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PublicationShareholder Aktivismus und Public Value(Fachverlag der Verlagsgruppe Handelsblatt GmbH, 2013-10-18)
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PublicationRetaining Bandwidth Efficiency and Efficacy : Managing Systemically Relevant Institutions in Light of the New Role of FinanceIn this paper we examine how the notion of systemic relevance challenges bandwidth efficiency and efficacy of middle managers of financial service organizations and what managers can do to coop with increasingly complex environments of the firm. As the envisaged merger of The New York Stock Exchange (NYSE Euronext) with Deutsche Börse Group is revitalizing debates concerning institutional configurations of stock markets, we first ask how managers of one of the world's leading stock exchange organizations define the value proposition of their firm. Second, we explore how middle managers balance multiple goals of value creation by focusing on firm-internal and external factors, accounting for industry-, firm-, and personal-level explanations. Our findings suggest, first, that middle managers of stock exchange organizations incorporate aspects beyond shareholder value creation into their definitions of their firm's value proposition. This finding contradicts views according to which processes of demutualization and electronization have transformed stock exchanges into generic IT firms that discard their roles as financial utility providers. Second, we uncover conflict patterns in the goal balancing of middle managers that seem typical for for-profit driven firms, which operate in highly politicized environments. We conclude with a discussion of our findings, and provide suggestions for future research.
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PublicationWhen Management Is not Self Centered : Where Peter Drucker and Milton Friedman Agree on the Business of Business( 2011-11-02)Peter Drucker (1978) holds that managers must take responsibility for the common weal. This notion seems to contradict Milton Friedman's (1970) famous observation according to which, "the social responsibility of business is to increase its profits." As the essay demonstrates, Friedman (1970) does not deduce this claim in terms of economic reasoning. Rather, in his determination of managerial obligations, he refers to the institutions of private property and the act of contracting. He thus evokes the classical doux-commerce doctrine according to which the pursuit of profits is a socially desirable activity. Consequently, Friedman's (1970) dogma of shareholder value maximization as sole responsibility of managers is inherently linked to societal and ethical considerations that are also present in the argument of Drucker (1978). Jointly read, the works of Friedman (1970) and Drucker (1978) allow for definitions of "good management" as liberal art as proposed by Drucker (1989, 2008) that resolve tensions between the works of two giants of management thinking.
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PublicationTowards a dynamic interpretation of subjective and objective values : Historical accounts and principles of self-organizationOne of the fundamental challenges of any theory involving values concerns their "truth";. Whether or not values are considered as a given and objective category or as something only emerging from human interaction and thus being subjective is of crucial importance for scholars developing models and concepts that imply the notion of values, the evaluation of assets, or dynamic moments of development and change. In our conceptual paper we understand the notion of value as concept that is supporting people in dealing with uncertainty, i.e. their goal to reduce complexity when making decisions. We show how valuation techniques in business offer different solutions to the complexityproblem. We then show how the underlying value theories depend on historical development. Against this argumentative background we focus on the solution developed by the Austrian School of marginal utility. Based on those ideas we apply self-organization theory to formally re-concile the rift between subjective and objective values. The advantage of the perspective taken is that subjectivity can be fully taken into account while also acknowledging objective elements. The paper concludes with implication for research and practice showing also why its approach may be especially attractive in fundamental moments of change and crisis.
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PublicationBond Yields and Bailout Guarantees: Regional Debt Markets in Germany(Stämpfli Verlag, 2012)In July 2012, MOODY'S INVESTORS SERVICE "changed the long-term rating outlooks of six German states to negative from stable, citing the close fiscal ties between the regions and the federal government, whose outlook was downgraded two days ago". The change in outlook applied to the German states of Baden-Württemberg, Bavaria, (the two most productive states of Germany in terms of GDP/capita) Berlin (at the same time the largest city in Germany), Brandenburg (situated in former Eastern Germany and characterized by one of the least developed economies in Germany), North-Rhine-Westphalia (the largest state in Germany in terms of population and territory), and Saxony-Anhalt (like Brandenburg the state of Saxony-Anhalt is situated in Eastern Germany with relatively low GDP per capita). MOODY'S change in outlook can be interpreted as decisive rethinking within the framework of German fiscal federalism as it puts the financial health of single regions (Laender) as independent entities on the spot. Prior to 2010 rating agencies such as FITCH had not even issued region-specific ratings due to assumptions that German regions enjoyed (unconditional) bailout guarantees of the federal government. Does MOODY'S action thus reflect changes in assessments of risks within Germany's system of fiscal federalism, which are going to increase borrowing costs of German regions? Some German politicians seem to think that this may well be the case. In March 2012, OLAF SCHOLZ the social-democrat mayor and head of state of Hamburg, the second largest city-state in Germany in terms of population, proposed the introduction of "Deutschland-Bonds", i.e. bonds that are commonly issued and guaranteed by German states and the federal government. SCHOLZ' approach was also promoted by RAINER WIEGARD, then Schleswig-Holstein's Finance Minister and a member of the CHRISTIAN DEMOCRATIC UNION. Politicians of other regions and the federal government followed suit. The first "Deutschlandbond" will be issued in 2013. As of the writing of this essay, their structure and volume has not been decided. What will be the impact of "Deutschlandbonds"? Will they lower state-borrowing costs through introducing new federal bailout guarantees? Or will changes be miniscule as investors assume that these guarantees exist anyway? Viewing the financial crisis of 2008 - 2010 as natural experiment that tested investors' assumptions with respect to the existence of bailout guarantees on state-level debt in Germany, the essay discusses the question, in how far the introduction of "Deutschlandbonds" is likely to have a significant effect on borrowing costs of German regions. If investors perceived of federal and regional bonds already as close substitutes due to common bailout guarantees, then - so the reasoning of this essay - the introduction of "Deutschlandbonds" will be of limited effect to borrowing costs in regional debt markets.
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PublicationThe Success and Failure of Financial Innovations: The Case of Louis Bachelier(Stämpfli, 2012)The recent financial crisis is often associated with unintended consequences of financial innovation. According to the common narrative, the development of "financial weapons of mass destruction" allowed deteriorations in public and private debt that brought down private households, banks, and even national governments. The present essay aims to make use of the financial crisis as "large scale and unusual event … [that] provides an opportunity to ask basic questions." It will investigate into factors that determine success and failures of financial innovations. Why is it that at certain times, new theories and perceptions of financial markets are convincing to academics and practitioners, while at other times the same instruments and ideas are only met with disapproval in universities, board and trading rooms? In order to answer this question, this essay focuses on the case of LOUIS BACHELIEr. In 1900, BACHELIER, a young French mathematician and disciple of LOUIS POINCARÉ defended his dissertation for the degree of Doctor of Mathematical Science at the Sorbonne in Paris. The title of the dissertation was "The Theory of Speculation" . In the thesis, BACHELIER proposed a model for calculating option prices based on mathematical predictions concerning the price movement of the underlying asset. His thesis did not contain a single formal error and while BACHELIER referred to equilibrium assumptions where modern option pricing models rely to the no-arbitrage-theorem, his approach follows the same principles as the models brought forward by BLACK-MERTON-SCHOLES (1972) more than 70 years later. Yet, while F. BLACK, R. C. MERTON, AND M. S. SCHOLES' papers revolutionized modern financial theory and industries, BACHELIER'S achievements went by almost unnoticed during his time. The present paper compares the works of BACHELIER, and BLACK-MERTON-SCHOLES in order to find reasons for their different rates of success. Formal differences between the models of BACHELIEr and BLACK-MERTON-SCHOLES have already been investigated. Building onto these results the paper aims at filling gaps in the existing discourse, and looks at additional factors that may help to explain why models that were very similar in structural terms, caused almost opposite reactions in the financial communities of their respective time. The aforementioned goals imply that the paper will not only focus on theoretical congruencies and differences in the models of BACHELIER and BLACK-MERTON-SCHOLES. Rather, the paper is also looking at differences in the historic contexts in which the models were developed so as to understand variations in the latters' receptions. As the paper is thus providing a multi-layered perspective on crucial points within the evolution of modern financial theory, it provides insight for audiences that look at financial concepts and institutions as products of abstract reasoning, as well as results of specific economic and social contexts. The paper will proceed as follows: In a first part (II) it will provide a short history of stochastic approaches to asset pricing so as to determine the respective relevance of the approaches of BACHELIER and BLACK-SCHOLES-MERTON due to the role each of the approaches played for the evolution of modern financial theory. In a second part (III), the paper will review the basic mechanics of the BACHELIER model so as to compare them to the theories of BLACK-SCHOLES-MERTON. In a third part (IV), the paper will analyse the reasons that explain the different "rates of success" of the models. The fourth part (V) concludes with a summary of results and their limitations and provides an outlook on further research. The paper contrasts the models of BACHELIER and BLACK MERTON SCHOLES in terms of formal content, as well as with regard to their respective scientific contexts, and financial environments in 1900 and 1973. As the paper aims at obtaining generalizable information on factors that help explain the successful evolution of financial theorems, concepts, and institutions, biographic aspects such as the personality and individual characters of BACHELIER, BLACK, MERTON, and Scholes will be excluded from its analysis. Econometrically speaking, the paper is regarding these factors as error terms due to their subjective individuality, which - as interesting and relevant as these factors may be - does not allow for structural generalizations. The present paper thus aims at nothing more - but also at nothing less - than offering an explanation which in analogy to the observation of the Italian physicist E. MAJORANA provides insights into "basic laws governing elementary phenomena" while only being able to establish "the probability that a measure performed in a prepared system will give a certain result."
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PublicationFinancial Fragility and the Control of Credit : Switzerland's "Lehman Lesson", Shadow Bankng, and Irving Fisher's Proposal for a 100 Percent Reserve Requirement(Stämpfli, 2011)Large-scale and unusual events, especially when they bring unwanted consequences, provide an opportunity to ask basic questions." The finan-cial meltdown of 2007-2009 and its consequences surely fit this description hence delivering an occasion to scrutinize economic and financial struc-tures. Together with researchers from the University of St Gallen, the Swiss initiative "Schweizer Dialog" responded to this opportunity in December 2009 by initializing a dialogue between citizens and experts from business, politics, and academia on the social and economic consequences of the 2007- crisis. In this context, University of St Gallen economist HANS CHRISTOPH BINSWANGER has pointed at the excessive creation of money and credit in the years before the financial meltdown of 2007-2009 as fun-damental problem that had destabilized the financial system. Identifying the need of tighter regulations on money and credit, PROFESSOR BINSWANGER referred to IRVING FISHER'S famous scheme of "100% Money" as remedy that would help to stabilize financial markets in the future. The objective of this essay is to use PROFESSOR BINSWANGER'S proposal as starting point for a discussion on the scope of financial reform. The essay bases its observations on FISHER'S 100 percent scheme as hypothetical blueprint for a radical and thorough renewing of financial infrastructures. Rather than debating the economic and financial impacts of tighter controls on monetary growth and its aggregates, it focuses on the institutional and - since the current volume of the "Schriften der Assistierenden der Universität St. Gallen" addresses the interdependencies of Switzerland and Europe as key topic - geographic boundaries of regulatory reform. The remainder of this essay is structured as follows: Chapter II discusses Irving Fisher's 100 Percent Proposal focusing on its basic mechanics as well as its historic contexts. Chapter III reviews the institutional and geographic boundaries of regulatory debates taking recent trends and events such as the evolution of shadow banking, or Swiss bailout experiences into account. Chapter IV concludes.
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