Finance and Accounting

Forschungsschwerpunkte

Integrated Risk Management

Dieser Schwerpunkt beschäftigt sich mit der organisatorischen Ausgestaltung des Risikomanagements in Unternehmen. Im Vordergrund steht hierbei das Konzept des sogenannten “Integrated Risk Management” (IRM). Nach diesem, in Literatur und Praxis propagierten Konzept,  ist nicht das einzelne Risiko eines Unternehmens relevante Bezugsgröße für Risikomanagement Entscheidungen, sondern sein Beitrag zum Gesamtrisiko eines Unternehmens. Demzufolge sind Entscheidungen über den Umgang mit einzelnen Risiken stets im Kontext des gesamten Unternehmens, also koordiniert, zu treffen.

The Enterprise Risk Management (ERM) approach advocates coordinated risk management decisions based on information drawn from the entire company. The generation of this information within an organisation is examined both theoretically and empirically. The characteristics that lead to the dominance of the centralised ERM approach compared to the traditional decentralised risk management approach are identified. It may be determined, however, that the potential costs of coordination may outweigh the expected benefits.

Regulation in Banking and Insurance

In diesem Schwerpunkt beschäftigen wir uns mit Fragen der Regulierung im Bank- und Versicherungssektor. Hierbei werden, insbesondere vor dem Hintergrund der Anreizgestaltung für die jeweiligen Akteure, zahlreiche Sachverhalte untersucht. Vor allem die Gestaltung von Finanzinstrumenten zur anreizkompatiblen Vergabe von Krediten und das sogenannte Misselling bei Versicherungsprodukten stehen im Vordergrund.

Regulation in Banking and Insurance

In diesem Schwerpunkt beschäftigen wir uns mit Fragen der Regulierung im Bank- und Versicherungssektor. Hierbei werden, insbesondere vor dem Hintergrund der Anreizgestaltung für die jeweiligen Akteure, zahlreiche Sachverhalte untersucht. Vor allem die Gestaltung von Finanzinstrumenten zur anreizkompatiblen Vergabe von Krediten und das sogenannte Misselling bei Versicherungsprodukten stehen im Vordergrund.

Should I Stay or Should I Go? The Role of Advising Brokers in the Insurance Market (Bloos/Schellenberger)
German politics and consumer protection groups have recently scrutinized excessively high fees for brokers selling health and life insurance policies. In their view, these sales based commissions create the perverse incentive to switch customers to a new insurer each year even though they may be better off by remaining with their incumbent insurer. Using a model with uncertainty about insurersâ?? quality and whether the brokerâ??s advice is informative, we argue that switching customers from one insurer to another is not socially wasteful per se. In fact, it increases allocative efficiency for sufficiently high anticipated quality of advice and competition between insurers for the brokerâ??s recommendation.More generally, we show when and how an insurer will use distribution channels, i.e. selling with (through an agent) or without (direct distribution) advice, to separate differentially informed customers. In our framework, advice becomes credible if reputational losses associated with misselling are sufficiently high. The equilibrium strategies depend on financial literacy (CFL) and the screening ability of the insurer (SAI). We also show that a regulator who explicitly penalizes misselling generally induces higher prices and unserved customers.

Insurance Distribution and Advice with Potentially Informed Customers (Bloos/Schellenberger)
In this paper, we show when and how an insurer will uses distribution channels, i.e. selling with (through an agent) or without (direct distribution) advice, to separate differentially informed customers. We show that without credible advice, higher customer financial literacy (CFL) generally leads to higher prices and some customers may not receive insurance at all. In our framework, advice becomes credible if reputational losses associated with misselling are sufficiently high. We show, that with credible advice all customers always receive insurance in equilibrium. The equilibrium strategies depend on CFL and the screening ability of the insurer (SAI). If CFL is high, the insurer directly serves informed customers, while uninformed customers are advised. This is what we call “anticipated misselling” in equilibrium, i.e. customers anticipate that advice is sometimes not informative and discount their willingness to pay accordingly. If CFL is relatively low but SAI high the insurer always advises all customers. Only informative advice is given if both CFL and SAI are relatively low but the direct channel price is set at the willingness to pay for an uninformed customer. We also show that a regulator who explicitly penalizes misselling generally induces higher prices and unserved customers.

Equity and Contingent Capital: The Effects of Risk Financing on Bank Lending (Bloos/Zimmer)
We consider equity and credit risk transfer (CRT) as means of providing banks with risk capital to maintain the desired level of solvency. Our first analysis focuses on the disposability of risk capital. We therefore explicitly consider that unlike equity, CRT is a form of contingent risk capital, which means that the bank only receives cash in case of a default. We show that having the flexibility of disposable equity for use in any situation comes at the cost of a sub-optimal loan portfolio and consequently yields a rationale for the use of CRT. We also show that large banks have an advantage in using information about potential lending activities. Basically, they are more efficient in matching available funds and lending opportunities. Additionally, we show that an often mentioned drawback of blunted incentives in large organizations does not apply necessarily to large banks. However, with information about firms that is rather difficult to transfer, i.e. not financial data but for example personal information about potential borrowers, large banks face some limits. We consequently receive a rationale why small banks may serve small, informational opaque firms which is not likely to be affected by deregulation.

Deregulation in the Banking Industry and Small-Business Lending (Bloos)
We show that large banks have an advantage in using information about potential lending activities. Basically, they are more efficient in matching available funds and lending opportunities. Additionally, we show that an often mentioned drawback of blunted incentives in large organizations does not apply necessarily to large banks. However, with information about firms that is rather difficult to transfer, i.e. not financial data but for example personal information about potential borrowers, large banks face some limits. We consequently receive a rationale why small banks may serve small, informational opaque .firms which is not likely to be accepted by deregulation.

Managerial Preferences and Firm Performance

Manager führen Unternehmen im Auftrag der Eigentümer, meist ohne selbst einen signifikanten Anteil an dem Unternehmen zu halten. Bedenkt man ferner, dass Manager explizit dazu angehalten sind Entscheidungen zu treffen und eigene Vorstellungen über die Entwicklung eines Unternehmens haben, entsteht eine ganz besonderes Spannungsfeld. Wir analysieren in diesem Schwerpunkt auf welchen (finanzwirtschaftliche) Grundlagen Entscheidungen getroffen werden und wie sie die Unternehmensperformance beeinflussen.

Managerial Preferences and Competition in Internal Capital Markets (Bloos/Gerhardt)
In this contribution we demonstrate how managers with preferences for either “empire building” or “enjoying the quiet life” perform in an organization under competition. Our analysis shows, that quiet life managers can generally only be motivated by threatening them with competition while empire builders also value enhanced investment prospects. As we also demonstrate this leads to different optimal wages in regard to managerial preferences. Additionally, we identify two organizational ways of enhancing managerial incentives: (i) competition of managers with different investment prospects and (ii) a hetererogenous ex ante (re-)distribution of resources among competing managers. Again, results vary significantly with regard to managerial preferences.

Building an Empire or Enjoying the Quiet Life? Managerial Preferences and Firm Performance (Bloos/Knoll)
We analyze two in literature and practice most commonly discussed ways of managerial behaviour. On the one hand managers may act as empire builders (EB), who receive increased private benefits from having more funds under their control. On the other hand, managers might prefer to be left on their own running a limited amount of projects and .enjoying the quiet life” (QL).The analysis in this contribution is twofold. First, we set up a model and generally investigate if and how EB and QL managers act differently. We show that QL managers can generally only be motivated by threatening them with competition, while empire builders also value enhanced investment prospects. Second, we test our hypothesis with a large and unique data set of chief executives in German .rms. We hereby identify QL and EB managers by ranking them according to their visibility in public (fame.), which is measured by their appearance in popular press relative to the appearance of their respective firms.

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