Palgrave Macmillan Studies in Banking and Financial Institutions Series Editor: Professor Philip Molyneux The Palgrave Macmillan Studies in Banking and Financial Institutions are international in orientation and include studies of banking within particular countries or regions, and studies of particular themes such as Corporate Banking, Risk Management, Mergers and Acquisition The books’ focus is on research and practice, and they include up-to-date and innovative studies on contemporary topics in banking that will have global impact and influence Titles include: Elena Beccalli and Federica Poli (editors) BANK RISK, GOVERNANCE AND REGULATION Domenico Siclari (editor) ITALIAN BANKING AND FINANCIAL LAW Supervisory Authorities and Supervision Intermediaries and Markets Crisis Management Procedures, Sanctions, Alternative Dispute Resolution Systems and Tax Rules Dr Fayaz Ahmad Lone ISLAMIC FINANCE Its Objectives and Achievements Valerio Lemma THE SHADOW BANKING SYSTEM Creating Transparency in the Financial Markets Imad A Moosa GOOD REGULATION, BAD REGULATION Elisa Menicucci FAIR VALUE ACCOUNTING Key Issues Arising from the Financial Crisis Anna Omarini RETAIL BANKING Business Transformation and Competitive Strategies for the Future Yomi Makanjuola BANKING REFORM IN NIGERIA FOLLOWING THE 2009 FINANCIAL CRISIS Ted Lindblom, Stefan Sjogren and Magnus Willeson (editors) GOVERNANCE, REGULATION AND BANK STABILITY FINANCIAL SYSTEMS, MARKETS AND INSTITUTIONAL CHANGES Gianluca Mattarocci ANOMALIES IN THE EUROPEAN REITS MARKET Evidence from Calendar Effects Joseph Falzon (editor) BANK PERFORMANCE, RISK AND SECURITIZATION BANK STABILITY, SOVEREIGN DEBT AND DERIVATIVES Josanco Floreani and Maurizio Polato THE ECONOMICS OF THE GLOBAL STOCK EXCHANGE INDUSTRY Rym Ayadi and Sami Mouley MONETARY POLICIES, BANKING SYSTEMS, REGULATION AND GROWTH IN THE SOUTHERN MEDITERRANEAN Gabriel Tortella, Ruiz García and Luis José SPANISH MONEY AND BANKING A History Caner Bakir BANK BEHAVIOR AND RESILIENCE Jill M Hendrickson FINANCIAL CRISIS The United States in the Early Twenty-First Century Dimitris N Chorafas HOUSEHOLD FINANCE Adrift in a Sea of Red Ink Mario Anolli, Elena Beccalli and Tommaso Giordani (editors) RETAIL CREDIT RISK MANAGEMENT Palgrave Macmillan Studies in Banking and Financial Institutions Series Standing Order ISBN: 978–1–403–94872–4 (outside North America only) You can receive future titles in this series as they are published by placing a standing order Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England Lending, Investments and the Financial Crisis Edited by Elena Beccalli Professor, Università Cattolica del Sacro Cuore, Italy and Visiting Professor, London School of Economics, UK and Federica Poli Associate Professor, Università Cattolica del Sacro Cuore, Italy Selection and editorial content © Elena Beccalli and Federica Poli 2015 Individual chapters © Contributors 2015 All rights reserved No reproduction, copy or transmission of this publication may be made without written permission No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988 First published 2015 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010 Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-1-349-56498-9 ISBN 978-1-137-53101-8 (eBook) DOI 10.1057/9781137531018 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Lending, investments and the financial crisis / [edited by] Elena Beccalli, Federica Poli pages cm.—(Palgrave Macmillan studies in banking and financial institutions) Includes index Bank loans Credit Business enterprises – Finance Investments Financial crises I Beccalli, Elena II Poli, Federica HG1641.L45 2015 332.10990511—dc23 2015012895 Contents List of Figures viii List of Tables x Preface and Acknowledgements xii Notes on Contributors xvi How Difficult Is It to Raise Money in Turbulent Times? Paola Bongini, Arturo Patarnello, Matteo Pelagatti, and Monica Rossolini 1.1 Introduction 1.2 Review of literature 1.3 Sample characteristics 1.4 The cost of bonds at issuance 1.5 Conclusions The ‘Wisdom of the Crowd’ as an Antidote to the Credit Crunch: A Preliminary Analysis of Crowdfunding Daniele Previati, Giuseppe Galloppo and Andrea Salustri 2.1 Introduction: research approach and research questions 2.2 Crowdfunding defined: from policy orientations to academic literature 2.3 Different kinds of crowdfunding and some data about crowdfunding market 2.4 Crowdfunding drivers 2.5 Crowdfunding Attractiveness Index 2.6 Crowdfunding Attractiveness Index in the Euro Area 2.7 Summary and concluding remarks Financing Firms’ Networks: The Italian Case Elisa Giaretta and Giusy Chesini 3.1 Introduction 3.2 Literature review 3.3 The Italian context 3.4 Hypotheses development section 3.5 Research method and sample description v 1 18 22 22 23 27 30 31 39 46 52 52 54 60 62 63 vi Contents 3.6 Results 3.7 Conclusions The Role of Loan Dynamics and Structure for CEE Economic Growth Ewa Miklaszewska and Katarzyna Mikołajczyk 4.1 Introduction 4.2 The role of credit and its structure for economic growth 4.3 Role and factors influencing credit for SMEs 4.4 Loan dynamics and structure in CEE in the pre- and post-crisis period 4.5 Empirical analysis: the regression model 4.6 Empirical analysis: panel data model 4.7 Conclusions China’s Shadow Banking System and Its Lurking Credit Crunch: Causes and Policy Options René W.H van der Linden 5.1 Introduction 5.2 China’s debt concerns and subsequent policy responses 5.3 The nature of China’s shadow banking and a comparison with its Western peers 5.4 The rationale behind the rapid expansion of China’s shadow banking 5.5 The size and scope of China’s shadow banking system 5.6 Reasons for and against a potential crisis in the making 5.7 Preventive and remedial policy measures to tackle shadow banking risks 5.8 Concluding remarks and recommendations An Index of Bank Liquidity Creation: An Application to the Banking Systems of the Eurozone and the Liquidity Policy of the ECB during the Euro Crisis Pierluigi Morelli, Giovanni B Pittaluga and Elena Seghezza 6.1 Introduction 6.2 The theoretical framework 6.3 The trend of the liquidity needs of the banking systems of the Eurozone 6.4 The way ECB faced banks’ liquidity needs in the recent financial crises 6.5 Conclusions 69 73 78 78 79 82 86 91 96 100 104 104 107 111 115 117 121 123 128 134 134 136 139 146 151 Contents The Performance of Listed European Innovative Firms Luisa Anderloni and Alessandra Tanda 7.1 Introduction 7.2 Literature review 7.3 Sample and methodology 7.4 Results 7.5 Conclusions Investment Strategies of Institutional Investors: An International Comparison of Sovereign Pension and Social Security Reserve Funds Alberto Dreassi, Stefano Miani and Andrea Paltrinieri 8.1 Introduction 8.2 Literature review and hypothesis development 8.3 Data and methodology 8.4 Discussion of findings 8.5 Conclusions and policy recommendations Index vii 157 157 159 161 168 177 182 182 185 188 192 201 208 List of Figures 1.1 1.2 1.3 1.4 2.1 2.2 2.3 2.4 2.5 2.6 2.7 4.1 4.2 4.3 4.4 4.5 4.6 4.7 5.1 5.2 5.3 6.1 Floating rate bonds: the relationship between the cost at issuance and maturity Fixed rate bonds: the relationship between the cost at issuance and maturity Floating rate bonds: the relationship between the cost at issuance and issue rating Fixed rate bonds: the relationship between the cost at issuance and issue rating CFA Index 2013: score and rankings CFA Index 2013: strengths and weaknesses CFA Index 2013: credit market CFA Index 2013: household & internet skill CFA Index 2013: corporate CFA Index 2013: innovation environment CFA Index 2013: legal environment Annual growth rates of GDP and loans to non-financial corporations in MU-12 and in CEE-8 Corporate loans in EU, 2004–13 Annual average loan growth (CAGR), 2004–08 Loan structure in EU countries (loans as percentage of GDP) Annual average corporate loan growth (CAGR) in CEE countries in pre-crisis and post-crisis periods Annual average household loan growth (CAGR) in CEE countries in pre-crisis and post-crisis periods Corporate loans within total loans in CEE countries (2004–13) The relation between China’s domestic credit to private sector (percentage of GDP) and its current account (percentage of GDP) The deleverage challenge: China’s total credit and nominal (GDP, y/y%) China’s Total Social Financing as percentage of GDP (2002–14) Liquidity creation of the Eurozone banking system viii 16 16 17 17 41 41 42 42 43 43 44 80 81 87 89 90 90 91 108 109 118 144 List of Figures 6.2 6.3 6.4 6.5 6.6 6.7 6.8 7.1 7.2 8.1 Banking liquidity creation in the core countries and in the GIPSI countries Liquidity needs at the national level Net lending by the ECB ECB interest rate on main refinancing operations Assets and liabilities of the ECB towards the banks Net financing by the ECB Liquidity creation by the banks and ECB financing (GIPSI countries) Number of IPOs by month Average initial return (dgr) by month Illustrative representation of SPRF, SSRF and other institutional investors ix 145 146 148 149 150 151 152 170 171 184 Investment Strategies of Institutional Investors 201 Finally, time dummies bear a moderate statistical significance for years 2011 and 2012 (equivalently for the pre-2010 dummy in the second model), showing that after the emergence of the sovereign debt crisis the share of home-country investments generally decreased The interpretation of this result should also consider the different contribution expressed by SPRFs, starting with a lower proportion of domestic investments and increasing them at the peak of the crisis (Monitor and FEEM, 2009 and 2010): therefore, when compared to SSRFs in our sample, these entities saw their home bias reduced to a higher extent 8.5 Conclusions and policy recommendations This chapter analyses the strategic asset allocation of Sovereign Pension Reserve Funds (SPRFs) and Social Security Reserve Funds (SSRFs) in the light of their importance as institutional investors within an explicit or implicit reference to long-term retirement goals Moreover, we examined their response to the sovereign debt crisis and the level and trend in home bias of their portfolios We analyse a small sample of large SPRFs and SSRFs for the period 2007–12 through a pooled OLS regression on four major asset classes and on the level of home-country investments, controlling for size, experience, location in emerging or developed countries, quality of disclosure and time Our hypotheses mainly revolve around an expected higher level of risk-taking and lower level of home bias in SPRFs if compared to SSRFs, with effects increasing since the inception of the financial crisis and especially after the triggering of the sovereign debt crisis The scarcity of data and heterogeneity typically biasing research on SWFs allowed only a partial confirmation of our expected results Our findings suggest a less aggressive asset allocation for SSRFs, with an overweight of fixed income, consistently with the prevalence of contributions and scrutiny of private citizens Conversely, we find an overweight of equity and alternatives in SPRFs that could indicate the pursuit of equity and illiquidity premiums together with additional strategic goals, such as the maximization of risk/return reward in managing public financial resources However, the general strategic asset allocation of funds does not seem to be significantly influenced from the difference phases of the financial crisis In terms of home 202 Alberto Dreassi, Stefano Miani and Andrea Paltrinieri bias, higher levels of domestic investments are shown by larger institutions and SSRFs, in particular after the triggering of the sovereign debt crisis, potentially due to their role within national economic policies These results convey policy implications especially in two areas Firstly, despite a stable trend of improvement in transparency of SPRFs, a greater compliance to international standards (for instance the ‘Santiago Principles’) could be beneficial for both management and performance of these entities Then, regulatory frameworks on investments of SSRFs should weight more carefully the trade-off between the importance of supporting the domestic financial stability and the risks posed by an excessive domestic concentration on future retirement benefits of citizens Finally, the main limitations of this study suggest two main directions for further research emerge On one side, an increased transparency could extend the size and depth of the analysis, allowing comparisons with other institutional investors such as mutual investment and private pension funds and improve the robustness of results, contributing to the steering of these entities Additionally, more detailed and homogeneous information within each asset class at the level of each security should allow an effective measure of the risk-based performance and the investment behaviour of funds that will affect the retirement income of a high number of individuals in both developed and emerging countries Government Pension Fund-Global Abu Dhabi Investment Authority SAMA China Investment Corporation Kuwait Investment Authority GIC Oil & Gas Fund Temasek Holdings Qatar Investment Authority Australian Future Fund Kazakhstan National Fund Korea Investment Corporation Alaska Permanent Fund State Oil Fund National Pension Reserve Fund Social Security Trust Fund Government Pension Investment Fund General Organization for Social Insurance National Pension Service National Social Security Fund Canada Pension Plan Investment Board National Pension Fund Employees Provident Fund Organisation Social Security Reserve Fund AGIRC-ARCOO Sustainability Guarantee Fund Quebec Pension Plan Zilverfonds Social Security Financial Stabilisation Fund Jamsostek SSRF USA Japan Saudi Arabia South Korea China Canada Sweden India Spain France Argentina Canada Belgium Portugal Indonesia Source: Sovereign Wealth Fund Institute, 2013; OECD, 2013; World Bank, 2013; CIA, 2014 Name Country SPRF Norway UAE Saudi Arabia China Kuwait Singapore Russia Singapore Qatar Australia Kazakhstan South Korea USA Azerbaijan Ireland Table 8.A.1 Largest SPRFs and SSRFs by size (AUM December, 2012) Appendix 2,732.3 1,298.1 448.0 302.9 175.9 173.6 147.0 106.7 83.1 65.7 50.0 39.3 25.3 14.4 14.1 694.4 627.0 532.8 482.0 342.0 247.5 175.5 157.5 115.0 85.7 61.8 56.5 46.8 32.7 19.4 AUM 16.8 28.8 30.4 19.0 1.2 11.9 36.7 1.7 5.6 2.8 6.8 2.7 5.7 5.4 0.6 213.4 117.3 36.2 3.3 122.8 61.4 5.2 39.1 43.1 8.8 16.8 3.6 0.3 21.8 9.8 AUM/GDP (%) –73.9579* (0.027) 1.4632 (0.186) 3.5117** (0.003) 0.6303 (0.82) 24.2343*** (