial firms. In this paper we provide an overview of the literature on the capital structure of insurers, but contribute by systematically clarifying how to account for the specificities of insurers when transferring the trade-off and pecking-order logic from an industrial to an insurer context. This way, we add several new insights on an insurer's choice between equity, financial debt and provisions. In particular, we are able to explain why, as compared to industrial firms, insurers use less financial debt, and why insurers focus so strongly on self-financing. Finally, we identify multiple avenues for future research.     

What Do We Know about Success and Failure of Mergers?—Rejoinder

Responding to the comments of Coscelli, Lyons and Weston, I argue: (1) The aim of my paper was not primarily to discuss recent competition policy, but to extract stylized facts and compare them to theory; (2) utilizing all empirical merger studies published in refereed journals, instead of only the sound ones, does not appear to influence the results; (3) economies to scale—and consequently endogenous merger motives—are of less importance for mergers dealt with by the competition authorities; (4) a post-merger number of competitors of less than four to five steeply raises the likelihood of tacit collusion and conscious parallelism; (5) concentration is already high and still increasing in quite a number of markets; (6) mergers in network sectors are more dangerous than in manufacturing, as the number of potential competitors is small in most cases; (7) I agree with my critics that strictly banning the critical categories of mergers may be too harsh; I still hold, however, that competition authorities should take account of these critical types in a more formal way (e.g. by merger rules).