Reaching for Yield in the ABS Market: Evidence from German Bank Investments (Internet Appendix)
Review of Finance, 24, 2020, 929-959. Previous title: Arbitraging the Basel Securitization Framework: Evidence from German ABS Investments
(Joint winner of the ESRB Research Prize in Memory of Ieke van den Burg 2016, Swiss Finance Institute best paper doctoral award 2015)
Shareholder Bargaining Power and the Emergence of Empty Creditors (Internet Appendix)
Journal of Financial Economics, 134, 2019, 297-317, with Stefano Colonnello and Francesca Zucchi. Previous title: Empty Creditors and Strong Shareholders: The Real Effects of Credit Risk Trading
Structured Debt Ratings: Evidence on Conflicts of Interest
Journal of Financial Economics, 116, 2015, 46-60, with Harald Hau. (Award for best paper on financial markets at Paris December 2013 Finance Meeting)
Incentive Pay and Bank Risk-Taking: Evidence from Austrian, German, and Swiss Banks
Journal of International Economics, 96, 2015, 123-140, with Harald Hau, Patrick Kampkötter, and Johannes Steinbrecher.
Freeze! Financial Sanctions and Bank Responses
R&R The Review of Financial Studies, with Stefan Goldbach and Volker Nitsch
(SFS Cavalcade Award 2019 for the Best Paper in CF)
When the UN or another political body impose financial sanctions on a country, banks are typically required to end business relations with targeted counterparties. Based on German regulatory data for years 2002-15, we show that parent institutions of multinational banking groups reduce their positions in sanctioned countries by -38%. However, their branches and subsidiaries in countries with weak policies against financial crime increase lending by +66% after sanctions are imposed. These branches and subsidiaries receive additional intra-group credit from their parent banks. The evidence suggests that credit is rerouted to sanctioned countries through bank branches and subsidiaries in offshore locations.
How Do Investors and Firms React to an Unexpected Currency Appreciation Shock?
R&R The Review of Corporate Finance Studies, with Rüdiger Fahlenbrach, Christoph Herpfer, and Philipp Krüger.
We examine the impact of a sudden home currency appreciation on the valuation and behavior of corporations in a developed economy. The Swiss National Bank surprisingly repealed the minimum exchange rate of 1.2 Swiss francs per Euro on January 15, 2015. On that day the franc appreciated by 15% and the main stock market index dropped by 8.7%. The impact was largest for export oriented firms with high domestic costs. These firms experienced 5% lower announcement returns, subsequently faced economically sizeable reductions in sales and profitability, and responded by reducing investment by 8.1% while only slightly reducing employment.
Bank Bonus Pay as a Risk Sharing Contract
HEC Working Paper, with Harald Hau, Patrick Kampkötter, and Jean-Charles Rochet.
(Best Paper Award at Paris December Finance Meeting 2019)
We argue that risk sharing motivates the bank-wide structure of bonus pay. In the presence of financial frictions that make external financing costly, the optimal contract between shareholders and employees involves some degree of risk sharing whereby bonus pay partially absorbs earnings shocks. Using payroll data for 1.26 million employee-years in all functional divisions of Austrian, German, and Swiss banks, we uncover several empirical patterns in bonus pay that are difficult to rationalize exclusively with incentive theories of bonus pay—but support an important risk sharing motive.
Risk Managers in Banks
HEC Working Paper, with Patrick Kampkötter.
How do banks remunerate risk managers and what are the implications for risk-taking? Studying 127 German banks during the years 2003 to 2007, we show that risk managers’ remuneration is positively aligned with performance-linked pay in front offices (FOs). When bonuses in FOs increase by one Euro, the bonus of a risk manager increases by 13.6 to 33.5 Cents, depending on the risk manager’s seniority. Risk-sharing among employees or labor market competition do not explain this finding. Banks with more aligned incentive pay between risk management and FOs during the years before the crisis of 2008-2009 performed better in the crisis.
Bank Capital Regulation with an Opportunistic Rating Agency
SFI Working Paper.
(Distinguished CESifo Affiliate Award 2013, Swiss Finance Institute best paper doctoral award 2012)
This paper models the strategic interaction between a rating agency, a bank and a bank regulator who lacks information about bank asset risk. The regulator can either (1) make bank capital requirements contingent on credit ratings; or (2) set rating-independent capital requirements. Truthful ratings provide efficiency gains because they allow the regulator to constrain high risk bank investment without simultaneously reducing overall investment volume. However, if collusion between the rating agency and the bank corrupts rating quality, rating-independent regulation enhances welfare. The welfare benefits are largest if regulators maintain rating-contingent capital requirements and discipline rating agencies.
What does a bank’s payroll reveal about its risk-taking?
International Banker, April 10, 2017, with Harald Hau and Patrick Kampkötter
Optimale Vergütungsstrukturen in Banken
Die Bank, 2015(3), 65-69, with Harald Hau, Patrick Kampkötter and Johannes Steinbrecher
Die Dosis macht das Gift – eine Analyse zum Einfluss von Bonuszahlungen auf die Profitabilität und das Risiko von Banken
ifo Schnelldienst 68 (03), 2015, 23‐31, with Harald Hau, Patrick Kampkötter and Johannes Steinbrecher.
Bankers’ Bonuses and Performance Sensitivity
voxeu.org, November 13, 2014, with Harald Hau, Patrick Kampkötter and Johannes Steinbrecher.
Corrupted Credit Ratings: Standard & Poor’s Lawsuit and the Evidence
voxeu.org, June 18, 2013, with Harald Hau