Bubbles and incentives: A post-mortem of the Neuer Markt in Germany

This paper aims to shed light on some of the major allocative consequences of financial market bubbles. In March 1997, the Neuer Markt in Germany opened. Six years later, in June 2003, it closed forever. In the interim period lay the spectacular rise and fall of the first and most important European market for hi-tech stocks. Given investors' frenzy, the Neuer Markt was a special kind of natural experiment. For some time, financing constraints were virtually non-existent. Our model of corporate financing shows that bubbles on financial markets will induce entrepreneurs and providers of external finance to enter the 'wrong' contract. Incentive compatibility constraints designed to guarantee that corporate decision-makers behave constructively turn out to be invalid, and managers will know this before shareholders do. Thus, faulty valuation by stock markets may directly induce destructive corporate behaviour: slack, empire building, excessive risk-taking, and fraud. At the time of the IPO, a huge amount of liquidity is injected into the companies, and a dynamic analysis of the balance sheet ratios and income statement items in the following years can teach us the ways in which this liquidity is diffused. We analyse the corresponding dynamics of total assets, tangible assets and equity, as well as the evolution of sales and profits for 204 German non-financial companies out of a total of 326 companies that had their IPO at the Neuer Markt. On the basis of consecutive annual accounts, we retrace the events using a dynamic flow of funds analysis. We assess the explanatory power of our model using non-parametric methods [Median tests, Wilcoxon-Mann-Whitney tests, Kolmogorov-Smirnov tests] and quantile regressions. Our results indicate that valuation has strong and systematic effects on incentives. Experience, as proxied by age at IPO, is shown to have a beneficial effect, whereas support by VC and PE firms does not seem to matter for the success of the enterprises considered. --Bubbles,corporate governance,quantile regressions,nonparametric statistics

Vector valued logarithmic residues and the extraction of elementary factors

An analysis is presented of the circumstances under which, by the extraction of elementary factors, an analytic Banach algebra valued function can be transformed into one taking invertible values only. Elementary factors are generalizations of the simple scalar expressions λ – α, the building blocks of scalar polynomials. In the Banach algebra situation they have the form e – p + (λ – α)p with p an idempotent. The analysis elucidates old results (such as on Fredholm operator valued functions) and yields new insights which are brought to bear on the study of vector-valued logarithmic residues. These are contour integrals of logarithmic derivatives of analytic Banach algebra valued functions. Examples illustrate the subject matter and show that new ground is covered. Also a long standing open problem is discussed from a fresh angle.analytic vector-valued function;annihilating family of idempotents;elementary factor;generalizations of analytic functions;idempotent;integer combination of idempotents;logarithmic residue;plain function;resolving family of traces;topological algebras

Some results on the invertibility of Toeplitz plus Hankel operators

The paper deals with the invertibility of Toeplitz plus Hankel operators T(a)+H(b) acting on classical Hardy spaces on the unit circle T. It is supposed that the generating functions a and b satisfy the condition a(t)a(1/t)=b(t)b(1/t). Special attention is paid to the case of piecewise continuous generating functions. In some cases the dimensions of null spaces of the operator $T(a)+H(b)$ and its adjoint are described