Banking and multinational finance [Elektronische Ressource] : the role of incentives and institutions / vorgelegt von Basak Akbel

Basak Akbel

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2008
• Nombre de lectures: 12
• Langue: English

Extrait

BankingandMultinational Finance:
The Role of Incentives andInstitutions
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universit?t M?nchen
Volkswirtschaftliche Fakult?t
2008
vorgelegt von
Basak Akbel
Referentin: Prof. Dr. Monika Schnitzer
Korreferent: Prof. Dr. Bernd Rudolph
Promotionsabschlussberatung: 4. Februar 2009To my grandfather Hayri Tokay.Acknowledgements
FirstandforemostIwishtothankmysupervisorMonikaSchnitzerforhercontinu-
oussupportandencouragement. Shealwaysprovidedmewithveryhelpful adviceand
ideas as well as excellent guidance. Her support, reaching far beyond the scope of my
dissertation, was truly exceptional. Monika Schnitzer was and continues to be a real
mentor for me. I am also grateful to Bernd Rudolph and Klaus Schmidt, who o⁄ered
their support and time and kindly agreed to join my thesis committee.
Special thanks go to my current and former colleagues at the Seminar for Com-
parative Economics Karin Fritsch, Kira Fuchs, Christa Hainz, Iris Kesternich, Maria
Lehner, Michal Masika, Christian Mugele, Richard Schmidtke, and Martin Watzinger.
They all helped the progress of my thesis in innumerable ways. It was always a great
pleasure to work with all of you! I also want to thank our student helpers for their
excellent research assistance.
My thesis also pro?ted enormously from fruitful discussions with many other col-
leagues at the Economics Department. In particular I want to thank Jan Philipp
Bender, Tobias B?hm, Benno B?hler, Florian Englmaier, Karolina Kaiser, Tu-Lam
Pham and Nadine Riedel for their support and valuable comments.
Part of this dissertation was written during my research stay at the Stern School
of Business, New York University. I would like to thank the local faculty and PhD
students for welcoming and hosting me. I enjoyed the inspiring research environment
and bene?ted from the insightful suggestions I received on my work. Furthermore, I
am indebted to the Kurt Fordan Verein for ?nancing this stay.
I am also very grateful to my friends for their continuous support and friendship.
Finally, my greatest gratitude goes to my family and Ulrich ?your love and care have
been invaluable during the whole process!
Munich,February18th,2009 BasakAkbelContents
Preface 1
1 Securitization vs. Syndication: Credit Risk Transfer and the Origi-
nator?s Incentives 6
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.2 Related Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.3 Overview of Asset-Backed Securities. . . . . . . . . . . . . . . . . . . . 13
1.3.1 The Securitization Process . . . . . . . . . . . . . . . . . . . . . 13
1.3.2 The Institutional and Regulatory Environment. . . . . . . . . . 16
1.4 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.5 Benchmark Case: No Debt Resale . . . . . . . . . . . . . . . . . . . . . 22
1.6 Equilibrium Outcome of the Model . . . . . . . . . . . . . . . . . . . . 24
1.6.1 The Liquidation Decision . . . . . . . . . . . . . . . . . . . . . . 24
1.6.2 The Monitoring E⁄ort . . . . . . . . . . . . . . . . . . . . . . . 27
1.6.3 The Debt Resale Structure and Ex-Ante E¢ ciency . . . . . . . 31
1.7 Increased Regulatory Capital Requirements for Asset-Backed Securities
under Basel II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2 Creditor Rights and Debt Allocation within Multinationals 42
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.2 Related Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Contents ii
2.3 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
2.4 Equilibrium Outcome of the Model . . . . . . . . . . . . . . . . . . . . 55
2.4.1 Optimal Managerial E⁄ort Level . . . . . . . . . . . . . . . . . 55
2.4.2 Optimal Borrowing Structure and Creditor Rights . . . . . . . . 57
2.5 Comparative Statics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.6 Empirical Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
2.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
3 Home Market E⁄ects of Cross-Listing 72
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
3.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
3.3 Equilibrium in the Closed Economy . . . . . . . . . . . . . . . . . . . . 78
3.4 Equilibrium in the Open Economy . . . . . . . . . . . . . . . . . . . . 80
3.5 Welfare E⁄ects of Cross-Listing . . . . . . . . . . . . . . . . . . . . . . 86
3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Appendix to Chapter 1 93
Appendix to Chapter 2 109
Appendix to Chapter 3 125
Bibliography 135List of Figures
1.1 Stylized ABS-Transaction . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.2 Overview Tranching. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.3 Risk Weighting Categories . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.4 Repayments Proportionate Sale . . . . . . . . . . . . . . . . . . . . . . 20
1.5 Repayments First Loss Provision . . . . . . . . . . . . . . . . . . . . . 20
1.6 Time Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.7 Overview Thresholds for . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.1 Overview Borrowing Structures . . . . . . . . . . . . . . . . . . . . . . 50
2.2 Time Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Preface
Global credit markets ?nd themselves in major upheaval since August 2007. The
current turmoil was triggered by problems on the U.S. sub-prime mortgage markets.
A year after the onset of the crisis, banks around the world have written down almost
500 billion USD and no end is in sight. Before August 2007, the sub-prime crisis was
perceived to be a local problem on U.S. markets. By July 2008, it has turned out that
European banks account for almost half of the resulting write-downs (International
Monetary Fund (2008)).
The global spread of the crisis shows the downside potential of ?nancial market
integration. The sub-prime crisis could only reach this global dimension because in-
vestorsallovertheworldchanneledfundsintoasset-(mortgage-)backedsecuritiesthat
were issued by U.S. ?nancial institutions on a large scale.
These modern instruments of credit risk transfer have been strongly criticized in
the current debate about the sub-prime crisis. In particular, their incentive e⁄ects
on the banks?role as relationship lenders are questioned. Bank regulatory capital
requirements are central in this debate since they create an incentive to transfer risks
out of the banks?balance sheets. As the current crisis highlights in the context of
?nancially integrated markets, national regulatory and legal settings have an impact
on ?nancial market participants reaching far beyond a country?s borders.
The goal of the present dissertation is to clarify how regulatory and legal settings
in?uence?nancialmarketparticipants?incentivesanddecisions. Whilethe?rstpartof
thedissertationfocusesonthesuppliersoffunds,i.e. banksandinstitutionalinvestors,
the second part is dedicated to the analysis of the demand side, i.e. borrowing ?rms.
I develop theoretical models that take into account informational problems on ?-
nancial markets and investigate the interplay between incentives and the regulatory or
legal environment. Chapter 1 considers institutional investors and analyzes a bank?s
choice of a credit risk transfer instrument. Chapters 2 and 3 focus on the borrowingPreface 2
?rm?s ?nancing decisions. Chapter 2 investigates the optimal debt allocation within
a multinational corporation. Chapter 3 considers a ?rm?s cross-listing decision and
derives its impact on the ?rm?s home market competitors.
In the remainder of this preface, I present a brief overview of the three follow-
ing chapters and highlight their main contributions. Each chapter consists of a self-
contained paper and can be read independently.
Chapter 1 is directly related to the current credit crisis. Overcoming regulatory
capitalrequirementsisacentralgoalinbanksseekingtheuseofcreditrisktransferin-
struments. Themodeldevelopedinthischapterhelpstoexplainhowabank?sprimary
role as a relationship lender is a⁄ected by its decision to transfer credit risks by (par-
tially) selling o⁄its existing debt. I consider both the bank?s monitoring incentives as
wellasitsincentivetoliquidatenon-performingloans. Furthermore, theanalysisiden-
ti?es circumstances under which a bank might ine¢ ciently securitize its debt instead
of choosing a more traditional instrument of credit risk transfer like syndication.
Common belief among practitioners and economists is that keeping the junior part
of the debt in the securitization process, the so-called equity tranche, provides a bank
withstrongmonitoringincentives. Infact,I?ndthat,aslongasmarketsaredoingwell
andtheliquidationvalueofthedebtishigh, securitizationentailsnoadverseincentive
e⁄ects. In this case, keeping the equity tranche perfectly solves all potential incentive
problems associated