nep-eec New Economics Papers
on European Economics
Issue of 2009‒09‒11
25 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Vulnerabilities in Central and Eastern European countries: Dynamics of asymmetric shocks By Aleksandra Zdzienicka-Durand
  2. EMU and European Government Bond Market Integration. By Pilar Abad; Helena Chuliá; Marta Gomez-Puig
  3. European Financial Market Integration: A Closer Look at Government Bonds in Eurozone Countries By Sebastian Weber
  4. The Financial Integration of the European Union: Common and Idiosyncratic Drivers By Chris Higson; Sean Holly; Ivan Petrella
  5. Financial Convergence in the New EU Member States By Kalin Hristov; Rossen Rozenov
  6. How Does European Integration Affect the European Stock Markets? By Burcu Erdogan
  7. Flow-of-funds analysis at the ECB – framework and applications By Louis Bê Duc; Gwenaël Le Breton
  8. Bank Competition and Firm Growth in the Enlarged European Union By Gábor Pellényi; Tamás Borkó
  9. Monetary Policy Transmission and House Prices: European Cross Country Evidence By Kai Carstensen; Oliver Hülsewig; Timo Wollmershäuser
  10. Entrepreneurial Progress: Climbing The Entrepreneurial Ladder in Europe and The US By Peter van der Zwan; Ingrid Verheul; Roy Thurik; Isabel Grilo
  11. Regional wages and market potential in the enlarged EU: An empirical investigation By Thomas Y. Mathä; Allison Shwachman
  12. Bank Ownership, Firm Value and Firm Capital Structure in Europe By Lieven Baert; Rudi Vander Vennet
  13. Choice or Mimetism in the Decision to Migrate? A European Illustration By Thierry Warin; Andrew Blakely
  14. The costs of raising children and the effectiveness of policies to support parenthood in European countries: a Literature Review By Marie-Thérèse Letablier; Angela Luci; Antoine Math; Olivier Thevenon
  15. Revenus individuels et dépendance financière des femmes et des hommes dans neuf pays européens en 2006 By Kim Fredericq Evangelista; Zouhair Alaoui Amine; Danièle Meulders; Sîle O'Dorchai; Robert Plasman; François Rycx
  16. An empirical study on the decoupling movements between corporate bond and CDS spreads. By Ioana Alexopoulou; Magnus Andersson; Oana Maria Georgescu
  17. The Macroeconomic Effects of European Financial Development: A Heterogenous Panel Analysis By Sean Holly; Mehdi Raissi
  18. Measuring the size and impact of public cash support for children in cross-national perspective By Paulus A; Sutherland H; Figari F
  19. Risk Attitude and Investment Decisions across European Countries: Are Women More Conservative Investors Than Men? By Oleg Badunenko; Nataliya Barasinska; Dorothea Schäfer
  20. Is Private Equity Investor Good or Evil? By Oleg Badunenko; Nataliya Barasinska; Dorothea Schäfer
  21. The Quest for Appropriate Remedies in the Microsoft Antitrust EU Cases: A Comparative Appraisal By Nicholas Economides; Ioannis Lianos
  22. Stress Testing Credit Risk: Is the Czech Republic Different from Germany? By Petr Jakubik; Christian Schmieder
  23. Default Risk and Equity Returns: A Comparison of the Bank-Based German and the U.S. Financial System By Breig, Christoph; Elsas, Ralf
  24. Exploring International Differences in Rates of Return to Education: Evidence from EU SILC By Davia, Maria A.; McGuinness, Seamus; O'Connell, Philip J.
  25. The Convergence of Health Care Financing Structures: Empirical Evidence from OECD-Countries By Andrea M. Leiter; Engelbert Theurl

  1. By: Aleksandra Zdzienicka-Durand (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: In this work, we use the VAR and space-state methodology to analyze how the recent developments in 20 European countries have modified the dynamics of structural shocks. Our results confirm a visible progress in (predominated output fluctuations) supply shocks convergence between the CEECs and the euro zone, but also corroborate a positive initial impact of EMU creation and EU enlargement supply shocks correlation. In particular, we find that Croatia, Poland, Slovakia and Slovenia are good candidates to the euro adoption under condition of greater fiscal policy alignment.
    Keywords: Structural Shocks; CEECs; VAR model; Kalman filter; Euro Adoption
    Date: 2009
  2. By: Pilar Abad (Fundamentos del Análisis Económico, Paseo Artilleros, E-28032 Madrid, Spain.); Helena Chuliá (Universitat Oberta de Catalunya, E-08035 Barcelona, Spain.); Marta Gomez-Puig (University of Barcelona, Av. Diagonal 690, E-08034 Barcelona, Spain.)
    Abstract: The main objective of this paper is to study whether the introduction of the euro had an impact on the degree of integration of European Government bond markets. We adopt the CAPM-based model of Bekaert and Harvey (1995) to compare, from the beginning of Monetary Union until June 2008, the differences in the relative importance of two sources of systemic risk (world and Eurozone risk) on Government bond returns, in the two groups of countries (EMU and non-EMU) in EU-15. Our empirical evidence suggests that the impact of the introduction of the euro on the degree of integration of European Government bond markets was important. The markets of the countries that share a monetary policy are less vulnerable to the influence of world risk factors, and more vulnerable to EMU risk factors. However, euro markets are only partially integrated, since they are still segmented and present differences in market liquidity or default risk. For their part, the countries that decided to stay out of the Monetary Union present a higher vulnerability to external risk factors. JEL Classification: E44, F36, G15.
    Keywords: Monetary integration, sovereign securities markets, bond markets integration.
    Date: 2009–08
  3. By: Sebastian Weber
    Abstract: The European Union made a number of steps not least of them the introduction of a common currency to foster the integration of the European financial markets. A number of papers have tried to gauge the degree of integration for various financial markets looking at the convergence of interest rates. A common finding is that government bond markets are quite well integrated. In this paper stochastic Kernel density estimates are used to take a closer look at the dynamics that drive the process of interest rate convergence. The main finding is that countries with large initial deviations from the mean interest rate do indeed converge. Interestingly the candidates least suspected namely the countries initially with interest rates at the mean level show a pattern of slight divergence.
    Keywords: Financial markets integration, euro area government bonds, stochastic Kernel density estimates
    JEL: C23 E44 G15
    Date: 2009
  4. By: Chris Higson; Sean Holly; Ivan Petrella
    Abstract: The purpose of this paper is to establish how far the process of financial integration has gone in the European Union. There is growing evidence that the appearance of the Euro has accelerated the integration of a number of financial markets among those countries who have adopted the Euro. We identify the growth in financial integration as the process by which idiosyncratic factors at the national level become less and less important for the behaviour of particular markets. While the Euro plays an important part because it eliminates currency risk, financial integration will still emerge between other European countries as long as the institutional and legal barriers are removed.
    Date: 2009
  5. By: Kalin Hristov; Rossen Rozenov
    Abstract: In this paper we explore the issue of financial convergence in the new EU member states (NMS). For the purposes of our analysis the countries falling into the category NMS are Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia, i.e. all countries that joined the EU in the last decade, except Cyprus and Malta.
    Date: 2009
  6. By: Burcu Erdogan
    Abstract: This paper examines the integration of stock markets in Germany, France, Netherlands, Ireland and UK over the January 1973- August 2008 period at the aggregate market and industry level considering the following industries: basic materials, consumer goods, industrials, consumer services, health care and financials. The analysis is practised by using correlation analysis, $\beta$-convergence and $\sigma$-convergence methods. $\beta$- convergence serves to measure the speed of convergence and $\sigma$-convergence serves to measure the degree of financial integration. We might expect priori that European stock markets have been more integrated during the process of monetary, economic and financial integration in Europe. We find evidence for an increasing degree of integration both at the aggregate level and also at the industry level, although some differences in the speed and degree of convergence exist among stock markets. To our surprise, there is a downward trend in convergence for certain industries in certain countries in 2000s; especially for those industries, which are more prone to regional shocks, such as health care, financials and consumer services. Moreover, the cross sectional dispersion in health care industry has not shown a regular descending trend. Additionally, EU wide factors can better explain the changes in returns than those of US.
    Keywords: Financial integration, EU, stock markets, correlation analysis
    JEL: C22 G15 G12 F36
    Date: 2009
  7. By: Louis Bê Duc (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.); Gwenaël Le Breton (European Central Bank, Directorate Economic Developments, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: The financial crisis has enhanced the need for close monitoring of financial flows in the economy of the euro area and at the global level focusing, in particular, on the development of financial imbalances and financial intermediation. In this context flow-of-funds analysis appears particularly useful, as flow-of-funds data provide the most comprehensive and consistent set of macro-financial information for all sectors in the economy. This occasional paper presents different uses of flow-of-funds statistics for economic and monetary analysis in the euro area. Flow-of-funds data for the euro area have developed progressively over the past decade. The first data were published in 2001, and fully-fledged quarterly integrated economic and financial accounts by institutional sector have been published since 2007. The paper illustrates how flow-of-funds data enable portfolio shifts between money and other financial assets to be assessed and trends in bank intermediation to be monitored, in particular. Based on data (and first published estimates) on financial wealth over the period 1980-2007, the paper analyses developments in the balance sheet of households and non-financial corporations in euro area countries over the last few decades and looks at financial soundness indicators using flow-of-funds data, namely debt and debt service ratios, and measures of financial wealth. Interactions with housing investment and saving are also analysed. In addition, the paper shows how flow-of-funds data can be used for assessing financial stability. Finally, the paper presents the framework for and use of flow-of-funds projections produced in the context of the Eurosystem staff macroeconomic projection exercises, and reports the outcome of a sensitivity analysis that considers the impact of interest rate changes on the interest payments and receipts of households and non-financial corporations. JEL Classification: E44, E47, E51.
    Keywords: Flow of funds, financial account, saving, sector balance sheet, financial projections.
    Date: 2009–08
  8. By: Gábor Pellényi; Tamás Borkó
    Abstract: We examine the impact of bank competition and institutional factors on net firm entry in a sample of European manufacturing industries over the 1995-2006 period. Taking into account industry differences in the need for external finance, we find that bank competition helps firm entry. In addition, better institutions - especially legal structure and property rights - also have a positive impact, particularly through a better functioning financial system.
    Keywords: market structure, banks, market entry, manufacturing, financial development
    JEL: D4 G21 L11 L60 O16
    Date: 2009
  9. By: Kai Carstensen; Oliver Hülsewig; Timo Wollmershäuser
    Abstract: This paper explores the importance of housing and mortgage market heterogeneity in 13 European countries for the transmission of monetary policy. We use a pooled VAR model which is estimated over the period 1995-2006 to generate impulse responses of key macroeconomic variables to a monetary policy shock. We split our sample of countries into two disjoint groups according to the impact of the monetary policy shock on real house prices. Our results suggest that in countries with a more pronounced reaction of real house prices the propagation of monetary policy shocks to macroeconomic variables is amplified.
    Keywords: Pooled VAR model, house prices, monetary policy transmission, country clusters, sign restrictions
    JEL: C32 C33 E52
    Date: 2009
  10. By: Peter van der Zwan (Erasmus University Rotterdam); Ingrid Verheul (Erasmus University Rotterdam and EIM, Zoetermeer); Roy Thurik (Erasmus University Rotterdam, EIM, Zoetermeer, Max Planck Institute of Economics, Jena, and VU University Amsterdam); Isabel Grilo (DG Enterprise, European Commission, Brussels, GREMARS, Université de Lille 3, CORE, Université de Louvain, Belgium)
    Abstract: We investigate which countries have the highest potential to achieve entrepreneurial progress. This progress is defined using an entrepreneurial ladder with five successive steps: “never thought about starting a business”, “thinking about starting a business”, “taking steps to start a business”, “running a business for less than three years”, and “running a business for more than three years”. We assess the influence of individual-level and country-level variables on progression through these stages. Data are used from the 2007 “Flash Eurobarometer Survey on Entrepreneurship”, covering 27 European countries and the United States. We find that countries display large variation in the ease with which businesses come into existence and survive. In the US many people think about setting up a business whereas Europeans are better at achieving higher levels of engagement. Particularly in Austria, France and Lithuania there appear to be low probabilities to advance in the process. Our analysis suggests that country differences can be explained by the level of economic development and risk tolerance while the administrative and financial climate play a role for some steps. The paper also provides results on the influence of individual-level demographic and obstacle perception variables.
    Keywords: entrepreneurship; determinants; nascent entrepreneurship; competitiveness; continuation ratio logit
    JEL: H10 J23 L26 M13 R12
    Date: 2009–08–05
  11. By: Thomas Y. Mathä; Allison Shwachman
    Abstract: This paper empirically analyses the link between market potential and regional wages in the enlarged EU. We extend previous studies of EU regions in several ways. 1) we analyze the link between market potential and wages for the EU27, 2) correct for spatial autocorrelation present in the data, showing that by neglecting spatial autocorrelation the strength of the relationship between market potential and wages may be underestimated, 3) decompose total market potential into several geographical components and analyze their respective contributions to explaining the geographical wage structure, and 4) explore which regions have gained the most from European integration by calculating counterfactual market potential if they could only trade with other regions within the same country. Length: 48 pages
    Date: 2009–04
  12. By: Lieven Baert; Rudi Vander Vennet
    Abstract: We investigate whether or not banks play a positive role in the ownership structure of European listed firms. We distinguish between banks and other institutional investors as shareholders and examine empirically the relationship between financial institution ownership and the performance of the firms in which they hold equity. Our main finding is that after controlling for the capital structure decision of the firms and the ownership decision of financial institutions in a simultaneous equations model, we find that there is a negative relationship between financial institution ownership and the market value of firms, measured as the Tobin's Q. This is in contradiction with the monitoring hypothesis.
    Keywords: Financial institution ownership, Firm value, Capital structure
    JEL: G32 G20
    Date: 2009
  13. By: Thierry Warin; Andrew Blakely
    Abstract: This paper examines the role of herd behavior (mimetism) and network effects as determinants of bilateral migration flows to thirteen of the EU-15 countries. Using an adapted gravity model controlling for economic activity, welfare progressivity, geospatial, and historic relationships, the results force us to question the ways in which we explain migration flows. Herd behavior influences positively the flows of migrants to Europe, whereas the existence of network complementarities in the receiving country does not consistently predict and may in some cases reduce the likelihood of immigrant inflows. Moreover, economic activity and particularly labor market conditions play a lesser role in migrants’ choice of location than was previously thought. The introduction of herd behavior as a determinant of European Migration in our empirical analysis changes the paradigm for understanding migration and suggests that prior definitions of social perceptions are inadequate. <P>Cet article étudie le rôle des comportements mimétiques et des effets de réseaux dans les décisions de migration vers treize pays de l’Union européenne. En utilisant un modèle de gravité adapté à cette question et incluant des indicateurs mesurant l’activité économique, le progrès social, et les relations historiques, les résultats de cette étude précisent les méthodes traditionnelles d’évaluation des flux migratoires. Les comportements mimétiques influencent positivement les flux migratoires vers l’Europe, alors que les effets de réseaux dans le pays hôte ne prédisent pas de façon toujours satisfaisante les flux d’immigration. De plus, l’activité économique, et en particulier les conditions du marché du travail, jouent un rôle moindre que ceux mis en évidence dans des études précédentes. La prise en compte des comportements mimétiques en tant que déterminant des flux migratoires en Europe vient donc changer le paradigme pour l’étude des flux migratoires.
    Keywords: migration, herd behavior, network effects, flux migratoires, comportements mimétiques, effets de réseaux
    JEL: J6 O15 Z13
    Date: 2009–08–01
  14. By: Marie-Thérèse Letablier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Angela Luci (INED - Institut National d'Etudes Démographiques - INED); Antoine Math (IRES - Institut de Recherches Economiques et Sociales - IRES); Olivier Thevenon (INED - Institut National d'Etudes Démographiques - INED)
    Abstract: The purpose of this report is to produce an overview of available knowledge about the following issues:  the costs (to parents) of parenthood and of raising children in European Countries;  the effectiveness, in the short and long term, of various policy measures in avoiding or compensating for those costs; 8  the impact of different policy instruments aimed at supporting families according to various policy objectives, e.g. achieving family projects, reconciling family and working life, reducing child poverty, raising the levels of education and well being of children, and increasing equal opportunities.  the wider economic and social costs and benefits of policy interventions in support of families. The current state of knowledge on the following issues is presented as follows in this review report:  The costs of children and the challenges for public policies supporting parenthood (chapter 1); author: O. Thévenon  The policy instruments used in the EU to support families and reduce the costs of parenthood (Chapter 2); authors: A. Math and O. Thévenon  The impacts of these policies on families: o On fertility and the decision to have children (chapter 3); authors M-Th. Letablier and O. Thévenon o On parents‘ participation in the labour market, gender equality and work-life balance (chapter 4); authors: M-Th. Letablier, A. Luci, O. Thévenon o On children‘s well-being (chapter 5): M-Th. Letablier and O. Thévenon  The wider economic and social costs and benefits of such policies (Chapter 6); author: A. Luci. The review of literature presented in this report attempts to make the tools, goals and impacts of family policies more clear and comparable across countries, in order to facilitate the circulation of knowledge between Member States, notably in the context of the European Alliance for Families and the newly established High Level Experts Group on Demography Issues. The report provides a review of recent literature and available data material on the direct and indirect costs of raising children in the European Union (using international as well as particularly important national studies). Ground breaking studies from countries outside the EU, of particular interest from a methodological point of view, are also included in the review. Focus is on the following kinds of costs of having and raising children over the long and short term: - Direct financial costs, e.g. for housing, health care, education, child care, - Indirect financial costs, e.g. for lost income, lost pension rights, lost career prospects etc. , also taking into account the impact on gender roles and gender equality. The costs of raising children are examined at the different phases of their development, from birth through to the age at which they become autonomous. The overview also summarizes knowledge on the main determinants of costs, including, the effects of the number of children, the socio-economic status of parents, and the family structure. Significant differences in cost levels and structures across Member States are identified. The overview also identifies gaps in the available knowledge, and highlights some issues for future research that have the potential to contribute to a better understanding of the policy impact and to better comparability across the European Union.
    Keywords: cost of children; family policies; work and family life reconciliation; fertility; female employment
    Date: 2009
  15. By: Kim Fredericq Evangelista (DULBEA, Université libre de Bruxelles, Brussels); Zouhair Alaoui Amine (DULBEA, Université libre de Bruxelles, Brussels); Danièle Meulders (DULBEA, Université libre de Bruxelles, Brussels); Sîle O'Dorchai (DULBEA, Université libre de Bruxelles, Brussels); Robert Plasman (DULBEA, Université libre de Bruxelles, Brussels); François Rycx (DULBEA, Université libre de Bruxelles, Brussels)
    Abstract: In the framework of the BGIA (Belgian Gender and Income Analysis) project, a methodology was developed to compute the individual income of women and men in order to illustrate existing gender differences, also in terms of financial dependency. This paper presents the gender distribution of individual income and financial dependency in nine European countries : Austria, Belgium, Spain, France, Ireland, Luxembourg, Poland, Sweden and the United Kingdom. First, the data and methodology are explained. In a second step, we analyse the difference between the individual income and financial dependency rates of women and men as well as those individual characteristics that determine the gender gap. We also compare our individually-based financial dependency rates with the household-based at-risk-of-poverty rates as they are defined by the European Commission. In the third part of this paper, the analysis is topped off by the estimation of an econometric model of the probit type to identify those factors with the most decisive influence on the probability of being financially dependent. The pure marginal effects of all individual characteristics separately are computed by this method. In the fourth part, four new indicators are suggested to complete the core set of poverty and social exclusion indicators which are regularly produced for every EU country on a comparable basis (the so-called 'Laeken Indicators').
    Keywords: poverty, gender inequality, individual income, household economics
    JEL: C21 I32 J16
    Date: 2009–08
  16. By: Ioana Alexopoulou (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Magnus Andersson (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Oana Maria Georgescu (KfW Bankengruppe, Palmengartenstraße 5-9, D-60325 Frankfurt am Main, Germany.)
    Abstract: Applied to the European markets, this paper analyzes the price of credit risk on the Credit Default Swap (CDS) and corporate bond markets by comparing the sensitivity of the credit spreads on each market to systematic, idiosyncratic risk factors and liquidity. Our analysis confirms the existence of a long-run relationship between the two markets, and the tendency for CDS markets to lead corporate bond markets in terms of price discovery. We find that the outbreak of the financial turmoil in the summer of 2007 induced a substantial increase in risk aversion and a shift in the pricing of credit risk, with CDS markets becoming more sensitive to systematic risk while cash bond markets priced in more information about liquidity and idiosyncratic risk. Moreover, the financial turbulence also brought about a systematic disconnection between the two markets caused by the significant change in the lead-lag relationship, with CDS markets always leading the cash bond markets. JEL Classification: G12, G14, G15.
    Keywords: Credit Default Swap Spreads, Corporate Bond Spreads, Liquidity.
    Date: 2009–08
  17. By: Sean Holly; Mehdi Raissi
    Abstract: This paper investigates the macroeconomic benefits of international financial integration and domestic financial sector development for the European Union. The sample consists of 26 European countries with annual data during the period 1970.2004. We attempt to exploit more fully the temporal dimension in the data by making use of the common correlated effects (CCE) estimator. We also account for the nonstationarity of time series by employing the cross-section augmented panel unit root test of Pesaran (2007) and recently developed panel cointegration techniques. We check the robustness of these results by using the fully modified OLS method of Pedroni (2000). Our empirical results suggest a relationship between domestic financial sector development and labour productivity. We report evidence that real GDP per worker is positively linked to a measure of international financial integration (stock of international financial assets and liabilities expressed as a ratio to GDP). We also try to disentangle the effects on real GDP per worker of di¤erent types of capital flows (FDI, Portfolio equity, Debt) and are able to identify a significant positive effect on GDP per worker of debt inflows which we could attribute to the institutional environment that has been fostered by the European Union.
    Date: 2009
  18. By: Paulus A (Institute for Social and Economic Research); Sutherland H (Institute for Social and Economic Research); Figari F (Institute for Social and Economic Research)
    Abstract: We suggest a new comprehensive measure of support given through tax-benefit systems to families with children. Using microsimulation techniques, this accounts for all provisions contingent on the presence of children, while usually only gross child/family benefits are considered. We use EUROMOD, the European Union tax-benefit microsimulation model, to quantify the support for children and analyse its impact on household incomes and child poverty for 19 countries. We find that the conventional approach underestimates on average the total amount of support for children by about one fifth. Furthermore, the differences between two measures vary considerably across countries and are, therefore, critical for cross-national comparisons.
    Date: 2009–09–04
  19. By: Oleg Badunenko; Nataliya Barasinska; Dorothea Schäfer
    Abstract: This study questions the popular stereotype that women are more risk averse than men in their investment decisions. The analysis is based on micro-level data from large-scale surveys of private households in five European countries. We enrich the conventional approach to examination of gender differences by explicitly controlling for investors' self-perceived risk aversion. Our results confirm the gender stereotype only partially. We find that women are less likely to hold risky assets. However, female owners of risky assets allocate an equal or even a higher share of their wealth to these assets than men. Our findings suggest that especially in case of women, the declared attitude toward financial risks may be misleading as it does not necessarily reflect the actual willingness to bear risks.
    Keywords: gender, risk aversion, financial behavior
    JEL: G11 J16
    Date: 2009
  20. By: Oleg Badunenko; Nataliya Barasinska; Dorothea Schäfer
    Abstract: The paper investigates the motives of Private Equity (PE) investors to engage in European companies. Investment of a PE firm is not viewed unambiguously. First, it is claimed that PE investing is made for the sake of poor redistribution of wealth. Second, PE firm invests because of prior identification of chances to add value to the company. We attempt to resolve these two conflicting conjectures. We use the Bureau van Dijk's Amadeus database of very large, large and medium sized European companies. Our major results can be summarized as follows. A financially constraint or risky company has lower chances to lure a PE firm to invest. On the one hand, the larger the equity of the company the larger the likelihood of receiving investment from a PE firm. On the other hand, larger cash flow is likely to repel PE investor.
    Keywords: Private equity financing, leverage, corporate finance
    JEL: M14 G24 G34
    Date: 2009
  21. By: Nicholas Economides (Stern School of Business, NYU); Ioannis Lianos (Faculty of Laws, University College London)
    Abstract: The Microsoft cases in the United States and in Europe have been influential in determining the contours of the substantive liability standards for dominant firms in US antitrust law and in EC Competition law. The competition law remedies that were adopted, following the finding of liability, seem, however, to constitute the main measure for the “success” of the case(s). An important disagreement exists between those arguing that the remedies put in place failed to address the roots of the competition law violation identified in the liability decision and others who advance the view that the remedies were far-reaching and that their alleged failure demonstrates the weakness of the liability claim. This study evaluates these claims by examining the variety of remedies that were finally imposed in the European Microsoft cases, from a comparative perspective. The study begins with a discussion of the roots of the Microsoft issues in Europe and the consequent choice of a remedial approach by the Commission and the Court. It then explores the effectiveness of the remedies in achieving the aims that were set. The non-consideration of the structural remedy in the European case and the pros and cons of developing such a remedy in the future are briefly discussed before more emphasis is put on alternative remedies (competition and non-competition law ones) that have been suggested in the literature. The study concludes by discussing the fit between the remedy and the theory of consumer harm that led to the finding of liability and questions a total dissociation between the two. We believe that it is important to think seriously about potential remedies before litigation begins. However, we do not require an ex ante identification of an appropriate remedy by the plaintiffs, since this could lead to underenforcement or overenforcement.
    Keywords: antitrust, remedies, Microsoft, complementarity, innovation, efficiency, monopoly, oligopoly, media player, interoperability, Internet browser
    JEL: K21 L41 L42 L12 L86 L63
    Date: 2009–08
  22. By: Petr Jakubik; Christian Schmieder
    Abstract: This study deals with credit risk modelling and stress testing within the context of a Merton-type one-factor model. We analyse the corporate and household sectors of the Czech Republic and Germany to find determining variables of credit risk in both countries. We find that a set of similar variables explains corporate credit risk in both countries despite substantial differences in the default rate pattern. This does not apply to households, where further research seems to be necessary. Next, we establish a framework for the stress testing of credit risk. We use a country specific stress scenario that shocks macroeconomic variables with medium severity. The test results in credit risk increasing by more than 100% in the Czech Republic and by roughly 40% in Germany. The two outcomes are not fully comparable since the shocks are calibrated according to the historical development of the time series considered and the size of the shocks for the Czech Republic was driven by the transformation period.
    Keywords: Credit risk, credit risk modelling, stress testing.
    JEL: G21 G28 G33
    Date: 2008–12
  23. By: Breig, Christoph; Elsas, Ralf
    Abstract: In this paper, we address the question whether the impact of default risk on equity returns depends on the financial system firms operate in. Using an implementation of Merton's option-pricing model for the value of equity to estimate firms' default risk, we construct a factor that measures the excess return of firms with low default risk over firms with high default risk. We then compare results from asset pricing tests for the German and the U.S. stock markets. Since Germany is the prime example of a bank-based financial system, where debt is supposedly a major instrument of corporate governance, we expect that a systematic default risk effect on equity returns should be more pronounced for German rather than U.S. firms. Our evidence suggests that a higher firm default risk systematically leads to lower returns in both capital markets. This contradicts some previous results for the U.S. by Vassalou/Xing (2004), but we show that their default risk factor looses its explanatory power if one includes a default risk factor measured as a factor mimicking portfolio. It further turns out that the composition of corporate debt affects equity returns in Germany. Firms' default risk sensitivities are attenuated the more a firm depends on bank debt financing.
    Keywords: Asset pricing; Stochastic Discount Factor; Default Risk
    JEL: G12
    Date: 2009–03–27
  24. By: Davia, Maria A. (Universidad de Castilla, La Mancha); McGuinness, Seamus (ESRI); O'Connell, Philip J. (ESRI)
    Abstract: This paper uses EU-SILC data from 2005 and 2006 to explore the hypothesis that international differences in rates of return to education reflect variations in the level of risk associated with educational investments. While there was some evidence to support this hypothesis with regards to returns to ISCED level 5 qualifications among males, the majority of the variation in international returns was related to distributional impacts. The results suggest that higher rates of return to more advanced qualifications relate to more dispersed distributions among poorly qualified workers which, in turn, raise the returns to credentials further up the educational spectrum.
    Date: 2009–09
  25. By: Andrea M. Leiter; Engelbert Theurl
    Abstract: In this paper we concentrate on the question whether the financing structure of the health care systems converges. In a world of increasing economic integration convergence in health care financing (HCF) and, hence, decreasing differences in HCF across countries enhance individuals' (labour) mobility and support harmonization processes. As an indicator for convergence we take the public financing ratio in % of total HCF and in % of GDP. The major finding is that HCF in the OECD countries converged in the time period 1970 - 2005. This conclusion also holds when looking at smaller sub groups of countries and shorter time periods. However, we find evidence that countries do not move towards a common mean and that the rate of convergence is decreasing over time.
    Keywords: Convergence, health care system, health care financing
    JEL: I11 I18 H55
    Date: 2009–08

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