Bank capital and risk in the South Eastern European region

This paper examines the simultaneous relationship between bank capital and risk. A model is set up which assumes that banks’ decisions regarding capital and risk are made endogenously in a dynamic pattern. A simultaneous equation system was estimated using an unbalanced panel of SEE banks from 2001 to 2009. A key result for the whole sample of banks is the relationship between regulatory (equity) capital and risk which is positive (negative). However, a positive two-way relationship between regulatory capital and risk was found only in less than-adequately capitalized banks, which also increased substantially their risk in 2009. Thus, banks’ decisions differentiate between equity capital and risk and regulatory capital and risk. A positive, significant and robust effect of liquidity on capital was identified. Both regulatory and equity capital exhibit procyclical behavior, whilst the relationship between risk and rate of growth of GDP is ambitious.Banking; capital;risk;liquidity;regulation; dynamic panel estimation

The role of product variety and quality and of domestic supply in foreign trade

The study examines the behaviour of imports of goods in the Greek economy during the last five decades and their determinants, with an emphasis on consumer’s preferences for “variety and quality” of the imported goods as well as on the demand and supply conditions of these goods in the domestic market. The estimated equations provide strong evidence for the importance of these two factors for import demand, and also explain significantly the stylized facts as well as long- and short-term movements in trade.effective demand for imports; New Trade Theory; product variety and quality

Revisiting the Merger and Acquisition Performance of European Banks

The study examines the value creation of Merger and Acquisition (M&A) deals in European Banking from 1990-2004. This is performed, first, by examining the stock price reaction of banks to the announcement of M&A deals and, second, by analysing the determinants of this reaction. The findings provide evidence of value creation in European banks as the shareholders of the targets have benefited from positive and (statistically) significant abnormal returns while those of the acquirers earn small negative but non-significant abnormal returns. In the case of the shareholders of the acquirers, domestic M&As and especially those between banks with shares listed on the stock market, seem to be more beneficial compared to cross-border ones or those when the target is unlisted. Shareholders of the targets earn in all cases positive abnormal returns. Finally, although the link between abnormal returns and fundamental characteristics of the banks is rather weak, it appears that the acquisition of smaller, less efficient banks generating more diversified income are more value creating, while acquisition of less efficient, liquid and characterised by higher credit risk banks is not a value creating option.Bank mergers; mergers and acquisitions; abnormal returns

Revisiting the merger and acquisition performance of European banks

The study examines the value creation of Merger and Acquisition (M&A) deals in European Banking from 1990-2004. This is performed, first, by examining the stock price reaction of banks to the announcement of M&A deals and, second, by analysing the determinants of this reaction. The findings provide evidence of value creation in European banks as the shareholders of the targets have benefited from positive and (statistically) significant abnormal returns while those of the acquirers earn small negative but non-significant abnormal returns. In the case of the shareholders of the acquirers, domestic M&As and especially those between banks with shares listed on the stock market, seem to be more beneficial compared to cross-border ones or those when the target is unlisted. Shareholders of the targets earn in all cases positive abnormal returns. Finally, although the link between abnormal returns and fundamental characteristics of the banks is rather weak, it appears that the acquisition of smaller, less efficient banks generating more diversified income are more value creating, while acquisition of less efficient, liquid and characterised by higher credit risk banks is not a value creating option.Bank mergers; mergers and acquisitions; abnormal returns;

Procyclicality in the banking industry: causes, consequences and response

Procyclicality is an inherent feature of the real and especially the financial sector of an economy, which has been highlighted by the recent crisis. Due to procyclicality, banks are transformed from mitigation mechanisms to amplifiers of changes in economic activity potentially affecting financial stability. The causes of procyclicality can be attributed to market imperfections and deviations from the efficient market hypothesis, while other factors -including Basel II and accounting standards- may have exacerbated it. To attenuate procyclicality, a number of suggestions have been made in the form of rules and discretion and are presented according to the factors they aim to alleviate. Some of the suggestions have been adopted under the Basel III framework, including the countercyclical capital buffer. Although these Basel III proposals seem able to address the procyclicality issue, they will lead to higher minimum capital adequacy ratios, which are expected to increase lending costs and the provision of loans by banks, and reduce economic activity. However, the cost of the new proposals is expected to be lower than the estimated cost of financial crisis.Banking; procyclicality; demand and supply of loans; capital requirements; BasII and III

Price and Non - Price Competitiveness of Exports of Manufactures

This paper develops a demand function for Greece’s exports of manufactures according to New Trade Theory. The sample covers a rather long period of four decades with exports aggregated based on industrial rather than on trade classification. The study contributes to a better understanding of the effects of export prices, domestic and competitors’, as well as of non-price competitiveness approximated with capital stock, on export performance. The empirical estimation uses the Johansen maximum likelihood approach in the long run and a dynamic errorcorrection equation in the short run. The estimated long-run and short-run relationships follow the economic theory and are remarkably stable. It is shown that non-price competitiveness plays a vital role in explaining export performance in the long run as well as in the short run and that failure to include it in the export equation may lead to mis-specification error. As opposed to conventional models of export demand where income effects are very high, in the present study foreign income has a moderately high effect on exports in the long run and no effect in the short run. Exports are also sensitive to domestic and competitors’ prices in the long run, but cost and price competitiveness elasticities are close to one, indicating that Greek exporters have some ability to compete on the basis of prices.Export demand; price and non-price competitiveness; new trade theory; vector autoregressive error correction model

DETERMINANTS OF BANK PROFITABILITY IN THE SOUTH EASTERN EUROPEAN REGION

The aim of this study is to examine the profitability behaviour of bank-specific, industry-related and macroeconomic determinants, using an unbalanced panel dataset of South Eastern European (SEE) credit institutions over the period 1998-2002. The estimation results indicate that, with the exception of liquidity, all bank-specific determinants significantly affect bank profitability in the anticipated way. A key result is that the effect of concentration is positive, which provides evidence in support of the structure-conduct-performance hypothesis, even though some ambiguity arises given its interrelationship with the efficient-structure hypothesis. In contrast, a positive relationship between banking reform and profitability was not identified, whilst the picture regarding the macroeconomic determinants is mixed. The paper concludes with some remarks on the practicality and implementability of the findings.

Export performance, competitiveness and commodity composition

The study of export performance, especially for countries with serious external imbalances, is essential for economic decision-making. This study attempts to evaluate Greek export performance during the 1996-2001 period, using detailed panel data on bilateral trade by product. Factors explaining Greek export market shares are analysed with the method of Constant Market Shares. In addition, the dynamics of the specialization pattern of Greek exports and the effect of price competitiveness on export market shares are examined. The results show a considerable change in export structure, mainly the geographical structure, with a favourable effect on market shares. Although the pattern of comparative advantages and the technological intensity of Greek exports have improved, exports remain concentrated in low- and medium-technology sectors, while product variety and quality have declined. Finally, the results show heterogeneity among the panels. In the aggregate, export market shares are inelastic with respect to relative and absolute prices, which would call for focus on non-price factors to improve competitiveness in international markets. However, elasticities are greater than one for a considerable proportion of commodities.export performance; market shares; New Trade Theory; comparative advantages; Markov matrix; price and non-price competitiveness

Bank capital and risk in the South Eastern European region

This paper examines the simultaneous relationship between bank capital and risk. A model is set up which assumes that banks’ decisions regarding capital and risk are made endogenously in a dynamic pattern. A simultaneous equation system was estimated using an unbalanced panel of SEE banks from 2001 to 2009. A key result for the whole sample of banks is the relationship between regulatory (equity) capital and risk which is positive (negative). However, a positive two-way relationship between regulatory capital and risk was found only in less than-adequately capitalized banks, which also increased substantially their risk in 2009. Thus, banks’ decisions differentiate between equity capital and risk and regulatory capital and risk. A positive, significant and robust effect of liquidity on capital was identified. Both regulatory and equity capital exhibit procyclical behaviour, whilst the relationship between risk and rate of growth of GDP is ambitious

The role of product variety and quality and of domestic supply in foreign trade

The study examines the behaviour of imports of goods in the Greek economy during the last five decades and their determinants, with an emphasis on consumer’s preferences for “variety and quality” of the imported goods as well as on the demand and supply conditions of these goods in the domestic market. The estimated equations provide strong evidence for the importance of these two factors for import demand, and also explain significantly the stylized facts as well as long- and short-term movements in trade