Institut für Financial Management

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A behavioral finance approach to explain the price momentum effect
(2009) Prothmann, Felix; Burghof, Hans-Peter
The research topic of my thesis is the stock price momentum effect which states that stocks with high returns over the past 3 to 12 months continue to outperform stocks with a poor past performance within the next 3 to 12 months. My work is structured into three main parts. The first one gives an overview about the present stand of the literature. It becomes clear that the profitability of momentum strategies is documented in many studies, for different samples and for different periods. In the search for an explanation for the profitability of momentum strategies, the literature has not come to a consensus: One the one hand, according to the rational-based approach,momentum profits represent a compensation for risk and is consistent with the EMH. On the other hand, the behavioral finance theories attempts to explain the existence of the momentum effect with a non-rational behavior of at least some investors. The second and the third part of my thesis are closely linked and examine the behavioralexplanation approach that stock price momentum can be explained by the anchoring bias ? a specific form of non-rational behavior. It states that investors orientate too much on a reference point when forming estimates. This idea goes back to George and Hwang (2004) documenting that the momentum effect can be explained by profits to the 52-week high strategy, which itself is assumed to be driven by the anchoring bias. Based on this theory, the null hypothesis of both parts of my thesis states: Stock price momentum cannot be explained by anchoring. This investigation supports anchoring as the explanation of the momentum effect.
A computational study on the effects of the organizational structures on the risk of different types of banking groups
(2023) Jamshidisafari, Saeed; Burghof, Hans-Peter
In this dissertation, two theoretical models are used to compare centralized and decentralized banking structures. In the first approach, the problem for both banks is to choose an expansive or restrictive credit policy without having complete knowledge of the state of the overall and local economies. Observing and appraising verifiable information (hard information) is the benefit of the centralized banks, whereas considering unverifiable information (soft information) about the local economies, so-called soft signals, is the important asset of the decentralized banks. To compare two banking systems, the risk-return trade-off method is used to determine which type of banking system might have better performance. Although the overestimation of the local economy may have a negative impact, this soft signal has a quite positive impact on risk measures in general. As a result, decentralized bank managers are better at detecting bad loans in their banks. In addition, because small banks have less bureaucracy, the borrower can obtain credit more effortlessly and swiftly. In the second approach, a theoretical bank run model based on Chari and Jagannathan (1988) is developed by implementing a cheap talk game to compare banking structures during bank shocks when managers communicate strategically with depositors to prevent non-efficient bank runs. These two banks behaved considerably differently in the local economy, and this issue is directly tied to regional culture. The limitation of punishment in the legal system incentivizes the management system in centralized banks at some point to be cunning. Consequently, based on the modified model, the higher the punishment or the lower the salary, the less likely the manager is to be persuaded to lie. On the other hand, in small banks, trust and soft information between bank management and depositors protect inefficient bank runs. A decentralized banking system can improve the financial systems credibility by mitigating undesirable shocks during times of crisis. Hence, having decentralized banks in the banking structure increases the depositors’ welfare.
An empirical analysis of residual value risk in automotive lease contracts
(2011) Nau, Katharina; Burghof, Hans-Peter
The work at hand concentrates on the risk structure of lease contracts and therefore aims to give insights and support to the risk management of lease firms. The focus lies on a special and highly important type of risk in such contracts named residual value risk describing the risk arising from deviations of the actual residual value at maturity stage of the contract from the estimated one fixed in the contract at its completion. My analysis deals with automobile leases covering the major share of this market. The main objective of this work is the analysis of two research question: 1.) What determines residual values? 2.) How can residual values be predicted? On the one hand, a minimum level of predictability is necessary to manage residual value risk. That is why an identification of determinants of residual values is extremely important. The possibility to link fluctuations in residual values to changes in explanatory variables allows one to trace the pattern of residual values based on the pattern of the identified risk factors. On the other hand, residual values are not known in advance but needed at the completion of the lease contract. This is why residual values have to be predicted. These questions are assessed by an empirical analysis using the ARIMAX regression methodology. The analysis uses a sample covering monthly residual values of 17 cars in the German automobile market for the observation period from June 1992 to December 2008. The determinants of the residual values describe the market environment of used cars. Those can be classified into three man categories. The first one illustrates the overall economic situation, the second one describes the situation in the new and used car market and the third one specifies a certain car model in more detail. The empirical results give evidence that the chosen factors influence the residual values of cars. Moreover, those determinants lead to very accurate predicted residual values showing a high forecast ability. Furthermore, the empirical results and considerations are used to conduct a theoretical analysis in order to derive implications for the residual value risk management. The valuation model of McConnell and Schallheim (1983) is used on the one hand to quantify the impact of fluctuations in the underlying factors on the lease rate and, on the other hand, to analyse the effects of misspecifications in an underlying market factor on the lease rate and the value of the lease contract. These theoretical considerations give insights and support to improve the risk management of residual values in lease contracts.
Anreizsysteme für Investitionen während der Regulierungsperiode
(2012) Romer, Andrea
Durch die von der Bundesregierung beschlossene Energiewende entsteht in den nächsten Jahren ein erheblicher Um- und Ausbaubedarf der Energienetze. Der gegenwärtige Regulierungsrahmen, mit dem Ziel eines effizienteren Betriebs bestehender Netze, setzt dabei keine Anreize für steigende Investitionen. Diese sind jedoch für die Umsetzung der Energiewende unabdingbar. Der folgende Beitrag analysiert die aktuell vorhandenen Instrumente zur Förderung der Investitionstätigkeit gemäß der Anreizregulierungsverordnung (Erweiterungsfaktor, Pauschalierter Investitionszuschlag und Investitionsbudget) und stellt weitere optionale Konzepte zur Verbesserung der Investitionsbedingungen während der Regulierungsperiode vor.
Besteuerung von Real Estate Investment Trusts (REITs): betriebswirtschaftliche und rechtliche Analyse des Gesetzes zur Schaffung deutscher Immobilien-Aktiengesellschaften mit börsennotierten Anteilen
(2012) Claßen, Robert; Kahle, Holger
In 2007 Germany created a statutory framework for Real Estate Investment Trusts (REITs). With the German REIT, the legislator intended to provide a tradable real estate investment instrument which meets international standards. This thesis examines the extent to which deficits in the existing legislation exist. For investors these deficits could result in positive or negative effects. However, there is need for further legislation if German REITs should comply with recognized economical and legal requirements. The analysis focus of this paper is the taxation of REITs from the perspective of a national and international investor. Moreover, the issue of practical relevance is adressed why German REITs previously did not become accepted in the international markets.
Bonitätsbeurteilung von Krankenhäusern
(2013) Rausendorf, Manja; Hachmeister, Dirk
The current basic conditions require a adjustment in the investment financing of hospitals and put with it the hospitals as well as the potential sponsors before new challenges. The thesis offers to all partners, if these are banks, investors, appropriations authorities, supervisors or the hospitals,industry-sector-specific Benchmarks for the credit rating. Besides, the ratio of the traditional financial statement analysis are modified first and extended, reference values of well-chosen quantitative and qualitative ratios calculated and analysed. In addition, hypotheses are examined to the investment delay in hospitals and to sign stamping specific for country by finance-economic and successful-economic identification ratio and their correlations. The interested reader has to select the possibility the sector-specific Benchmarks for the credit Rating of hospitals according to the individual needs, to complement and to continue.
Cashflow Hedge Accounting bei Fremdwährungssicherungen: Inwieweit erreicht das IASB die Zielsetzung das ökonomische Risikomanagement mit IFRS 9 besser abzubilden?
Ausgewählte Fragestellungen und Analyse der Offenlegungspflichten gemäß IFRS 7 deutscher börsennotierter Industrieunternehmen
(2024) Ritz, Meryem; Hachmeister, Dirk
Diese Dissertation untersucht, ob IFRS 9 das ökonomische Risikomanagement, insbesondere das Cashflow Hedge Accounting für Fremdwährungsrisiken, verbessert. Anhand von drei Praxisfällen, einer Analyse der Geschäftsberichte deutscher DAX-Unternehmen (2019–2021) und Experteninterviews wird bewertet, ob IFRS 9 die Bilanzierung vereinfacht und nützlichere Informationen gemäß IFRS 7 liefert. Die Ergebnisse zeigen, dass IFRS 9 eine genauere Abbildung von Sicherungsbeziehungen ermöglicht und die Bilanzierungspraxis im Vergleich zu IAS 39 verbessert. Herausforderungen bestehen jedoch weiterhin in der Komplexität der Anwendung, insbesondere im langfristigen Projektgeschäft und bei den Offenlegungspflichten gemäß IFRS 7. Eine Umfrage unter deutschen Treasury-Experten bestätigt, dass IFRS 9 das Risikomanagement besser darstellt, das Hedging-Verhalten jedoch nur gering beeinflusst. Insgesamt erreicht IFRS 9 eine bessere Übereinstimmung zwischen Risikomanagement und Bilanzierung, jedoch bleiben Vereinfachungen bei den Offenlegungspflichten notwendig.
Corporate cash holdings – new empirical evidence in the context of uncertainty, monetary policy, technology intensity and credit ratings
(2024) Duran-Rickenberg, Duygu; Hachmeister, Dirk
In search of understanding the drivers behind corporate cash holdings, plenty of research has been conducted around the determinants of cash holdings leading to somewhat differing, non-exclusive explanations of holding cash. Our thesis focuses on two facts, namely the significant increase of corporate cash holdings and the close relatedness of cash hoardings to a firm’s financing choices. Both facts contributed to the impressive increase in academic attention towards U.S. corporate cash holdings in the last decade, especially after the financial crisis. Despite several approaches to explain the puzzle around elevated cash holdings, the literature is still unable to explain the increase in cash holdings completely. Therefore, in three empirical papers we closely investigate into the determinants of cash holdings and its closely related measure of refinancing risk, proxied as debt maturity, in the context of macroeconomics in search of further determining factors to find additional puzzle pieces that explain cash holdings to a fuller extent. In chapter 1 we give a short introduction and problem statement around these puzzling high levels of cash holdings at non-financial U.S. corporates with a guidance through the empirical analyses done in chapters 2 to 4. In chapter 2 we receive further insights into the puzzling increase of cash holdings over the last decades employing U.S. data for non-financial firms for the period 1980 to 2019 and post financial crisis 2009 to 2019 and using a simultaneous equation model of cash, keeping debt maturity as proxy for refinancing risk endogenous, and incorporating monetary supply and economic policy uncertainty into the model. We find that refinancing risk, and economic policy uncertainty impact cash holdings positively in the full sample, whereas an increase in money supply has a negative effect on cash holdings. The refinancing risk effect on cash holdings becomes more pronounced post financial period and our data imply that monetary supply after the financial crisis has an overarching effect over uncertainty, rendering the impact of uncertainty insignificant. In chapter 3, using an updated OECD technology taxonomy proposal based on ISIC Rev. 4 for the period 1980 to 2019 and post financial crisis 2009 to 2019 for U.S. non-financial firms, we cluster our firm data into high, medium-high, medium, medium-low and low technology. By including technology dummies into the simultaneous equation model of cash, keeping debt maturity as proxy for refinancing risk endogenous, we receive further insights into the recent drivers of high cash levels in the U.S. We find that high tech firms drive cash holdings dramatically and that they come with higher refinancing risk. Due to a shift in our data towards higher technology over the years this effect of high tech becomes more prominent. Post financial crisis, being a high tech firm has an even more pronounced effect on cash holdings. We find that higher tech firms operate in a different way than lower tech firms with regards to their capital structure choices. Compared to lower tech, higher tech firms have less total debt and tend to have short-term debt if they hold debt at all. In chapter 4, using U.S. data for non-financial firms as well as S&P long-term issuer rating data for the period 1985 to 2016, we receive further insights into the determinants of cash holdings by including rating grade or availability of it into our cash model. We use a simultaneous equation model of cash, keeping debt maturity as proxy for refinancing risk endogenous, and incorporating monetary supply and economic policy uncertainty into the model. We find that rated and unrated firms differ in firm characteristics. Rated firms tend to be older, larger, more profitable, have more leverage ratio and debt that matures in more than five years. The differences in firm characteristics between rated and unrated firms in turn affect the magnitude and significance of cash determinants. Additionally, we find that higher tech firms are underrepresented among rated firms and if they do have a rating, they belong to the investment grade group. We conclude that unrated, higher technology firms are the major drivers of high cash holdings, although we find that having a credit rating increases firm cash holdings ceteris paribus. In chapter 5 we conclude by summarizing our findings and contributions to research.
Corporate financing choices
new ideas and revisited common themes
(2011) Michelsen, Marc; Hachmeister, Dirk
Observed industry-specific leverage ratios in and across financial systems imply the relevance of capital market imperfections. This severely questions the validity of the irrelevance of capital structure decisions for firm value. Moreover, survey studies of CFOs suggest that managers have some target debt ratio or range, which also refutes the irrelevance of capital structure. The number of studies on capital structure is enormous, but to date no universal theory has been formulated for capital structure. It has even been argued that there might not be any reason to expect a universal theory of capital structure. Instead, different theories apply to firms under different circumstances. For that reason, this dissertation on empirical capital structure research aims to discuss and investigate two specific ?firm circumstances? that influence corporate financing choices and seem promising for future research. First, I investigate a determinant of capital structure that has so far received little attention in literature ? credit ratings by the external agencies Standard & Poor?s and Moody?s. Rating agencies play an eminent role in today?s capital markets. It is likely that firms under the scrutiny of such strong external supervisors may follow a different leverage policy to non-rated firms. However, rating agencies? renowned importance is so far not reflected in the capital structure research. Therefore, I thoroughly investigate the financing choices of externally rated firms for managers? rating considerations. Chapter 2 shows that managers follow a more conservative leverage policy if their firm?s credit rating is about to be upgraded or downgraded. While retained earnings are cross-sectional the dominant source of funding, the economics of security offerings has generated considerable empirical research interest over the past two decades. Survey evidence and stock price dynamics around seasoned equity offerings indicate that managers exploit temporary overvaluations of the firm?s stock and therefore time the equity offering. These efforts are possible because of the information asymmetry between managers and investors and the associated incentives for managers to exploit this informational advantage. Externally rated firms, on the other hand, reduce adverse selection problems with the information gathering process of the rating agencies. Therefore, it is questionable if the market timing hypothesis still holds for externally rated firms? seasoned equity offerings. The results of Chapter 3 imply that rating concerns are an important consideration for equity issuing firms. As a second ?firm circumstance? that may alter the composition of the balance sheet, I examine managers? weighting of public versus private equity in the decision to opt out of the public markets and go private. Such a public-to-private transaction (PTP) is an important step in the corporate life cycle, and modifies the capital structure of the firm significantly. However, consensus has not been reached in the literature on the underlying motives, and accordingly the relevant financial theories. Therefore, in Chapter 3 I investigate the characteristics of German firms that opted out of the public equity markets. Studying the public-to-private decision in Germany is of particular interest, because Germany can still be regarded as a prime example of an insider-controlled and relationship-based financial system. Therefore, the transferability of findings from Anglo-Saxon countries is difficult, as the structure of the financial and legal system is known to have a strong influence on corporate decisions. On the whole, I find no evidence of the free cash flow problem in the German corporate governance system. In respect of the respective PTP companies, the PTP phenomenon can be accounted for by a changing corporate life cycle status and a malfunctioning of the public capital markets.
Corporate risk management
new empirical evidence from foreign exchange and interest rate risk
(2019) Hecht, Andreas; Hachmeister, Dirk
Contemporary corporate risk management with its diverse facets and categories commonly involves the usage of derivative instruments. Most of the relevant empirical literature originates from commodity risk management, even though the most important risk categories in terms of derivative usage are foreign exchange (FX) and interest rate (IR) risk. Empirical evidence in these areas is rare and often relies on alternative indicators of derivative usage due to a limited availability of adequate data. We close this gap in the literature and introduce two innovative and hand-collected datasets – one for FX and one for IR risk – from the unexplored regulatory environment in France. Based on an unprecedented data granularity with advanced exposure and derivative usage information, we examine the preeminent topics on the relevance and the determinants (together with the identification) of speculative activities in corporate FX and IR risk management in three empirical papers. Chapter 2 “How do Firms Manage Their Foreign Exchange Exposure?” concentrates on how firms use derivative transactions to handle their FX risk. Regarding the composition of FX exposure, we find the exposure before hedging to be predominantly long, i.e., driven by FX-receivables and forecasted FX-sales, which is on average [median] hedged to about 90 [49] percent with mostly short derivative instruments. Regarding the relevance of speculative elements, we evaluate whether firms decrease, increase or keep their FX exposure stable with derivative instruments and find that about 61 percent of the taken currency positions can be classified as risk-decreasing and about 39 percent as risk-increasing/risk-constant. Instead of solely evaluating the number of occurrences, we further relate the exposure before hedging per currency position to overall firm exposure and find that approximately 80 percent of total FX exposure are managed using risk-decreasing strategies and 20 percent of total firm exposure are managed using risk-increasing/-constant strategies. We further address the documented impact of prior outcomes on hedging decisions with the informational advantage of our FX dataset. We use regression analyses to find supportive evidence that in response to benchmark losses, management hedges significantly more of its exposure and adjusts the hedge ratio closer to its benchmark. In addition, we analyze whether the impact of prior hedging outcomes is subject to the choice of risk-decreasing vs. risk-increasing strategies. With our finding that previous benchmark losses are only considered in risk-increasing strategies, where the exposure is again decreased following prior benchmark losses, but not in risk-decreasing strategies, we complement the growing literature on the relevance of prior hedging outcomes. In chapter 3 “Identifying Corporate Speculation Reading Public Disclosures – Why Firms Increase Risk“, we first examine whether the advanced disclosures in FX risk management of our dataset enable the identification of speculation reading openly available corporate publications. For the first time, the detailed information on FX exposures before and after hedging with corresponding hedged amounts allows for the calculation of firm-, currency-, and year-specific hedge ratios to quantitatively identify speculation as activity that increases or keeps currency-specific FX exposure constant reading public corporate disclosures. Further, we examine the determining factors of speculative activities and find through regression analyses that frequent speculators are smaller, possess more growth opportunities and have lower internal resources. While several theories for speculative behavior have been tested empirically several times, our findings indicate unprecedented empirical evidence for the convexity theories in an FX environment. Chapter 4 “How Do Firms Manage Their Interest Rate Exposure?” is dedicated to corporate interest rate risk management and how firms manage the IR risk with the differing subcategories of cash flow and fair value risk. Similar to FX risk, we evaluate the relevance and determinants of speculation in IR risk management. We observe that speculative elements are more pronounced in IR compared to FX risk management when finding that 63 percent of IR firm exposure are managed using risk-decreasing strategies, whereas 37 percent are managed using risk-increasing/-constant strategies. Contrary to the results in the FX setting, we observe frequent IR-speculators to have less growth opportunities and higher short- and long-term liquidity. We finally combine the FX and IR dataset to examine potential interactions. We find that firms seem to specialize in either FX or IR speculation and that the exposure of frequent speculators is significantly smaller for both risk categories.
Empirical essays on acquisitions
(2017) Kolb, Johannes; Tykvová, Tereza
ACQUISITIONS are among the most studied areas in corporate finance research. Still, many questions about acquisitions are unanswered and regularly debated in the literature. One of these questions is whether acquisitions create value for shareholders as well as stakeholders and what factors are related to value creation. The overarching question raised in this thesis is whether and how financial stakeholders and shareholders profit from acquisitions in different scenarios, i.e.: • Do bidder shareholders profit when financial advisors are involved in corporate acquisitions, and does the quality of financial advisors matter? Do high-quality advisors create more bidder shareholder value than lower quality advisors? • Do firms and SPAC shareholders profit from SPAC acquisitions? How do these firms (SPAC target firms) perform in comparison to firms that use an IPO to go public? This thesis consists of three empirical articles in which I address the above outlined questions. The first article focuses on the European market and asks whether the involvement of advisors in corporate acquisitions matters for bidder value creation. Although theoretical frameworks predict a positive relationship between advisor involvement and shareholder value creation, it is not confirmed by empirical evidence (see, e.g., Servaes and Zenner, 1996; Wang and Whyte, 2010). My results suggest that advisors provide value to their clients only when both the bidder and the target are located in the UK. Moreover, a difference-in-difference analysis, using a major European regulatory reform, indicates that advisors matter for shareholder value creation in acquisitions. The second article focuses not only on the question whether an advisor is involved in an acquisition but also on whether the quality of the advisor plays a role. In theory, high-quality advisors should be able to create more shareholder value for their clients than lower-quality advisors (see, e.g., Golubov et al., 2012). However, different authors find an insignificant, negative or positive relationship between advisor quality and value creation. Since these studies rely on advisor market shares or related measures to assess advisor quality and since evidence suggests that advisor market shares are not a good predictor of advisor performance (Bao and Edmans, 2011), we develop a new proxy to capture advisor quality. We define high-quality advisors as advisors that have won an award of excellence (i.e., best M&A house) and focus on the North American market. The results suggest that there is a positive relationship between award winners and value creation. Moreover, clients of award winners seem to outperform clients of non-award winners in the long term and seem to realize greater synergies. The results hold when we consider the endogenous choice of an advisor. Finally, it seems that award winners put more effort into acquisitions that are more visible. The last article focuses on SPAC acquisitions, which combine acquisitions with initial public offerings to enable firms a fast and cheap listing at a public stock exchange. We compare firms that use SPAC acquisitions to access the public market with firms that use IPOs to access the public market. The results from the analysis of 127 SPAC acquisitions and 1,128 IPOs during the wave of “new-generation” SPACs starting in 2003 suggest that SPAC acquisitions profit firms that are small, highly levered and have low growth opportunities in times with turbulent market environments. It seems that venture capital and private equity investors rather stick to the traditional way, the IPO, to bring their portfolio firms to the public market. Furthermore, firms that access the market via SPAC acquisitions underperform the market and similar IPO firms in the long run. The results of this thesis provide some evidence that financial advisors do play a crucial role and that shareholders might profit from their involvement in acquisitions. Moreover, innovations in financial markets that promise to improve the protection of shareholder interests, such as SPAC acquisitions, should be analyzed by the market participants with great care. On the one hand, they might provide value for certain firms (that are not able to access the public markets via an IPO); on the other hand, they seem to hurt shareholders that are interested in long-term gains.
Empirical essays on agency problems in venture capital
(2023) Koenig, Lukas; Burghof, Hans-Peter
In the first essay, we explore the potential agency conflict between limited partners and general partners in venture capital firms due to changes in investment style. Investment style refers to the characteristics of a venture capital funds portfolio, such as the portfolio companies stage of development, location, and industry. While investment style can significantly impact the risk and return profile of a fund, it is usually not explicitly agreed upon by limited and general partners. We argue that changes in investment style, known as style drifts, can reveal information about the risk-taking behavior of venture capitalists and present empirical evidence in support of this claim. To determine whether style drifts constitute an agency conflict, we consider two sets of hypotheses. The first set posits that style drifts are intentional decisions to take on more risk, potentially driven by incentives related to compensation or employment. The second set suggests that style drifts may occur because of competitive pressure and may not necessarily be indicative of an intent to increase risk. Our findings suggest that style drifts are likely to create an agency conflict, as the evidence supports the hypothesis that well-performing venture capitalists increase investment risk to benefit from higher compensation potential via carried interest when they feel confident, they will be able to raise a follow-on fund securing their base income via management fees. Additionally, we examine the impact of style drifts on individual investments and fund performance and find that overall, style drifts hurt a funds exit rate, indicating the potential for increased risk. In the second essay, we examine the relationship between venture capitalists and entrepreneurs, specifically focusing on the role of information asymmetry in the funding process. Using text classification and text mining techniques we analyze the content and level of detail in capital allocation plans provided by entrepreneurs to investors, which serve as a proxy for private informational updates that are typically not widely available. Our analysis shows that investors do consider the content and specificity of these updates when making valuation decisions and that both positive information signals and more detailed information are related to higher valuations. We also investigate the effect of the relative level of information asymmetry between venture capitalists and entrepreneurs on the value of these updates, finding that they are more impactful in situations where there is a higher level of information asymmetry. The results of our study have practical implications for entrepreneurs, as we find that the negative impact of negative information signals can be offset by providing highly specific information and that the value of an informational update is influenced by the existing level of information asymmetry. In the third essay, I explore the impact of university affiliations on the initial matching process between venture capitalists and founders, the involvement of the investor during the funding relationship, and the eventual startup performance and investment exit success. University affiliations can influence the funding relationship through two channels: first, attending a top university may serve as a signal of founder quality to venture capitalists, helping them to avoid adverse selection; second, shared alumni networks may establish trust and reduce information asymmetry between otherwise unknown individuals. Using a dataset of 42,101 investments involving 38,452 unique venture capitalists and founders, I find that educational ties between venture capitalists and founders have a positive effect on the funding relationship, including the initial matching, the level of involvement of the investor during the funding relationship, and the eventual startup performance and investment exit success. The effect of sharing an educational background between a venture capitalist and a founder is about five times larger than the effect of a founder attending a top university. Further, the results also show that educational ties are more valuable the more exclusive they are, and that redundant ties between the founding team and the investors have diminishing value for the investment decision.
Empirical essays on initial public offerings
(2022) Reiff, Annika; Tykvová, Tereza
This dissertation builds on and extends previous IPO literature by analyzing unresolved questions with regard to the phenomenon of IPO withdrawals and the effect of IPOs on industry rivals. After a short introductory chapter, chapter 2 contributes to the analysis of IPO withdrawal by taking a data-driven and forward-looking perspective. In particular, it applies two machine learning methods, namely lasso and random forest, to predict IPO withdrawal and compares the performance of both models to the performance of a logistic regression model. Results show that random forest predicts IPO withdrawal quite well and outperforms lasso and logit with regard to in-sample prediction and cross-sectional out-of-sample prediction. However, all models fail substantially when trying to predict future IPO withdrawal. One explanation for this puzzling finding is the presence of concept drift – a change in the relationship between the predictors and IPO withdrawal over time. Further, the study contributes to the clarification of the question of which variables are most important to predict IPO withdrawal by exploiting certain features of the machine learning methods and considering a vast selection of different predictors. Market characteristics at filing seem to be the most important variables for prediction in all models, while corporate governance and intermediary characteristics seem to be less important. Closely related to the second chapter, the third chapter takes a more theory-based perspective on IPO withdrawal. This chapter is co-authored with Tereza Tykvová and a reviewed version is published in the Journal of Corporate Finance. It addresses the question whether certain factors, particularly high-quality corporate governance and VC backing, may serve as signals for investors and can thus reduce the withdrawal probability, especially in risky market environments. The latter argument is based on the assumption that investors are especially careful in these situations and thus signals might be especially meaningful. Results from an interaction-term analysis suggest that corporate governance characteristics, like large and experienced boards, are indeed able to reduce the withdrawal probability in highly volatile markets. However, this finding does not hold true for VC backing per se. We therefore delve deeper into the effect of VCs by distinguishing three VC characteristics: syndicated vs. stand-alone VCs, domestic vs. foreign VCs, and VCs with high vs. low reputation. The analysis reveals that local VCs and VC syndication tend to reduce the withdrawal probability, particularly in highly volatile markets, which supports the signaling explanation. In contrast, the withdrawal probability for firms backed by reputable VCs tend to be lower only in less volatile and not in highly volatile markets. One explanation for this finding could be that these firms rather follow a dual-track strategy or postpone the IPO more likely in highly volatile markets than in less volatile markets. Chapter 4 moves away from IPO withdrawals towards the consideration of intra-industry effects of IPOs. Irrespective of the question of whether to withdraw or complete an IPO after filing, an IPO filing might influence its industry rivals. In order to analyze the mechanisms behind the effects of IPO filings on industry rivals more closely, I apply a new two-step-methodology which consists of an event study in the first step and a Difference-in-Difference analysis in the second step. This methodology allows to separately test for the existence of a competition and an information effect. The rationale of the competition effect is that by going public, firms gain some kind of competitive advantage over their industry rivals thereby increasing the competitive pressure in the industry and harm their rivals. The idea behind the information effect is that an IPO filing does not only deliver information about the IPO firm but about also about the industry in which it operates. In this connection, the information effect could either induce positive (by signaling good growth prospects) or negative (by foreshadowing future negative industry trends or revealing that the industry is overvalued) valuation effects on industry rivals. Results provide evidence for the existence of the competition effect, suggesting that IPO filings tend to harm industry rivals to a certain extent. In contrast, results do not provide sufficient evidence for the existence of the information effect. However, the lack of evidence for an aggregate information effect could also be the result of a positive effect on some but a negative effect on other rival firms which cancel each other out. Finally, chapter 5 concludes with a summary and provides and outlook for future research in the field of IPOs.
Entscheidungsorientierte Bewertung von Alternativen in Verhandlungsprozessen
(2022) Heinle, Timo; Troßmann, Ernst
Negotiations take place within and between all possible types of businesses. They not only shape private and public households, but they are also an elementary component in everyday business life. The main focus is on negotiations in make-to-order-production that take place between two companies. In the case of make-to-order-production the project character is important, which is reflected on the one hand in the high level of customer-related service specifications, and on the other hand in the low standardization of the drafting of contracts. To be able to draft the contracts, more or less extensive negotiations between the contracting parties, in which an attempt is made to reach an agreement on the relevant subjects of the negotiation, are usual. At different points in the negotiation process the negotiating parties must make a large number of decisions. If in such cases the negotiators only focus on the outcome of the negotiations, there is a risk of protracted negotiations with high costs. Such an approach is not compatible with a conventional operational target system. When considering the negotiation costs, it may be preferable to accept an allegedly worse offer in order to avoid further rounds of negotiations and the associated costs. Negotiation decisions, depending on the time the decision is made, can be characterized by a multitude of different alternatives. In any event, before a negotiation begins, it must be decided whether entering into a negotiation rather than the renunciation of a common agreement is preferable. If the negotiating parties are already negotiating, a decision on whether to accept or reject an existing offer is imperative. Breaking off a negotiation and the subsequent failure to reach an agreement is an alternative that regularly exists up until shortly before a contract is agreed on. To be able to make a choice, a decision-oriented valuation of alternatives in negotiation processes is necessary. The methodological apparatus designed in this dissertation enables a decision-oriented valuation of negotiation alternatives by the supplier in make-to-order-production. This allows negotiators to check at any time during a negotiation whether the intended negotiation alternative is the most appropriate or whether another negotiation alternative is relatively advantageous due to updated environmental conditions and updated levels of information.
Entscheidungsorientierte Bewertung von Forschungskooperationspartnern
(2012) Vaclavicek, Peter; Troßmann, Ernst
This thesis focuses on developing a method which can be used to evaluate potential partners to cooperate with in an intercompany research cooperation. Research is understood as systematically applying scientific methods in order to gain new knowledge. An intercompany cooperation is understood as a goal-directed, contractually settled long-term collaboration that is established on a voluntary basis between legally independent, yet consequently commercially mutually dependent companies. Decision-theory based evaluation of research cooperation partners requires processing a great deal of relevant information and the design of a suitable methodology. Research cooperation goals are seen as the essential benchmark on the basis of which alternative research cooperation partners are to be evaluated. Consequently, they are essential for the methodology to be chosen. Through the studying of literature, goals that are to be achieved through engaging in a research cooperation are thoroughly analyzed. Essential goals are content goals, timeframe goals and financial goals. Additional goals of more special character are risk reduction and feasibility. All characteristics of a company to be evaluated as a potential research cooperation partner are to be benchmarked in order to evaluate their value for achieving research cooperation goals. Conveniently, these characteristics can be distinguished between two types: first, the objectively observable potentials of a potential research cooperation partner. These characterize his capabilities, to enrich the planned research project in a purposeful way, when compared to one?s own capabilities. Capabilities of importance for research projects can typically be seen in material operating resources (e.g. experimental plants or specialized IT-facilities), human resources (e.g. laboratory staff), immaterial resources (particularly knowledge) and finally financial resources. Second, the will (or: motivation) is the second set of relevant cooperation partner characteristics. The best alternative to engaging in a research cooperation with any partner is to realize the intended research project by oneself, i.e. without a cooperation partner. This alternative is referred to as the null alternative. Consequently, all potential research cooperation partners are to be compared with the extent to which research goals can be achieved through one?s null alternative. The key aspect of the methodology to be developed thus is the evaluation of positive and negative consequences of choosing a particular company as a partner to cooperate with. Positive consequences (or: advantages) can be identified as a better achievement of goals than would be possible when realizing the null alternative. Since different goals are to be measured with different scales, standardization through a scoring model becomes necessary. Negative consequences (or: disadvantages) of cooperating with a particular partner result from his lack of cooperation will. In particular means and instruments of intercompany coordination are to be evaluated. Having determined advantages and disadvantages of a particular research cooperation partner, both findings can be added in order to generate an overall partner value. The higher this partner value, the more suitable is the company as a research cooperation partner. As long as the partner value is above zero, i.e. positive, cooperation leads to a better goal-achievement than realizing the null alternative (i.e. realizing the research project by oneself). A negative partner value however indicates that realizing the null alternative would mean a better goal achievement than engaging in a research cooperation with this particular partner. The wide usability of the methodology developed is demonstrated by a concluding discussion of three particularly relevant constellations in intercompany research cooperations: research coopera-tions with more than just two research partners (i.e. research networks), international research cooperations, and research cooperations in public-private-partnerships. Specific requirements of using the developed set of methodology in these three constellations are highlighted conclusively.
Entscheidungsorientierte Bewertung zur Preisobergrenzenbestimmung von Sponsoringengagements
(2023) Brian, Kevin; Troßmann, Ernst
Sponsoringengegaments sind ein weit verbreitetes Kommunikationsinstrument, mit denen eine ganze Reihe spezifischer betrieblicher Zielsetzungen in Verbindung gebracht werden. Die Anzahl und die hierarchische Struktur der identifizierten Ziele nehmen entscheidenden Einfluss auf die Zweckmäßigkeit der Bewertungsmethodik. Überlegungen zu dieser Hierarchie unter Berücksichtigung des sich im Planungsprozess entwickelnden Informationsstandes führen in der vorliegenden Arbeit zu einer Trennung der methodischen Behandlung der Bewertung zur Auswahlentscheidung aus mehreren Sponsoringalternativen und der Bewertung zur Durchführungsentscheidung, an deren Ende ein monetärer Wert als Preisgrenze steht. Im Rahmen der Auswahlentscheidung wird ein multikriterieller Bewertungsansatz ausgestaltet, der methodisch dem Konzept der Nutzwertanalyse folgt. Mit dem Ergebnis der Auswahlentscheidung als Ausgangspunkt, werden die Konsequenzen der Entscheidung monetarisiert, um – dem Kapitalwertkalkül folgend – die finanzielle Vorteilhaftigkeit in einem Simulationsmodell als Basis der Durchführungsentscheidung berechnen zu können.
Essays in relationship banking
the efficiency of savings-linked relationship lending and credit information sharing
(2017) Kirsch, Steffen; Burghof, Hans-Peter
The first part of my thesis concerns credit information production of lenders. In a multi-period partial equilibrium model of lending to private households I compare arm’s-length lending with relationship lending that is based on information production about borrowers in preceding saving relationships. These are often the only source of private information that lenders possess about loan demanding households. The model shows that savings-linked relationship lending leads to a Pareto improvement or an increasing allocative efficiency of the financing market compared to arm’s-length lending in markets of low time preference or low average borrower quality. In these markets, savings-linked relationship lending can overcome financing market failure due to adverse selection, especially for financing volumes that are large in comparison to households’ periodic savings or incomes. Thus, the model shows that savings-linked relationship lending is particularly well suited and economically beneficial for housing finance of private households and is able to increase home ownership rates. Competitive savings-linked relationship lending, as derived in the model, shares major characteristics with contractual saving for housing which is a widespread and important product of housing finance in Continental Europe. My model therefore provides, to my knowledge, the first theoretical relationship lending explanation for contractual saving for housing. Further, my results add a novel economic explanation for synergies between the two main activities of traditional commercial banking, deposit-taking and lending. The second part of my thesis concerns credit information sharing between lenders. Credit information sharing between lenders can have a disciplinary effect on borrowers because defaulting with one lender ruins the reputation with every other lender (Vercammen, 1995; Padilla and Pagano, 2000). This reputation effect, however, diminishes and finally disappears the more comprehensive credit registries become. I show in a multi-period model of repeated lending that credit information sharing can induce borrower discipline beyond “passive” reputation effects if banks apply classical disciplining, that is, if failure to pay inevitably provokes consequences. I find that such disciplining can Pareto improve the efficiency of the financing market and reduce defaults by overcoming market failure and mitigating underinvestment in projects and in effort, even for comprehensive and unrestricted credit information sharing. I further show that disciplining borrowers by pro rata rationing credit after default is more promising than tightening credit rates. Hence, my model provides a rare case of efficient equilibrium credit rationing: disciplining by credit rationing enhances the efficiency of the market while constituting aggregate equilibrium credit rationing in the sense of Stiglitz and Weiss (1981). Contrary to the previous literature that suggests to restrict and randomize credit reporting in order to prevent diminishing reputation effects, the policy implications following from my work are, first, to rather restrict access to credit registries than their content and, second, to enhance transparency of information sharing.
Ethical banking and finance
a theoretical and empirical framework for the cross-country and inter-bank analysis of efficiency, productivity, and financial performance
(2012) Abu-Alkheil, Ahmad; Burghof, Hans-Peter
Islamic banking is a growing worldwide phenomenon involving a variety of institutions and instruments. Previously, Islamic banks? transactions made up a small part of the total banking industry. Recently, Islamic banks have significantly expanded their network, and have been able to mobilize a large amount of funds and upgrade many economic ventures. Given the unique behavior of Islamic banks and their involvement in both social and economic activities, there has always been a question about their long run financial sustainability, particularly in adverse market conditions. Thus, a reliable and unbiased estimation of Islamic banks?efficiency and productivity performance is essential for the evaluation of Islamic banking operations within and outside its traditional borders of Muslim economies. Due to the short history of Islamic banking in Europe, and consequently the lack of sufficient data, empirical researches on the financial performance of Islamic banking have concentrated primarily in Muslim-majority countries and focused on the theoretical issues and descriptive statistics rather than rigorous statistical and econometric estimation. The main purpose of our analysis is to bridge this gap in the global and cross-country literature and to contribute to the ongoing debate regarding the performance of Islamic banking. Therefore, the orientation of this thesis is chiefly quantitative in nature. The aim of this thesis is primarily to shed some light on the emergence and the continual global growth of Islamic banking all over the world. It also tries to assess, for the first time, the relative performance of Islamic commercial and investment banks operating in Europe against counterparties-conventional banks in Europe and also against Islamic banks from Muslim-majority countries. Our methodology in this academic work clearly differs from the literature researches. This thesis is, basically, divided into two main parts. In first part, we specifically discuss the basic features and principles of the Islamic banking and finance. We then reviewed several in-depth market analysis results concerning Islamic banking and finance that were performed by well-known specialized financial institutions. In the second part, we primarily utilize different empirical approaches to examine the performance of our sample banks which shows a great variety, ranging from large active banks to new and small banks. More specifically, we use the Data Envelopment Analysis (DEA) method to calculate the commercial banks? efficiency scores and investment banks (cost)-X-efficiency levels; the DEA-based Malmq- uist Productivity Index (MPI) to estimate the banks productivity indices; the common financial ratios to measure the banks financial performance; the T-Test to determine the differences of investment bank's performance pre- and post- the financial crisis that hit the world?s economy in 2007; the Ordinary Least Squares (OLS)-regression to determine the impact of internal and external factors on bank's efficiency and also to check the robustness of the overall results obtained from DEA scores; Spearman's rho correlation to investigate the association of the DEA-efficiency scores with the traditional accounting ratios; and eventually the efficiency?profitability matrix in order to determine the characterization of the banks' performance and the factors that influence efficiency. Our analysis is carried out, primarily, over the period from 2005 to 2008. This indeed helps to account for the impact of the recent financial crisis on the efficiency and productivity performance of the selected banks. The preliminary review of the market surveys-based analysis shows that the Islamic finance and banking is one of the fastest growing sectors in the financial world. Islamic financial products and services are increasingly being regarded as a viable investment opportunity, making them very attractive for Muslims and non-Muslims alike. Leading Islamic banks from Muslim countries are expanding their network. Several European banks have directly involved in providing Islamic financial products in order to satisfy the special needs for Muslim customers and the non-Muslims who seek ethical financial and investment solutions. Eventually, European governments have also started to amend their legal, tax, and regulatory systems to allow the establishment of Islamic banks. Most importantly, from an empirical point of view, our presented results suggest that the Islamic commercial banks in Europe are found to be relatively technically inefficient. They have also, on average, poor financial performance and under-performing practices. Moreover, Islamic banks in Europe actually suffer from significant productivity losses over the sample years driven, to a large extent, by the regress in banks? technology innovations. By and large, the bank?s inefficiency stems from both the sub-optimal size of operations and the lack of management knowledge and skills. Findings suggest that the optimal size for Islamic banks to achieve better levels of performance is neither large nor small rather medium. Therefore, increasing banks size through mergers and acquisition will substantially enhance their technical efficiency and productivity progress. The period prior to the current financial crisis was marked by the most stable economic environment for generations. Our results illustrate that Islamic banks lag relatively, before the emergence of the crisis, behind their conventional peers in terms of estimated efficiency scores and productivity changes. Strikingly, conventional banks gradually lose their superiority over Islamic banks in subsequent years, but remain, on average, a head of Islamic banks. Islamic banks are, indeed, less vulnerable to the effects of the crisis as compared with counterparties-conventional banks. They exhibit only slight inefficiency and productivity regress during this severe crisis and therefore, produce a consistent and remarkable positive trend in technical efficiency, productivity performance, and financial profitability. This might be because of the beliefs in the power of petro-dollars in the Gulf region, the fact that the Islamic banks are relatively small and young at present, and could also be due to the religious financial constraints. Such factors might have played an important role in preventing Islamic banks from being severely affected by the crisis. Overall, results suggest that the small and new Islamic banks in Europe can be as efficient and productive as large and old Islamic and conventional banks. They also have long run sustainability, substantial room for improvements, and a great potential in the banking industry to sustain their competitive edge not only in Muslim countries but also in the European financial system. The estimated findings pertaining to the performance of Islamic investment banks in Europe suggest that these banks experience low (cost)-x-efficiency and poor allocative-efficiency compared with counterparties-conventional banks. Bank?s inefficiency is caused largely by the under-utilization of inputs, the bank's diseconomies of scale, and also appears to be due to the regulations not controlled by management due to fluctuations and instability in factor prices. Islamic investment banks additionally show a clear paradox between their high calculated efficiency scores and low achieved profitability ratios. They are also less risky, more solvent, and operate with lower use of debt. Nevertheless, Islamic investment banks suffer a gradual deterioration in liquidity position. The banks' supply of Murabaha (cost-plus loans) financing appears to be most dominant and has increased significantly in importance. Overall, findings seem to reveal that the banks that are technically more efficient are larger in size (total assets), financially more profitable, have greater loans intensity, acquire lower levels of debt, invests more in appropriate human skills, have a lower market share (total deposits), and operate in countries with higher GDP-per capita. Such results reflect the strong and high association between the DEA-efficiency measures and the standard accounting measures, suggesting that the DEA approach can be adopted separately or concurrently along with financial ratios to make comparisons of Islamic banks performance more robust.
Financial development and its effects on the structure of banking systems, economic growth, and inequality
(2022) Gehrung, Marcel; Burghof, Hans-Peter
Besides the well-known factors for economic growth and income inequality such as globalization, technological progress, demographic change, or human capital acquisition, financial development is often overlooked. This dissertation uses the case of the Single Banking License on the harmonized European Financial Market to show how financial liberalization and the abolishment of financing constraints improve economic growth and closes the gap between top and bottom income shares in the European Union. In the second part of the thesis, with the use of a worldwide data set, we show that the actual access to financial services through a widespread network of bank branches and ATM machines is one of the major channels through which financial development affects economic growth and inequality. These two examples argue in favor of the supply-leading hypothesis of financial development. The third part of the thesis then gives proof for the demand-following side of financial development. By means of a novel and hand-picked data set of historical contracts for contractual saving for housing (Bausparen) from one of the first building societies in the Weimar Republic, the Gemeinschaft der Freunde Wüstenrot, we show how this new financial product spread geographically across the German Empire and across social classes. The fact that especially the upper lower class and lower middle class used CSH most frequently shows that CSH is a prime example of financial development. Meanwhile, the need for this new form of housing finance stems from an insufficient credit supply of common banks and only little subsidies by the state.
Founder CEOs and new venture media coverage
(2018) Kolb, Johannes; Howard, Michael D.
Among their early key decisions, new ventures must choose whether to retain founder CEOs and how to craft a media strategy to best represent themselves to the outside world. These decisions have critical implications for firm survival and success, shaping perceptions of important external stakeholders. Our study explores the interplay between founder CEOs and media coverage and their effect on firm performance. We employ competing risk models to analyze data on 2,327 US VC-backed technology firms during the period 1985 to 2009, finding that founder CEOs enhance volume and positive tonality of media coverage, which increase the likelihood of firm IPO. Our findings provide important contributions for research into entrepreneurship and organizational reputation.

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