German Financial System Research Articles

Corporate control and shareholder activism in Germany: An empirical analysis of hedge fund strategies

Government-initiated reforms of the German financial system two decades ago shifted corporate control activities from universal banks to capital markets. Hedge funds took advantage of these changes by acquiring stakes in weakly governed firms. For 653 hedge fund interventions between 2000 and 2020, this study analyzes the changes in financial and operating performance and firm characteristics before and after the event. We also assess the probabilities that a firm becomes a target and that an attack creates shareholders value. On average, hedge funds increased returns, with the magnitude depending on the period, level of aggressiveness, institutional ownership, and industry. Crisis and non-crisis results differ, as hedge funds strategies are mostly successful in a rising stock market environment. Typically, hedge funds targeted smaller and more visible firms with higher sales growth, lower leverage, and higher institutional ownership. After the attack, firm profitability and cash holdings decreased, leverage increased, while investments in M&A and capex declined. This research offers new empirical evidence on the success of hedge fund strategies in Germany and on the performance of targeted firms.

금융위기와 독일 금융시스템의 질서자유주의: 미국 금융시스템과의 비교

글로벌 금융위기가 표출한 세계 금융시스템의 구조적 위험성의 극대화 현상은 독일의 금융시스템이 다른 유럽 국가들과 미국에 비하여 상대적인 안정성을 가지고 있는 것으로 평가되는 계기를 제공하였다. 그 기저에는 독일 경제제도의 기본 이념으로서의 질서자유주의가 작용하고 있다는 주장이 제기되고 있다. 이러한 독일 질서자유주의에 대한 새로운 관심의 배경에는 2007/2008년의 글로벌금융위기와 그 뒤를 이은 2009년 유로존 위기를 통해서 독일의 금융시스템이 보여 준 안정성에 대한 평가와 함께 독일이 다른 재정위기를 겪은 EU 회원국들에 대한 지원에 있어서 소극적으로 대응해 왔다는 비판이 작용하고 있다. 질서자유주의에 대한 옹호론자나 또는 비판은 각기 이와 같은 배경에서 출발하고 있다. 본 연구는 IMF의 금융발전데이터(Financial Development Data)를 사용하여 독일과 미국의 금융시스템을 시각적으로 대비하고 있다. 본 연구의 결과는 독일의 금융시스템은 높은 자기책임성, 낮은 이윤성 및 높은 규제성으로 규정될 수 있으며, 반면에 미국의 금융시스템은 낮은 책임성, 높은 이윤성 및 낮은 규제성으로 정의될 수 있음을 보이고 있다. 본 연구에서 이러한 두 금융시스템의 차이는 독일의 금융시스템이 자기책임성 원칙(Haftungsprinzip)과 공동의 선(Gemeinwohl) 원칙을 토대로 하는 질서자유주의 이념을 보여주고 것으로 규명하고 있다. 한편으로 금융의 글로벌화로 독일의 금융시스템은 커다란 변화에 직면하고 있으며, 글로벌 금융시스템에 융화되어 가고 있는 것으로 나타나고 있지만, 독일경제가 질서자유주의에 입각한 독일 금융시스템을 빠르게 시장기반의 영미식 금융시스템으로 전환할 지에 대해서는 상당한 시간의 경과를 두고 살펴볼 필요가 있을 것으로 보인다.

Why the French Said ‘Non’: A New Perspective on the Hoover Moratorium of June 1931

Why did the French government delay its endorsement of the Hoover Moratorium in the summer of 1931? Key policymakers were fully aware that their stance would exacerbate the German financial crisis, which ultimately dragged the European economy into the abyss. Most historical accounts identify the plan for an Austro-German customs union, which became known publicly in March 1931, as a major cause for the French ‘non’. We suggest a different chronology by showing that the French government was reluctant to help Germany as early as the fall of 1930 when, in the wake of the Nazi victory in the Reichstag elections, a currency crisis threatened to ruin the German monetary and financial system and bring down the government. We also argue that the reason for this French reluctance to extend financial help to Germany was the traumatic experience resulting from the evacuation of the Rhineland in June 1930. This chauvinistic outburst in Germany not only frightened the French public, but also made it clear to French politicians how the lack of military cooperation with the Anglo-Saxon powers had made France highly vulnerable on its Eastern front. After June 1930 a financial bargain with Germany became unrealistic, due to domestic opposition.

SOBRE EL SISTEMA DE FINANCIACIÓN Y COMPENSACIÓN INTERTERRITORIAL ALEMÁN: ESPECIAL REFERENCIA A SU REFORMA CONSTITUCIONAL DE 2017

espanolEl presente articulo describe las relaciones financieras entre la Federacion y los Estados federados (Lander) que componen la Republica Federal de Alemania a lo largo de los anos desde la promulgacion de la Ley Fundamental de 1949 hasta la ultima reforma financiera aprobada durante el verano de 2.017. Centraremos el estudio en el analisis de las distintas reformas efectuadas sobre dos puntos clave de todo el sistema financiero germano. Por un lado, el limite al endeudamiento publico tratado de forma exhaustiva en la reforma financiera de 2.009 que supuso la introduccion de una novedad legislativa muy significativa al establecer un limite al endeudamiento publico que permitiera el cumplimiento por parte del Estado aleman de las directrices marcadas por la Union Europea y, por otro lado, el sistema de compensacion financiera en sus dos vertientes- vertical y horizontal-siendo esta ultima introducida en la legislacion germana a raiz de la aprobacion de la reforma de 1955 y que ha sido modificado en diversas ocasiones. El analisis se divide en cuatro bloques: la evolucion del sistema de financiacion y compensacion interterritorial; caracteres basicos del sistema de financiacion; el procedimiento de realizacion del sistema de financiacion y compensacion interterritorial hasta 2017 y la reforma llevada a cabo en 2017.Por ultimo, finalizaremos el trabajo con una serie de valoraciones extraidas de nuestro analisis. EnglishThis article describes the financial relations between the Federation and the Lander that make up the Federal Republic of Germany over the years from the enactment of the Basic Law of 1949 until the last financial reform approved during the summer of 2017 We will focus the study on the analysis of the different reforms carried out on two key points of the entire German financial system. On the one hand, the limit on public debt dealt with exhaustively in the 2009 financial reform, which meant the introduction of a very significant legislative novelty by establishing a limit on public debt that would allow the German State to comply with the guidelines set by the European Union and, on the other hand, the financial compensation system in its two aspects - vertical and horizontal - the latter being introduced into German legislation as a result of the approval of the 1955 reform and which has been modified on various occasions. The analysis is divided into four blocks: the evolution of the inter-territorial financing and compensation system; basic characteristics of the financing system; the procedure for carrying out the inter-territorial financing and compensation system until 2017 and the reform carried out in 2017. Finally, we will finalize the work with a series of assessments extracted from our analysis.

Strong Firms, Weak Banks: The Financial Consequences of Germany’s Export-Led Growth Model

The financial foundation of Germany’s manufacturing success, according to the comparative capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and ‘patient’ domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely export-led growth model in Germany since the 1990s. We challenge this common assumption of continuity in the German financial system. Export-led growth, characterised by aggregate wage suppression and high corporate profits, has allowed non-financial corporations to increasingly finance investment out of retained earnings, thus lowering their dependence on external finance. This paper documents this trend and shows that business lending by banks has increasingly been constrained on the demand side, reducing the power – and relevance – of banks vis-à-vis German industry. The case study suggests a need for students of growth models to pay greater attention to the dynamic interaction between institutional sectors in general, and between the financial and the non-financial sectors in particular.

Strong Firms, Weak Banks: The Financial Consequences of Germany's Export-Led Growth Model

The financial foundation of Germany’s manufacturing success, according to the comparative capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and “patient” domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely exportled growth model in Germany since the 1990s. We challenge this common assumption of continuity in the German financial system. Export-led growth, characterized by aggregate wage suppression and high corporate profits, has allowed non-financial corporations to increasingly finance investment out of retained earnings, thus lowering their dependence on external finance. This paper documents this trend and shows that business lending by banks has increasingly been constrained on the demand side, reducing the power – and relevance – of banks vis-a-vis German industry. The case study suggests a need for students of growth models to pay greater attention to the dynamic interaction between institutional sectors in general, and between the financial and the non-financial sectors in particular.

INTENSIVE AND EXTENSIVE MODEL OF MANAGEMENT IN THE FINANCIAL SYSTEM: EXPERIENCE OF UKRAINE-GERMANY

The article analyses the features of the extensive and intensive model of management in a financial system on the example of Ukraine and Germany. The characteristics, priorities and measures implemented by these countries for the period 2010-2015 revealed that starting from 2011 neither extensive nor intensive model exists in a pure form, as all the existing models have features of both with one dominating. It was found out that the measures implemented in Ukraine and Germany for the period 2010-2015 were the most effective and the possibilities of their implementation for each country were disclosed. It was clarified that the most urgent problems for reforms in Ukraine are the problems of corruption, shadow economy and the transition to a new way of governing the financial system, which will focus on a result and take into account possible effects of decisions based on the relationships between branches. It is also advisable to develop an alternative package. It has been proved that it is expedient for Germany to learn from Ukraine’s experience of reducing the budget deficit and increasing the flexibility in the German financial system and its credibility and perception of innovations in finance and financial services. The expediency of development of joint Ukrainian-German projects for testing the innovations in the financial system in different situations and accelerating of a successful selection to enhance the financial stability has also been proved.

Unternehmen unter der Dominanz der Finanzmärkte? Orientierungen aus sozialethischer Perspektive

There is a crucial change in the German financial system and in listed corporations: The influence of the financial markets has grown in both fields. Subsequently, shareholders can enforce their interests more efficiently than other stakeholders (e.g. affiliates, NGOs, political communities and employees). In the paper, diverse explanations for this development are presented and evaluated: disintermediation, financial market capitalism and ‘financialization’. Afterwards, the topic is discussed in the perspective of theological ethics. Catholic Social Teaching features no financial ethics, but it includes some thoughts that offer an orientation for economic policy, the concept of an economy in service of the common good, the idea of a cooperation of state, market and civil society and socially anchored entrepreneurship as well as the conception of a serving financial economy. In conclusion, action perspectives are described.

Psychiatric governance, völkisch corporatism, and the German Research Institute of Psychiatry in Munich (1912-26). Part 2.

This is the second of two articles exploring in depth some of the early organizational strategies that were marshalled in efforts to found and develop the German Research Institute of Psychiatry (Deutsche Forschungsanstalt für Psychiatrie). The first article analysed the strategies of psychiatric governance - best understood as a form of völkisch corporatism - that mobilized a group of stakeholders in the service of higher bio-political and hygienic ends. This second article examines how post-war imperatives and biopolitical agendas shaped the institute's organization and research. It also explores the financial challenges the institute faced amidst the collapse of the German financial system in the early Weimar Republic, including efforts to recruit financial support from the Rockefeller Foundation and other philanthropists in the USA.

Germany: Financial Sector Assessment Program-Crisis Preparedness, Bank Resolution and Crisis Management Frameworks-Technical Notes

This paper analyzes the crisis preparedness and crisis management frameworks for German banks. Banks dominate German financial system and represent one of the largest small- and medium-sized banking segments in the EU. The banking sector is a three-pillar system with a total of nearly 1,800 institutions. Both at the EU level and at domestic German level a range of legal instruments have been adopted that collectively establish a complex framework for bank resolution and crisis preparedness and management in financial sector. The Single Supervisory Mechanism Regulation has conferred specific tasks on the European Central Bank concerning prudential supervision of banks including the adoption of early intervention measures and a requirement that banks prepare recovery plans.

Why preferences and institutions change: A systematic process analysis of credit rating in Germany

AbstractThis article argues that a within‐case analysis of the causes and patterns of the institutionalisation of rating in the German financial system offers fresh insights into change in the major socioeconomic institutions of advanced capitalism. Using the method of systematic process analysis, the article explores the expansion of credit rating in the German banking system from three perspectives: historical (power), sociological (diffusion) and behavioural institutionalism (prospect theory). It demonstrates that the proliferation of credit rating resulted from a change of preference on the part of large banks. With Germany as a least likely case for successfully implementing rating, the study's main lesson is that institutional analysis may benefit from incorporating behavioural institutionalism into the analysis of preference change because this cites economic motivations as causes of preference shifts and institutional changes.

Universal banking, U.S. banking reform and financial competition in the E.E.C.

Economists and policy makers in Europe and the United States have devoted increasing attention towards the German financial system. In the new Single European Market, the German financial system, characterised by universal banking with unrestricted entry into all types of financial market, is expected to become the dominant form. The German kind of financial system has also been suggested as an alternative to the segmented US financial system. It is argued that the success of the German system has less to do with the freedom granted to universal banks than with its approach to regulation and supervision.

Crossborder financial contagion to Germany: How important are OTC dealers?

We examine crossborder contagion from a number of financial systems to the German financial system using the information content of CDS prices in a GARCH model. After controlling for common factors which may cause comovement in security prices, we find evidence for contagion from the US and European financial systems. Assessing contagion for dealer and non-dealer banks suggests that contagion from dealer banks is the most prominent source of contagion to the German financial system. While German non-dealer banks are affected both by European and US dealers, only US dealer banks have a contagion effect to German dealer banks.

The Returns to Hedge Fund Activism in Germany

AbstractRecent regulatory changes in the German financial system shifted corporate control activities from universal banks to other capital market participants. Particularly hedge funds took advantage of the resulting control vacuum by acquiring stakes in weakly governed and less profitable firms. We document that, on average, hedge funds increased shareholder value in the short‐ and long‐run. However, more aggressive hedge funds generated only initially higher returns and their outperformance quickly reversed, whereas non‐aggressive hedge funds ultimately outperformed their aggressive peers. These findings suggest that aggressive hedge funds attempt to expropriate the target firm's shareholders by exiting at temporarily increased share prices.

Function before form: macro-institutional comparison and the geography of finance

This article considers the treatment of institutions and institutional change in relation to finance and macro-institutional comparison in economic geography. Where recent contributions are sympathetic to the ‘Varieties of Capitalism’ framework, this article argues instead for an analytical approach that is attentive to the functions of finance and institutions. While the former contends that institutional function follows from form, the latter reevaluates this relationship. This article illustrates these arguments empirically through a qualitative comparison of the changing form and function of the German financial system and banking sector with that of the USA over the last two decades.

Are universal banks bad for financial stability? Germany during the world financial crisis

This case study explores the contribution of universal banking to financial stability in Germany during the recent financial crisis. Germany is a prototype for universal banking and has suffered from a rather small number of banking crises in the past. We review the banking literature and analyze the major institutional and regulatory features of the German financial system to establish a nexus between universal banking and stability. We focus on the following questions. First, which banks failed and did they because they were universal or because of other reasons? Second, which types of distress beside outright bank failures resulted from the crisis and how did German universal banks dealt with them? We show that only few German banks failed and these banks did so not because they were universal banks but because they were publicly owned. Most banks instead contributed to reduce the impact of the recent crisis.

When Europe Hits Home: How Europeanization Triggers the Conflict of Capitalism in the German System of Corporate Control

This paper challenges the methodological adherence to institutional stability of the “Varieties of Capitalism” approach by showing that constant change pressure caused by ‘negative EU integration’ has, indeed, profoundly affected the German system of corporate control. Over the past years, European institutions have been striving to create a common market for corporate control in order to make the EU the world’s most competitive economic area. Europe’s push for liberalization, however, has not only affected the German system of corporate control itself, but also undermined patterns of the German financial system and system of industrial relations. Building on the assumption of institutional complementarities it is argued that if adjustment pressure is put on one element of a country’s political economy, other parts will not remain unaffected. Will the German coordinated market economy converge towards a more liberal capitalist system?

Kommunale Umsatzsteuerbeteiligung: Quantitative Umverteilungen durch den neuen fortschreibungsfähigen Verteilungsschlüssel

Die Verteilung der kommunalen Umsatzsteuerbeteiligung auf die Gemeinden wird uber ein einzigartiges Konstrukt verschiedener wirtschaftsbezogener Komponenten vollzogen, das sich in einem individuellen Verteilungsschlussel widerspiegelt. Dieses System ist nach uber einem Jahrzehnt unveranderter Anwendung grundlegend reformiert worden, um eine Fortschreibungsfahigkeit – also eine dreijahrige Aktualisierbarkeit – zu gewahrleisten. Allerdings gehen durch die Umstellung der Schlusselberechnung hohe quantitative Effekte aus, die primar ostdeutsche Gemeinden negativ beruhren. Aufgrund fehlender, offentlich zuganglicher Analysen erfolgt in diesem Beitrag sowohl die Berechnung von Mehr- bzw. Mindereinnahmen verschiedener Gemeindegruppen als auch eine entsprechende Ursachenanalyse. Die Finanzausgleichssysteme vermogen bis dato nicht, die Einnahmedifferenzen der betreffenden Gemeinden zu kompensieren. Zudem sind insbesondere im ostdeutschen Raum keine wirtschaftlichen Aufholprozesse zu beobachten, die das bisherige Einnahmenniveau wiederherzustellen vermogen. Im Sinne einer Minimierung dieser Umverteilungseffekte sind daher Justierungsmasnahmen notwendig. Es wird gezeigt, dass eine vollstandige Integrierung der Gemeindesteuern in den Landerfinanzausgleich eine annahernde Kompensation ermoglicht. Alternativ wurde sich als verbleibende Justierung lediglich ein Beibehalt der Vorabzuteilung von 15 Prozent anbieten. Jedwede anderweitige Vorabzuteilungshohe zoge trotz alternativer Komponenten des fortschreibungsfahigen Verteilungsschlussels signifikante Umverteilungen zwischen den Gemeinden nach sich.

Credit Contagion between Financial Systems

We examine contagion from a number of financial systems to the German financial system using the information content of CDS prices in a GARCH model. After controlling for common factors which may cause comovement in security prices, we find evidence for contagion from the US and European financial systems. Our results additionally confirm that the set up of the financial rescue scheme in Germany partially shielded German banks but not insurance companies from contagion. Overall, our results suggest that contagion from dealer banks have the most prominent effect on the German financial system. While dealer banks impact on German banks and insurance companies in a similar way, a deterioration in the CDS spreads of dealer banks has a particularly pronounced effect on German dealer banks.

Credit Contagion between Financial Systems

We examine contagion from a number of financial systems to the German financial system using the information content of CDS prices in a GARCH model. After controlling for common factors which may cause comovement in security prices, we find evidence for contagion from the US and European financial systems. Our results additionally confirm that the set up of the financial rescue scheme in Germany partially shielded German banks but not insurance companies from contagion. Overall, our results suggest that contagion from dealer banks have the most prominent effect on the German financial system. While dealer banks impact on German banks and insurance companies in a similar way, a deterioration in the CDS spreads of dealer banks has a particularly pronounced effect on German dealer banks.