Please click on the categories on the right to see a full list of my publications with links to my papers and a description of my current research projects.
Here are some highlights of my recent publications:
Arranger Certification in Project Finance
Using a sample of 4,122 project finance loans worth $769 billion arranged from 1991 to 2005, we demonstrate that certification by prestigious lead arranging banks creates economic value by reducing overall loan spreads compared to loans arranged by less prestigious arrangers. Banks participating in these loan syndicates, rather than the project sponsors, pay for this certification. They do so by allowing top tier arrangers to keep larger fractions of the upfront arranging fees. Results are robust to the correction for the endogenous choice of loans by prestigious arrangers and indicate that certification is even more valuable during periods of extreme financial stress.
E(M)U Effects in Global Cross-Border Banking
We use a unique global dataset from the BIS to investigate the effects of EU and Euro membership on cross-border banking in a gravity setting. We demonstrate that the Euro increases cross-border depositing among Euro zone countries by around 31%, while the effect on cross-border loans is quantitatively weaker and statistically insignificant at conventional levels. Conversely, the impact of being a member of the EU is very strong for loans (plus 49%) but insignificant for deposits. Our findings that other currency unions do not have the potential to increase cross-border lending and that non-EU regional trading organizations have a strong and positive impact on cross-border deposits but not on loans call for more research in what makes Europe and the Euro zone so special.
Financial Crises and Cross-Border Banking: New Evidence
The surge in cross-border banking prior to global financial crises took place not only in the interbank market but also in the retail market, e.g. between banks and their private customers abroad. We utilize confidential data to estimate for the first time the effects of banking, currency and twin crises on the geography of cross-border deposits and loans. We show that each crisis type has its own specific effects, that these effects themselves lead to sustained increases in cross-border banking, and that they are different for cross-border loans and deposits, respectively. In particular, we complement the traditional bank point of view with the new customer point of view. While crisis-affected banks have been found to reduce domestic as well as cross-border lending, we show that crises also have the effect of increasing cross-border banking, when driven from the side of the customers, living in countries affected by crises and searching for safe havens and reliable lenders abroad. By focusing on crises in customer countries, we can indirectly shed light on the international activities of banks in countries that themselves are not experiencing a crisis. Therefore, we can demonstrate that while crises reduce financial globalization for the affected banks they can simultaneously increase globalization for unaffected banks who respond to customer demand, thus changing the geography of global retail banking.
How should loan contracts for financing projects in countries with high political risk be designed? Looking at 4,978 project finance loans made to borrowers in 64 countries between 1996 and 2005, Christa Hainz and I show how non-recourse project finance lending and the participation of development banks in the loan syndicate help mitigate political risk. Based on the results of our study, we derive the following suggestions for the parties involved in financing an investment. If the political risk level (e.g., risks related to expropriation or profit repatriation) is high, then the parties can utilize a project finance structure or invite development banks to participate in the loan syndicate to compensate for the high risk level. At very high levels of political risk, the participation of development banks is especially effective at reducing risk. Therefore, our results support the notion that development banks stretch their political umbrellas over projects. – While evidence on the impact of law and institutions on the loan contract is well established, we find that the influence of political risk is actually more important than that of law and institutions. Overall our findings suggest that the complexity of a project finance loan’s contractual framework can serve as a substitute for both a weak legal environment and a lack of reliable politics.