Directional mobility of debt ratings

In this paper we describe a method to decompose a well-known measure of debt ratings mobility into it's directional components. We show, using sovereign debt ratings as an example, that this directional decomposition allows us to better understand the underlying characteristics of debt ratings migration and, for the case of the data set used, that the standard Markov chain model is not homogeneous in either the time or cross-sectional dimensions. We find that the directional decomposition also allows us to sign the change in quality of debt over time and across sub-groups of the population.

Wealth shocks, credit-supply shocks, and asset allocation:evidence from household and firm portfolios

We use a unique dataset with bank clients’ security holdings for all German banks to examine how macroeconomic shocks affect asset allocation preferences of households and non-financial firms. Our analysis focuses on two alternative mechanisms which can influence portfolio choice: wealth shocks, which are represented by the sovereign debt crisis in the Euro area, and credit-supply shocks which arise from reductions in borrowing abilities during bank distress. While households with large holdings of securities from stressed Euro area countries (Greece, Ireland, Italy, Portugal, and Spain) de-crease the degree of concentration in their security portfolio as a result of the Euro area crisis, non-financial firms with similar levels of holdings from stressed Euro area countries do not. Credit-supply shocks at the bank level result in lower concentration, for both households and non-financial corporations. Only shocks to corporate credit bear ramifications on bank clients’ portfolio concentration. Our results are robust to falsification tests, and instrumental variables estimation.

Wealth shocks, credit-supply shocks, and asset allocation:evidence from household and firm portfolios

We use a unique dataset with bank clients’ security holdings for all German banks to examine how macroeconomic shocks affect asset allocation preferences of households and non-financial firms. Our analysis focuses on two alternative mechanisms which can influence portfolio choice: wealth shocks, which are represented by the sovereign debt crisis in the Eurozone, and credit-supply shocks which arise from reductions in borrowing abilities during bank distress. We document het- erogeneous responses to these two types of shocks. While households with large holdings of secu- rities from stressed Eurozone countries (Greece, Ireland, Italy, Portugal, and Spain) decrease the degree of concentration in their security portfolio as a result of the Eurozone crisis, non-financial firms with similar levels of holdings from stressed Eurozone countries do not. Credit-supply shocks at the bank level (caused by bank distress) result in lower concentration, for both households and non-financial corporations. We also show that only shocks to corporate credit bear ramifications on bank clients’ portfolio concentration, while shocks in retail credit are inconsequential. Our results are robust to falsification tests, propensity score matching techniques, and instrumental variables estimation.

Ownership concentration:'Private benefits of control' and debt financing

Building on the ‘law and economics’ literature, this paper analyses corporate governance implications of debt financing in an environment where a dominant owner is able to extract ex ante ‘private benefits of control’. Ownership concentration may result in lower efficiency, measured as a ratio of a firm’s debt to investment, and this effect depends on the identity of the largest shareholder. Moreover, entrenched dominant shareholder(s) may be colluding with fixed-claim holders in extracting ‘control premium’. One of possible outcomes is a ‘crowding out’ of entrepreneurial firms from the debt market, and this is supported by evidence from the transition economies.

Mortality and financial crises

Drawing on a dataset covering more than 100 countries from 1970 to 2007, we estimate the impact of different types of financial crises on male and female mortality. We find that only currency crises have a direct short-term impact on mortality rates. We stylize our reading of the key empirical evidence of this paper in the following way: of three distinct types of financial crises, it is currency crises that have a direct short-term impact on mortality rates, and this is particularly the case for males.

Leaders' sensemaking under crises:emerging cognitive consensus over time within management teams

When facing a crisis, leaders' sensemaking can take a considerable amount of time due to the need to develop consensus in how to deal with it so that vision formation and sensegiving can take place. However, research into emerging cognitive consensus when leaders deal with a crisis over time is lacking. This is limiting a detailed understanding of how organizations respond to crises. The findings, based on a longitudinal analysis of cognitive maps within three management teams at a single organization, highlight considerable individual differences in cognitive content when starting to make sense of a crisis. Evidence for an emerging viable prescriptive mental model for the future was found, but not so much in the management as a whole. Instead, the findings highlight increasing cognitive consensus based on similarities in objectives and cause-effect beliefs within well-defined management teams over time.

Modelling stock volatilities during financial crises:a time varying coefficient approach

We examine how the most prevalent stochastic properties of key financial time series have been affected during the recent financial crises. In particular we focus on changes associated with the remarkable economic events of the last two decades in the volatility dynamics, including the underlying volatility persistence and volatility spillover structure. Using daily data from several key stock market indices, the results of our bivariate GARCH models show the existence of time varying correlations as well as time varying shock and volatility spillovers between the returns of FTSE and DAX, and those of NIKKEI and Hang Seng, which became more prominent during the recent financial crisis. Our theoretical considerations on the time varying model which provides the platform upon which we integrate our multifaceted empirical approaches are also of independent interest. In particular, we provide the general solution for time varying asymmetric GARCH specifications, which is a long standing research topic. This enables us to characterize these models by deriving, first, their multistep ahead predictors, second, the first two time varying unconditional moments, and third, their covariance structure.

The Kim Dynasty and North-East Asian security:breaking the cycle of crises?

Purpose—This article considers North Korea and the notion of crisis, by linking historical development over the Korean peninsula to the conflict resolution literature, and investigates why despite a large number of destabilizing events, a war involving Pyongyang has yet to erupt. Design/methodology—This article uses historical data and a framework developed by Aggarwal et al., in order to highlight patterns of interaction between states such as the United States, North Korea and South Korea, organizations such as the United Nations, as well as processes such as the Six- Party Talks and the Agreed Framework. The article then develops a crisis framework based on conflict resolution and negotiation literature, and applies it to three North Korean administrations. Findings—Findings suggest that an open- ended understanding of time (for all parties involved on the peninsula) leads to an impossibility to reach a threshold where full- scale war would be triggered, thus leaving parties in a stable state of crisis for which escalating moves and de- escalating techniques might become irrelevant. Practical implications—It is hoped that this article will help further endeavors linking conflict resolution theoretical frameworks to the Korean peninsula security situation. In the case of the Korean peninsula, time has been understood as open-ended, leading parties to a lingering state of heightened hostilities that oscillates toward war, but that is controlled enough not to reach it. In-depth analysis of particular security sectors such as nuclear energy, food security, or missile testing would prove particularly useful in understanding the complexity of the Korean peninsula situation to a greater extent. It is hoped that this paper will help further endeavours linking conflict resolution theoretical frameworks to the Korean peninsula security situation. Originality/value—This research suggests that regarding the Korean peninsula, time has been understood as open- ended, leading parties to a lingering state of heightened.

The Kim Dynasty and North-East Asian security:breaking the cycle of crises

This article considers North Korea and the notion of crisis, by linking historical development over the Korean peninsula to the conflict resolution literature, and investigates why despite a large number of destabilising events, a war involving Pyongyang has yet to erupt. The paper considers historical data and uses a framework developed by Aggarwal et al. in order to highlight patterns of interaction between states such as the United States, North Korea and South Korea, organisations such as the United Nations, as well as processes such as the Six-Party Talk and the Agreed Framework. The paper then develops a crisis framework based on conflict resolution and negotiation literature, and applies it to three North Korean administrations. Findings suggests that an elastic understanding of time (for all parties involved on the peninsula) leads to an impossibility to reach a threshold where full-scale war would be triggered, thus leaving parties in a stable state of crisis for which escalating moves and de-escalating techniques might become irrelevant.