We demonstrate that the coexistence of different motives for liquidity preferences profoundly aff... more We demonstrate that the coexistence of different motives for liquidity preferences profoundly affects the efficiency of financial intermediation. Liquidity preferences arise because consumers wish to take precautions against sudden and unforeseen expenditure needs, and because investors want to speculate on future investment opportunities. Without further frictions, the coexistence of these motives enables banks to gain efficiencies from combining liquidity insurance and credit intermediation. With standard financial frictions, banks cannot reap such economies of scope. Indeed, the coexistence of a precautionary and a speculative motive can cause efficiency losses which would not occur if there were only a single motive. Specifically, if the arrival of profitable future investment opportunities is sufficiently likely, such coexistence implies inefficient separation, pooling, or even non-existence of pure strategy equilibria. This suggests that policy implications derived solely from a single motive for liquidity demand can be futile.
We proudly present the first issue of Schmalenbach Journal of Business Research (SBUR). SBUR is a... more We proudly present the first issue of Schmalenbach Journal of Business Research (SBUR). SBUR is an international English-language journal that publishes original high-quality research that is of wide interest to business research and practice. SBUR contains original research from the full spectrum of business research, including accounting, finance, marketing, strategic management, organization, human resource management, production and logistics management, taxation, digital business, and entrepreneurship. SBUR provides a forum for excellent articles in such areas that are also of interest to readers from other areas. Due to this thematic inclusiveness, SBUR is also open for cross-disciplinary and multidisciplinary research. From time to time, SBUR also plans special issues on current and highly topical themes. Articles apply rigorous research methodologies that fit the research questions to establish their scientific findings, such as analytical modeling, archival empirical and experimental research, field and case studies. We are also considering state-ofthe-art review articles and conceptual papers on topical themes.
Transformation is the overarching theme of the concluding issue 13(3) of Business Research for at... more Transformation is the overarching theme of the concluding issue 13(3) of Business Research for at least two reasons: Business Research will be transformed into Schmalenbach Journal of Business Research (SBUR) as of 1, January 2021, and ''Digital Transformation'' is the topic of the special issue of papers that have been contributed to the Annual Conference 2020 of the Verband der Hochschullehrer für Betriebswirtschaft (VHB, German Academic Association of Business Research) in Frankfurt. 1 Transformation of Business Research This year, the VHB has made the strategic decision to merge its official journal with SBR, the official journal of the Schmalenbach Gesellschaft (SG), to form Schmalenbach Journal of Business Research (SBUR). SBUR will be the joint official journal of VHB and SG, and both associations are committed to growing SBUR to a joint flagship journal in business research with global reach and high visibility. SBUR operates under Golden Open Access since the Open Science philosophy will be endorsed by both associations. Therefore, the present issue concludes the development phase of Business Research as a pioneering open access journal with its volume 13, and it is the last issue of Business Research as you are familiar with it. Along the traditions of the merged journals, SBUR will continue publishing original high-quality research that
In line with the expansion strategy that Business Research has entered in the year 2017, the comp... more In line with the expansion strategy that Business Research has entered in the year 2017, the composition and the structure of the Departments have changed. Specifically the Department of Operations and Information Systems has been split into two, with the Department of Operations, which will be continued to be directed by Thomas Spengler, and the new separated Department of Information Systems. We welcome Tilo Böhmann for taking over the responsibilities for the new Department of Information Systems starting this January 2020! We also welcome Jana Oehmichen and Elke Schüßler! Ms. Schüßler succeeded Thomas Hutzschenreuter already in 2019. Since January 2020, she and Ms. Oehmichen share the responsibilities for our largest and most heterogeneous Department of Management. We are most grateful to Thomas Hutzschenreuter for his diligent service over two appointment periods and for his generous contributions and advice to the Editorial Team of Business Research! The expansion strategy has already produced excellent results in its first 2 years of operation. We have increased the number of published manuscripts continuously from 12 in 2016 to 25 in 2019. Certainly, the Special Issue 12(1) on the theme of the Magdeburg Annual VHB Conference in 2018, ''(Ir)Rationality in Business Research and Practice'' was an important driver in this regard, and contributed to visibility and impact as evidenced by a spectacular increase in downloads and citations overall. Critical mass and open access are the keys to this success. We are hopeful that the Special Issue ''Digital Transformation'' dedicated to the governing theme of this year's Annual VHB Conference in Frankfurt will be an equally successful venture.
With this special issue ''(Ir)Rationality of decisions in business research and practice,'' Busin... more With this special issue ''(Ir)Rationality of decisions in business research and practice,'' Business Research embarks on a new strategy to publish special issues on cross-over topics of general interest to a large number of subfields in business research. By doing so Business Research closely supports and complements the activities of the German Academic Association for Business Research (VHB) to reintegrate the many diverging subfields of business research on issues of common interest. The title of this special issue focuses on the implications of (ir)rationality on business research and, hence, is particularly suited to bring together the widely diverging subfields, each of which is affected by the (ir)rationality of its actors. This is why this title has been chosen as the motto of the 2018 Annual Conference in Magdeburg. For the same reason it is the perfect title for the kick-off special issue. Understanding seemingly irrational behavior is an integral part of business research. According to the traditional paradigm, all human decisions are rational and informed, motivated by an accurate assessment of goods and services' utility. Under this set of assumptions, all actors in the marketplace try to maximize their profit or utility. In contrast, at the intersection of standard economics and behavioral sciences (e.g., behavior economics or consumer psychology), researchers realize that & Thomas Gehrig
We analyze how transparency affects information acquisition in a bargaining context, where propos... more We analyze how transparency affects information acquisition in a bargaining context, where proposers may choose to purchase information about the unknown outside option of their bargaining partner. Although information acquisition is excessive in all our scenarios, we find that the bargaining outcome depends crucially on the transparency of the bargaining environment. In transparent games, when responders can observe whether proposers have acquired information, acceptance rates are higher. Accordingly, in transparent bargaining environments information is more valuable, both individually and socially.
We study an ultimatum experiment in which the responder does not know the offer when accepting or... more We study an ultimatum experiment in which the responder does not know the offer when accepting or rejecting. Unconditional veto power leads to acceptances, although proposers are significantly greedier than in standard ultimatum games, and this is anticipated by responders. We also elicit responders' willingness to pay for (un)conditional veto power. The bids reveal a large endowment effect.
In this note we establish that rational demand expectations will typically not evolve in an evolu... more In this note we establish that rational demand expectations will typically not evolve in an evolutionary model. In an evolutionary model beliefs act like a commitment device to more aggressive behavior. This commitment eect has the same direction for strategic substitutes and complements and fades away in large markets. tiv glssitionX gUHD hRQD hVI * A preliminary draft of this paper was presented at Max Planck Institute in Jena and at Freiburg University. We appreciate valuable comments by the seminars participants.
This paper analyses the evolution of the safety and soundness of the European banking sector duri... more This paper analyses the evolution of the safety and soundness of the European banking sector during the various stages of the Basel process of capital regulation. In the first part we document the evolution of various measures of systemic risk as the Basel process unfolds. Most strikingly, we find that the exposure to systemic risk as measured by SRISK has been steeply rising for the highest quintile, moderately rising for the second quintile and remaining roughly stationary for the remaining three quintiles of listed European banks. This observation suggests that the Basel process has succeeded in containing systemic risk for the majority of European banks but not for the largest institutions. In the second part we analyse the drivers of systemic risk. We find compelling evidence that the increase in exposure to systemic risk (SRISK) is intimately tied to the implementation of internal models for determining credit risk as well as market risk. Based on this evidence, the sub-prime ...
European Corporate Governance Institute (ECGI) - Finance Working Paper Series, 2016
We study price discovery during the liquidity freeze of September 2008, when fundamental values w... more We study price discovery during the liquidity freeze of September 2008, when fundamental values were difficult to be assessed. We find that trading volume and trade size significantly increased two days before the public announcement of Lehman's lethal quarter loss. Nevertheless, informational risk as perceived by liquidity suppliers increased only after the public disclosure of this loss. The price impact of trades was minimal and stock markets kept on working efficiently for Lehman stocks until the insolvency announcement. Price efficiency is on average established after half a second, which could have been exploited by low-latency traders.
Purpose This paper aims to analyze systemic risk in and the effect of capital regulation on the E... more Purpose This paper aims to analyze systemic risk in and the effect of capital regulation on the European insurance sector. In particular, the evolution of an exposure measure (SRISK) and a contribution measure (Delta CoVaR) are analyzed from 1985 to 2016. Design/methodology/approach With the help of multivariate regressions, the main drivers of systemic risk are identified. Findings The paper finds an increasing degree of interconnectedness between banks and insurance that correlates with systemic risk exposure. Interconnectedness peaks during periods of crisis but has a long-term influence also during normal times. Moreover, the paper finds that the insurance sector was greatly affected by spillovers from the process of capital regulation in banking. While European insurance companies initially at the start of the Basel process of capital regulation were well capitalized according to the SRISK measure, they started to become capital deficient after the implementation of the model-b...
This paper analyses the evolution of measures of the safety and soundness of the European banking... more This paper analyses the evolution of measures of the safety and soundness of the European banking sector during the various stages of the Basel process of capital regulation. With the help of SRISK and Delta CoVaR we trace systemic risk and measures of systematic risk as the Basel process unfolds. We observe that, though systematic risk for European banks has been moderately decreasing over the last three decades, exposure to systemic risk has heightened considerably especially for the largest systemic banks. While the Basel process has succeeded in containing systemic risk for smaller banks, it has been less successful for the largest institutions. By exploiting the option of self-regulation embodied in the choice of internal models, the latter effectively seem to have increased their exposure to systemic risk as reflected in increasing SRISK. Hence, the sub-prime crisis found especially the largest and more systemic banks ill-prepared and lacking resiliency. This condition has even aggravated during the European sovereign crisis. Banking Union has not (yet) brought about a significant increase in the safety and soundness of the European banking system.
The theory of pricing to acceptability developed for incomplete markets is applied to marking one... more The theory of pricing to acceptability developed for incomplete markets is applied to marking one's own default risk. It is observed in agreement with Heckman (2004), that assets and liabilities are not to be valued in …nancial reporting at the same magnitude. Liabilities are to be marked at the ask prices of two price economies that are above the asset mark at the bid prices for such economies. Applying cones of acceptability de…ned by concave distortions it is observed that counterintuitive pro…tability resulting from credit deterioration is then mitigated. We argue that the di¤erence between the liability mark at two price ask and the asset mark at the two price bid be taken as an upfront expense deposited in a special account called the ODOR account for Own Default Operating Reserve. Procedures are described for pricing coupon bonds separately as assets and liabilities. These procedures employ the default time distribution embedded in the CDS market.
This article studies how fund managers' relative-performance concerns affect their investment str... more This article studies how fund managers' relative-performance concerns affect their investment strategies in bubble periods. The managers compete for flows that are sensitive to their performance ranking. Severe ranking tournaments with highly convex flow-performance relationship lead managers to ride bubbles to outperform each other, making bubbles long-lived. However, moderate tournaments may lead them to attack bubbles quickly. The results are consistent with the observed crosssectional variation in funds' investment strategies in bubble periods. Bubble-riding behavior is pronounced if the funds' tournament is too close to call, as interim followers try to catch up while interim leaders try to stay ahead. JEL classification: D82, G14, G23 * This article was previously circulated under the title "Ranking Concerns of Fund Managers and the Persistence of Bubbles." I am grateful to Margaret Bray, Markus Brunnermeier, Denis Gromb, and Dimitri Vayanos for very helpful discussions. I benefited from suggestions from Burton Hollifield (the editor) and an anonymous referee. For helpful comments, I thank
We demonstrate that the coexistence of different motives for liquidity preferences profoundly aff... more We demonstrate that the coexistence of different motives for liquidity preferences profoundly affects the efficiency of financial intermediation. Liquidity preferences arise because consumers wish to take precautions against sudden and unforeseen expenditure needs, and because investors want to speculate on future investment opportunities. Without further frictions, the coexistence of these motives enables banks to gain efficiencies from combining liquidity insurance and credit intermediation. With standard financial frictions, banks cannot reap such economies of scope. Indeed, the coexistence of a precautionary and a speculative motive can cause efficiency losses which would not occur if there were only a single motive. Specifically, if the arrival of profitable future investment opportunities is sufficiently likely, such coexistence implies inefficient separation, pooling, or even non-existence of pure strategy equilibria. This suggests that policy implications derived solely from a single motive for liquidity demand can be futile.
We proudly present the first issue of Schmalenbach Journal of Business Research (SBUR). SBUR is a... more We proudly present the first issue of Schmalenbach Journal of Business Research (SBUR). SBUR is an international English-language journal that publishes original high-quality research that is of wide interest to business research and practice. SBUR contains original research from the full spectrum of business research, including accounting, finance, marketing, strategic management, organization, human resource management, production and logistics management, taxation, digital business, and entrepreneurship. SBUR provides a forum for excellent articles in such areas that are also of interest to readers from other areas. Due to this thematic inclusiveness, SBUR is also open for cross-disciplinary and multidisciplinary research. From time to time, SBUR also plans special issues on current and highly topical themes. Articles apply rigorous research methodologies that fit the research questions to establish their scientific findings, such as analytical modeling, archival empirical and experimental research, field and case studies. We are also considering state-ofthe-art review articles and conceptual papers on topical themes.
Transformation is the overarching theme of the concluding issue 13(3) of Business Research for at... more Transformation is the overarching theme of the concluding issue 13(3) of Business Research for at least two reasons: Business Research will be transformed into Schmalenbach Journal of Business Research (SBUR) as of 1, January 2021, and ''Digital Transformation'' is the topic of the special issue of papers that have been contributed to the Annual Conference 2020 of the Verband der Hochschullehrer für Betriebswirtschaft (VHB, German Academic Association of Business Research) in Frankfurt. 1 Transformation of Business Research This year, the VHB has made the strategic decision to merge its official journal with SBR, the official journal of the Schmalenbach Gesellschaft (SG), to form Schmalenbach Journal of Business Research (SBUR). SBUR will be the joint official journal of VHB and SG, and both associations are committed to growing SBUR to a joint flagship journal in business research with global reach and high visibility. SBUR operates under Golden Open Access since the Open Science philosophy will be endorsed by both associations. Therefore, the present issue concludes the development phase of Business Research as a pioneering open access journal with its volume 13, and it is the last issue of Business Research as you are familiar with it. Along the traditions of the merged journals, SBUR will continue publishing original high-quality research that
In line with the expansion strategy that Business Research has entered in the year 2017, the comp... more In line with the expansion strategy that Business Research has entered in the year 2017, the composition and the structure of the Departments have changed. Specifically the Department of Operations and Information Systems has been split into two, with the Department of Operations, which will be continued to be directed by Thomas Spengler, and the new separated Department of Information Systems. We welcome Tilo Böhmann for taking over the responsibilities for the new Department of Information Systems starting this January 2020! We also welcome Jana Oehmichen and Elke Schüßler! Ms. Schüßler succeeded Thomas Hutzschenreuter already in 2019. Since January 2020, she and Ms. Oehmichen share the responsibilities for our largest and most heterogeneous Department of Management. We are most grateful to Thomas Hutzschenreuter for his diligent service over two appointment periods and for his generous contributions and advice to the Editorial Team of Business Research! The expansion strategy has already produced excellent results in its first 2 years of operation. We have increased the number of published manuscripts continuously from 12 in 2016 to 25 in 2019. Certainly, the Special Issue 12(1) on the theme of the Magdeburg Annual VHB Conference in 2018, ''(Ir)Rationality in Business Research and Practice'' was an important driver in this regard, and contributed to visibility and impact as evidenced by a spectacular increase in downloads and citations overall. Critical mass and open access are the keys to this success. We are hopeful that the Special Issue ''Digital Transformation'' dedicated to the governing theme of this year's Annual VHB Conference in Frankfurt will be an equally successful venture.
With this special issue ''(Ir)Rationality of decisions in business research and practice,'' Busin... more With this special issue ''(Ir)Rationality of decisions in business research and practice,'' Business Research embarks on a new strategy to publish special issues on cross-over topics of general interest to a large number of subfields in business research. By doing so Business Research closely supports and complements the activities of the German Academic Association for Business Research (VHB) to reintegrate the many diverging subfields of business research on issues of common interest. The title of this special issue focuses on the implications of (ir)rationality on business research and, hence, is particularly suited to bring together the widely diverging subfields, each of which is affected by the (ir)rationality of its actors. This is why this title has been chosen as the motto of the 2018 Annual Conference in Magdeburg. For the same reason it is the perfect title for the kick-off special issue. Understanding seemingly irrational behavior is an integral part of business research. According to the traditional paradigm, all human decisions are rational and informed, motivated by an accurate assessment of goods and services' utility. Under this set of assumptions, all actors in the marketplace try to maximize their profit or utility. In contrast, at the intersection of standard economics and behavioral sciences (e.g., behavior economics or consumer psychology), researchers realize that & Thomas Gehrig
We analyze how transparency affects information acquisition in a bargaining context, where propos... more We analyze how transparency affects information acquisition in a bargaining context, where proposers may choose to purchase information about the unknown outside option of their bargaining partner. Although information acquisition is excessive in all our scenarios, we find that the bargaining outcome depends crucially on the transparency of the bargaining environment. In transparent games, when responders can observe whether proposers have acquired information, acceptance rates are higher. Accordingly, in transparent bargaining environments information is more valuable, both individually and socially.
We study an ultimatum experiment in which the responder does not know the offer when accepting or... more We study an ultimatum experiment in which the responder does not know the offer when accepting or rejecting. Unconditional veto power leads to acceptances, although proposers are significantly greedier than in standard ultimatum games, and this is anticipated by responders. We also elicit responders' willingness to pay for (un)conditional veto power. The bids reveal a large endowment effect.
In this note we establish that rational demand expectations will typically not evolve in an evolu... more In this note we establish that rational demand expectations will typically not evolve in an evolutionary model. In an evolutionary model beliefs act like a commitment device to more aggressive behavior. This commitment eect has the same direction for strategic substitutes and complements and fades away in large markets. tiv glssitionX gUHD hRQD hVI * A preliminary draft of this paper was presented at Max Planck Institute in Jena and at Freiburg University. We appreciate valuable comments by the seminars participants.
This paper analyses the evolution of the safety and soundness of the European banking sector duri... more This paper analyses the evolution of the safety and soundness of the European banking sector during the various stages of the Basel process of capital regulation. In the first part we document the evolution of various measures of systemic risk as the Basel process unfolds. Most strikingly, we find that the exposure to systemic risk as measured by SRISK has been steeply rising for the highest quintile, moderately rising for the second quintile and remaining roughly stationary for the remaining three quintiles of listed European banks. This observation suggests that the Basel process has succeeded in containing systemic risk for the majority of European banks but not for the largest institutions. In the second part we analyse the drivers of systemic risk. We find compelling evidence that the increase in exposure to systemic risk (SRISK) is intimately tied to the implementation of internal models for determining credit risk as well as market risk. Based on this evidence, the sub-prime ...
European Corporate Governance Institute (ECGI) - Finance Working Paper Series, 2016
We study price discovery during the liquidity freeze of September 2008, when fundamental values w... more We study price discovery during the liquidity freeze of September 2008, when fundamental values were difficult to be assessed. We find that trading volume and trade size significantly increased two days before the public announcement of Lehman's lethal quarter loss. Nevertheless, informational risk as perceived by liquidity suppliers increased only after the public disclosure of this loss. The price impact of trades was minimal and stock markets kept on working efficiently for Lehman stocks until the insolvency announcement. Price efficiency is on average established after half a second, which could have been exploited by low-latency traders.
Purpose This paper aims to analyze systemic risk in and the effect of capital regulation on the E... more Purpose This paper aims to analyze systemic risk in and the effect of capital regulation on the European insurance sector. In particular, the evolution of an exposure measure (SRISK) and a contribution measure (Delta CoVaR) are analyzed from 1985 to 2016. Design/methodology/approach With the help of multivariate regressions, the main drivers of systemic risk are identified. Findings The paper finds an increasing degree of interconnectedness between banks and insurance that correlates with systemic risk exposure. Interconnectedness peaks during periods of crisis but has a long-term influence also during normal times. Moreover, the paper finds that the insurance sector was greatly affected by spillovers from the process of capital regulation in banking. While European insurance companies initially at the start of the Basel process of capital regulation were well capitalized according to the SRISK measure, they started to become capital deficient after the implementation of the model-b...
This paper analyses the evolution of measures of the safety and soundness of the European banking... more This paper analyses the evolution of measures of the safety and soundness of the European banking sector during the various stages of the Basel process of capital regulation. With the help of SRISK and Delta CoVaR we trace systemic risk and measures of systematic risk as the Basel process unfolds. We observe that, though systematic risk for European banks has been moderately decreasing over the last three decades, exposure to systemic risk has heightened considerably especially for the largest systemic banks. While the Basel process has succeeded in containing systemic risk for smaller banks, it has been less successful for the largest institutions. By exploiting the option of self-regulation embodied in the choice of internal models, the latter effectively seem to have increased their exposure to systemic risk as reflected in increasing SRISK. Hence, the sub-prime crisis found especially the largest and more systemic banks ill-prepared and lacking resiliency. This condition has even aggravated during the European sovereign crisis. Banking Union has not (yet) brought about a significant increase in the safety and soundness of the European banking system.
The theory of pricing to acceptability developed for incomplete markets is applied to marking one... more The theory of pricing to acceptability developed for incomplete markets is applied to marking one's own default risk. It is observed in agreement with Heckman (2004), that assets and liabilities are not to be valued in …nancial reporting at the same magnitude. Liabilities are to be marked at the ask prices of two price economies that are above the asset mark at the bid prices for such economies. Applying cones of acceptability de…ned by concave distortions it is observed that counterintuitive pro…tability resulting from credit deterioration is then mitigated. We argue that the di¤erence between the liability mark at two price ask and the asset mark at the two price bid be taken as an upfront expense deposited in a special account called the ODOR account for Own Default Operating Reserve. Procedures are described for pricing coupon bonds separately as assets and liabilities. These procedures employ the default time distribution embedded in the CDS market.
This article studies how fund managers' relative-performance concerns affect their investment str... more This article studies how fund managers' relative-performance concerns affect their investment strategies in bubble periods. The managers compete for flows that are sensitive to their performance ranking. Severe ranking tournaments with highly convex flow-performance relationship lead managers to ride bubbles to outperform each other, making bubbles long-lived. However, moderate tournaments may lead them to attack bubbles quickly. The results are consistent with the observed crosssectional variation in funds' investment strategies in bubble periods. Bubble-riding behavior is pronounced if the funds' tournament is too close to call, as interim followers try to catch up while interim leaders try to stay ahead. JEL classification: D82, G14, G23 * This article was previously circulated under the title "Ranking Concerns of Fund Managers and the Persistence of Bubbles." I am grateful to Margaret Bray, Markus Brunnermeier, Denis Gromb, and Dimitri Vayanos for very helpful discussions. I benefited from suggestions from Burton Hollifield (the editor) and an anonymous referee. For helpful comments, I thank
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