Research articles for the 2021-06-04

10 Years of YANIL: Restructuring across Europe and the Directive on Restructuring and Insolvency
Boon, Gert-Jan,Langkjaer, Line,Ehmke, David Christoph,Gant, Jennifer L. L. ,Ghio, Emilie
In 2009, Prof. Em. Bob Wessels and Dr. Myriam Mailly took the initiative to establish the Younger Academics Network of Insolvency Law (YANIL). It is a branch of the INSOL Europe Academic Forum (IEAF) which brings together postgraduate and PhD students along with early career academics. The founders rightly observed the need to have the younger academics connect with their peers and overcome the limited opportunities to engage in the insolvency academy, as sometimes experienced by those still early in their careers. This year, YANIL celebrates its ten-year anniversary. Since its founding, YANIL has grown steadily and currently comprises over 70 members from more than 20 jurisdictions. It aims to foster the exchange of information on specific sources, teaching and research opportunities, research funding and support. YANIL group members meet annually at the IEAF, being present on a dedicated YANIL panel during the conference, and also connect at other insolvency-related events throughout Europe and beyond. Over 30 younger academics have been invited over the last ten years to present and discuss their research at the annual YANIL panel of the IEAF. To mark this anniversary, five members of the board of YANIL conducted a comparative study on preventive restructuring across Europe and the impact of the EU Directive on Restructuring and Insolvency (Directive). The study includes country reports from Denmark, Germany, France, the Netherlands and United Kingdom. Here we will briefly discuss this study.

Airbnb During the Pandemic: Stakeholder Capitalism Faces a Critical Test
Esty, Benjamin,Ciechanover, Allison
As the covid pandemic spread in early 2020, global travel ground to a halt. For Airbnb, the San Francisco-based company providing accommodation rentals, the impact was both swift and severe as revenues plummeted by more than 70% year-over-year. Responding to the dramatic downturn was a challenge for CEO Brian Chesky and his leadership team because the firm had a adopted a stakeholder model with five key constituents: guests (renters), hosts (landlords), employees, communities and shareholders. While all five groups could benefit in the long-term if the firm succeeded, it was less clear how they should balance the potentially conflicting demands in the short-term particularly given the mounting losses. For example, in the face of travel restrictions, Airbnb could support guests by requiring hosts to refund deposits or could support hosts by allowing them to keep deposits. Similarly, should Airbnb use existing cash to maintain employment levels or downsize to protect capital providers? In the highly uncertain environment that existed in April 2020, Chesky and his team had to make many critical decisions with little precedent and limited information to guide them. As one of the first Silicon Valley "unicorns" to have adopted a stakeholder business model, the world would be watching to see what they did, how they did it, and why.This case has two pedagogical objectives. First, it explores one firm’s attempt to create and implement a stakeholder business model. As part of this effort, Airbnb created new board committees, new compensation schemes, and new operating principles, and promised to host a “Stakeholder Day (akin to the traditional investor or analyst days) to report on the status of its efforts. Were these steps sufficient or was more needed? Second, the case analyzes decision making during a crisis. Would the stakeholder model hinder operations at a critical time or would it provide an advantage that increased the probability of survival? Would the threat of failure force trade-offs between key stakeholders or was it possible (and advisable) to share the economic pain more equally? And if stakeholders had to suffer, as appeared inevitable, would how the company acted offset what it had to do to survive?

An Introduction to the Judicial Cooperation in Economic Recovery (JCOERE) Project
Lynch Fannon, Irene,Gant, Jennifer L. L.
JCOERE will focus on the strengthened co-operation obligations imposed on the judiciary in the Recast Regulation but will confine its enquiry to preventive restructuring processes. In addition to exploring challenges that procedural rules might present to co-operation, this project will focus on specific substantive problems that will likely become more acute in the restructuring context, such as the commencement of secondary proceedings to protect a creditor’s interests in the face of the ‘cram-down’ provisions as envisaged by the Directive. The question of whether it is reasonable for a court in the second state to decline jurisdiction becomes more immediate in such circumstances. Radical restructuring processes may make co-operation more difficult which may, in turn, inhibit restructuring in the EU.With the introduction of more sweeping restructuring procedures throughout the EU under the proposed Directive, situations like SAIC are likely to become more common. The JCOERE project therefore addresses the implementation of cooperation obligations imposed on EU domestic courts by the Recast EIR in anticipation of the introduction of new preventive restructuring procedures.

Avoiding the Risks of Regulatory Red Tape: Insurance Regulation for the 21st Century
Booth, Philip
The extent of regulation of insurance companies has grown significantly in recent decades. The ‘freedom with publicity’ regime which defined the regulatory approach from 1870 to 1970 appeared to work and ran with the grain of the market. Arguments that are given today for prudential regulation of insurers tend to be spurious or not well founded. Much government regulation of insurance companies is unlikely to achieve its declared objective and might even encourage problematic behaviours within insurance markets. Regulation to ensure good governance and good information flows to markets may have some benefits and is less likely to cause the problems that other forms of regulation create. A case can be made for regulation designed to promote the objective of consumer protection. However, all the benefits of such regulation can be achieved with far fewer costs by creating a voluntary system of government regulation. Whether an insurance policy was written by a company which was part of the government regulatory system should be very clear to consumers at the point of sale.

CEO Compensation Gap between Gender and Women’s Risk-Averse Tendency
Kang, SungChang
This study investigates the CEO compensation gap between gender and female CEOs’ risk preferences for incentives. Previous studies suggest no significant difference in CEO compensation gaps between gender, while female CEOs do not prefer incentives to men because of women’s risk-averse tendency. Recently, the proportion of female CEOs has been increasing significantly. Therefore, the demand for female CEOs can increase the level of compensation for female CEOs. Based on the S&P 500 data from 2009 to 2018, this study confirms that female CEOs receive significantly higher compensation and incentives than men. Notably, Female CEOs also do not show any significant difference in risk tendency regarding incentive. When examining differences in CEO pay between gender by setting from 2009 to 2013 similar to literature, this study finds no significant differences in CEO pay between gender. However, data analysis between 2014 and 2018 demonstrates that female CEOs receive significantly higher compensation than men. This finding suggests that CEO compensation gap between gender has become more significant in recent years. This study contributes to alleviating the perception that women's risk-averse tendencies make them incompetent and receive lower compensation than men

Discussion of
Stolbov, Mikhail
The presentation discusses the paper "The impact of macroprudential policies on industrial growth" by Carlos Madeira from the Central Bank of Chile, highlighting its merits and areas for further research.

Extracting Implied Stock Returns from Options Prices
Jaisinghani, Nikhil
This paper proposes a new method for extracting the market’s expected return of a stock from options prices while also calculating option-specific risk discounts (calls) and premiums (puts). However, first, I revisit the variable μ (expected return of a stock) as it relates to stock prices in the Black-Scholes formula derivation. I postulate that μ is itself a function of time and therefore the partial derivative equation Black, Scholes, and Merton solved was incomplete. Importantly, this undermines the conclusion Black, Scholes, and Merton came to, that an option’s price is not a function of the expected return of the underlying stock. To extract the expected return from options prices, I begin by proposing formulas for call and put prices introducing variables for strike price specific discounts and premiums. Known qualities of options, required to satisfy the no arbitrage assumption, are then used to solve for these discounts and premiums as a function of the implied expected price of a stock and σ. Finally, implied expected price and σ are solved for using numerical analysis.

Financial Consolidation, Corporate Finance and Firm Investment in the Business Cycle
Kokas, Sotirios,Minetti, Raoul,Moreland, Timothy
We study the impact of the concentration and complexity of the banking sector on firms' financing and investment behavior over the business cycle. We find that, after the late 1990s, while debt issuance remained procyclical for US firms of all sizes, equity issuance and liquidity accumulation switched from countercyclical to procyclical for small and medium-sized publicly-traded firms. Using matched firm-bank data, we uncover evidence that bank consolidation contributed to this change. We rationalize these findings through a general equilibrium business cycle model with financial frictions calibrated to US data. After bank consolidation, the weakening in firms' bargaining power and relational ties with banks enhances firms' precautionary demand for liquidity and equity issuance incentives following positive shocks. The change in financing behavior increases investment sensitivity to aggregate productivity shocks.

For Love or Money? Family Versus Financial Blockholders in International Acquisitions
Chen, Victor Zitian,Hobdari, Bersant,Kellermanns, Franz,Sluhan, Anne
Research Question/Issue: We study the relationship between family blockholding of voting rights and the relative size of international acquisitions, and the moderating effect of two types of financial blockholders (pressure-resistant and pressure-sensitive blockholders).Research Findings/Insights: Employing an international sample of 8,687 nonfinancial cross-border acquisitions conducted by 4,630 acquirer firms from 40 home markets to 66 host countries between 2004 and 2013, we find a U-shaped relationship between family blockholding of voting rights and the relative size of international acquisitions. Further, we find evidence that this relationship is moderated by the presence and type of financial blockholders. While pressure-resistant financial blockholders shift this relationship downwards (due to intensified conflicts), pressure-sensitive financial blockholders shift it upwards.Theoretical/Academic Implications: We contribute to the literature on family firm governance and internationalization on several fronts. First, we revisit the predominant logic of linear effects of the family blockholding. We suggest the family blockholding’s effects are related to nonlinear risk preferences of family owners, expressed through SEW slack. Second, we suggest that the “dominant shareholder interest” assumption of family firms, usually based on the controlling family’s SEW should be interpreted contingent upon the interests of other financial shareholders. Finally, using family-financial blockholder conflicts as the scenario, we suggest that principal-principal conflicts depend on the composition of the conflicting blockholders, specifically, upon the nature of their relations with the firm.Practitioner/Policy Implications: This study offers insights to policymakers and those interested in incentivizing family ownership that family owners’ risk behaviors should be understood and discussed in the context of different financial blockholders as a reference group.

Free Banking and Credit Market Competition
Thanassoulis, John E.,Vadasz, Tamas
Why do some countries (e.g. US/UK) have free banking and expensive overdrafts, while others (e.g. France/Germany) do not? Existing models point to naivety amongst consumers â€" but without evidence that such naivety differs across countries. This paper offers a different explanation. We model the two stages of competition between banks for accounts and then to supply credit. We allow for banks to compete to poach customers in the credit market. We show that free banking results when a country has greater numbers of high credit-risk borrowers. We predict that this leads to borrowers switching less yet paying higher prices for credit.

Green Investments: A Luxury Good or a Financial Necessity?
Yousaf, Imran,Suleman, Tahir,Demirer, Riza
This study examines the diversification and hedging benefits of green investments for conventional stock portfolios in the context of the recent COVID-19 pandemic. While the findings confirm the status of gold as a strong hedge against stock market downturns, we find that clean energy investments, green bonds, in particular, have the potential to serve as a safe haven as well. In fact, compared to the other alternative and sustainable investments in our sample, green bonds are found to be the only asset that serves as a strong safe haven against large stock market fluctuations due to the COVID-19 pandemic. Portfolio analysis further shows that supplementing conventional stock portfolios with green bonds during the COVID-19 pandemic resulted in the highest risk-adjusted returns, compared to those supplemented with other alternative assets in the sample. Our findings support the emergence of green investments not as a luxury good, but a necessity for improved financial stability and performance, particularly during the turbulent market states driven by the recent pandemic.

Impact of the Implementation of IFRS 9 on the Czech Banking Sector
Witzany, Jiri,Pastiranová, Olga
The aim of this study is to provide an overview of the principles of IFRS 9 implementation and to analyse its impact on the Czech banking sector. Unlike the previous IAS 39 standard valid until the end of 2017, the new accounting rules require banks to estimate the forward-looking expected credit losses (ECL) while considering the relevant exposure level information as well as available macroeconomic predictions. Due to the increased complexity of the ECL models and changing macroeconomic expectations, we hypothesize that the new standard leads to the increased volatility of loan loss provisions. This hypothesis is empirically tested and, more or less, confirmed by an analysis of the quarterly provisioning flows for a sample of large Czech banks from the years 2016-17 under IAS 39 and from 2018-19 under IFRS 9.

Improving Global Financial Services Regulation
Singham, Shanker,McBride, Catherine
As the most globally active financial services provider, the UK has the potential to be a key player in helping to develop a more efficient international regulatory framework after it leaves the EU. All entities that have efficient and attractive financial services offerings will benefit from having better global financial services regulation. The UK financial services industry is a major component of its economy. In 2016, UK financial services contributed 6.7% of the total UK GVA1, provided 3.1% of all jobs in the UK and generated a trade surplus of £68bn2 in the finance and insurance sectors.

Interest Rate Risk of Savings Accounts
Witzany, Jiri,Diviš, Martin
Interest rate risk measurement and management of non-maturity deposit balances presents a challenge for practitioners and academic researchers as well. The paper provides a review of several methodological approaches focusing on the area of savings accounts rate sensitivity modeling and estimation. The proposed models are tested on a Czech banking sector dataset providing mixed results regarding the cointegration type models generally recommended in the literature. On the other hand, the analysis shows that simpler regression models may provide more robust results if the cointegration tests between the saving accounts rate and the market rate series fail.

JCOERE Judicial Cooperation Supporting Economic Recovery in Europe Report 2: Report on Judicial Cooperation and European Harmonisation and Integration in Preventive Restructuring
Lynch Fannon, Irene,Gant, Jennifer L. L. ,Finnerty, Aoife,O’Connor, Molly
The JCOERE Project, funded by the European Commission’s DG Justice Programme (2014-2020), addresses two aspects of the European Union’s strategy to respond to the problems of cross-border insolvency within the increasingly integrated internal market. The European Commission’s strategy is described in the Commission Recommendation 2014/135/EU on a new approach to business failure. The first aspect concerns the co-operation obligations that have been imposed on all domestic Member State courts and judiciary under the European Insolvency Regulation (Recast) 2015/848 (EIR Recast). The second concerns the implementation, subsequent to the Preventive Restructuring Directive 2019/1023, of a preventive restructuring framework in the domestic law of all Member States.The second JCOERE Report analyses the co-operation obligations arising from the EIR Recast, which are imposed on courts and practitioners in EU Member States to co-operate in cross-border insolvency and restructuring matters. The Report also undertakes a benchmarking of judicial utilization and awareness of best practice guidelines on co-operation that have been adopted by European and international organizations. This was achieved through engagement with judicial networks during a number of interactive workshops and through the distribution of a judicial survey to three focus groups comprised of members of the judiciary. This, together with JCOERE Report 1, has contributed to answering the overall project research question, which asks:Based on existing experience with restructuring (e.g. Ireland), will obstacles to court co-operation arise from substantive rules, which are particular to preventive restructuring.Will some of these obstacles to court co-operation be exacerbated in the preventive restructuring context, given that they pertain to existing procedural rules?JCOERE Project Report 2 reflects the goals of Work package 3 of the Project and accordingly focusses on the courts, including judicial and administrative authorities, charged with approving and implementing restructuring plans and to which the co-operation obligations are addressed. The second Report considers the application of best practices for co-operation of cross-border preventive restructuring cases, judicial awareness of existing obligations and guidelines and judicial practice in this area. Report 2 also considers broader questions, such as differences in judicial culture across the EU Member States, how this impacts mutual trust and effective cooperation, and how the obligations and broader initiatives concerning judicial co-operation are fundamental to the question of European integration and harmonization.The research in Report 2 also undertakes a comparative analysis of judicial co-operation in another federalized jurisdiction, undertaking a comparison between the European Union and the United States.The JCOERE Project was led by a team at University College Cork School of Law in collaboration with a team at the University of Florence, Titu Maiorescu University in Romania and INSOL Europe. The content of this document represents the views of the author only and is his/her sole responsibility. The European Commission does not accept any responsibility for use that may be made of the information it contains.

Maintaining a Level Playing Field When Big Tech Disrupts the Financial Services Sector
Smith, Tom,Geradin, Damien
Google, Apple, Facebook and Amazon (the “GAFAs”) have been slow to disrupt the financial services sector, but they are likely to do so in the coming years. The precise nature of the disruption and the appropriate regulatory response is not clear-cut, but the GAFAs’ advantages will stem from their control of the main customer access points, such as mobile operating systems, search engine results pages, app stores, and marketplaces. This paper discusses the GAFAs’ anticipated disruption in the financial services sector in the context of competition law enforcement and the emerging regulatory regimes in the EU and UK that seek to curb the GAFAs' market power. If the new rules are drafted carefully, consumers can benefit from the innovations of the GAFAs and others without suffering the long-run effects of their further accumulation of market power. The new rules should ensure that the GAFAs do not benefit from an asymmetry of regulatory obligations whereby they are not subject to the same rules as their financial services competitors. The GAFAs’ should not be able to leverage their market power from core activities into financial services such that their financial services competitors are hindered in reacting to the GAFAs’ competitive threat.

Not all General Obligations Are Created Equal: A Commentary
Cestau, Dario
We document a comprehensive new classification of the legal structures backing municipal bonds and the effects that different legal features have on bond yields. It is a well-documented fact that investors rely on credit ratings to determine the credit risk of municipal bonds. However, rating agencies do not fully factor in the legal structures backing the bonds because measuring and testing the effects of said legal structures is inherently onerous. Since the price of risk is unusually high in this market, these flaws have important effects on yields.

Portfolio optimization for sustainable investments
Varmaz, Armin,Fieberg, Christian,Poddig, Thorsten
Investments in firms related to environment, social responsibility and corporate governance (ESG) aspects have recently grown, attracting interest from both academic research and investment fund practice. This paper develops a simple new portfolio optimization approach to include ESG in portfolio formation. In addition to technical and practical advantages over a traditional mean--variance approach that incorporates ESG preferences, our approach allows us to follow competing explanations of the relation among risk, return and ESG. An extension of our portfolio optimization approach can even help distinguish competing explanations from the literature, i.e., between the preferences of investors for ESG firm characteristics and exposure to a common ESG risk factor. The proposed portfolio optimization approach is flexible enough to include additional risk factors and/or characteristics. We demonstrate the application of our approach to empirical data.

Reconsidering the Relation Between Profit Efficiency and Noninterest Income
McNulty, James E.,Stevenson, Bradley
Profit efficiency is closely related to value creation, and researchers have found noninterest income to be a major determinant of profit efficiency. But DeYoung and Rice suggest that some banks have an excessive reliance on NII, pointing out that 1% of banks generate 18% of fee income, and that these are not the most profitable banks. Other studies support this view. This suggests that there is some optimal range of NII/Assets, and beyond that point bank profit efficiency declines. We test the hypothesis that NII reduces profit efficiency at some point and find no support for the hypothesis. Specifically, considering bank holding companies (BHCs) from 1996 through 2018, for all size groups, profit efficiency increases as NII increases. A significant source of NII for some BHCs is the provision of correspondent banking services, and these have been found to exhibit economies of scale. They have low variable cost once the correspondent relationship has been established (often many years in the past). This point helps explain the concentration of NII at a small number of banks and reconciles our results with others.

Return range and the cross-section of expected index returns in international stock markets
Umutlu, Mehmet,Bengitoz, Pelin
This study examines the cross-sectional relation between return range and future returns for the first time in literature. We show that the return range can serve as a very practical measure of total volatility instead of standard deviation due to the range’s high correlation with standard deviation and strong predictive ability. Range, standard deviation, and idiosyncratic volatility are cross-sectionally linked to future returns on indexes of small size, while earnings-to-price ratio and net share issuance predict returns of mid-cap and large-cap indexes, respectively. Maximum and minimum return effects along with the momentum effect are prevalent in returns of indexes of any size but stronger for small-cap indexes.

Risk-Adjusted Capital Allocation and Misallocation
David, Joel Michael,Zeke, David
We develop a theory linking “misallocation,” i.e., dispersion in marginal products of capital (MPK), to macroeconomic risk. Dispersion in MPK depends on (i) heterogeneity in firm-level risk premia and (ii) the price of risk, and thus is countercyclical. We document strong empirical support for these predictions. Stock market-based measures of risk premia imply that risk considerations explain about 30% of observed MPK dispersion among US firms and rationalize a large persistent component in firm-level MPK. Risk-based MPK dispersion, although not prima facie inefficient, lowers long-run aggregate productivity by as much as 6%, suggesting large “productivity costs” of business cycles.

Ruling with Ideology: Politician Belief and Privatization
Ma, Linxiang
This paper identifies politician ideology as a fundamental impetus for privatization. Focusing on the world’s largest privatization wave in China around 2000, we investigate how governors’ heterogeneous beliefs on the relative merits of state and market shape the substantial regional variation in privatization intensity. We find that other things equal, pro-communism governors privatize 18% to 56% fewer firms than their non-communist colleagues. They also wait longer before starting the process. Moreover, firms sold by these governors have lower pre-privatization profitability and productivity levels. Further analysis indicates that firms privatized by pro-communism governors also achieve lower post-selling efficiencies. Our findings suggest that individual ideology can triumph over the authoritarian institutional norm and manifest itself in high-stake economic decisions. We also pinpoint politician preference as a new class of determinants for privatization.

Shanghai Stock Exchange's Science and Technology Innovation Board: A Review
Liu, Kerry
China’s STAR market (Shanghai Stock Exchange Science and Technology Innovation Board) is its newest stock market, which was officially launched in June 2019, and whose index was released in July 2020. It has attracted extensive attention from market players, but almost no coverage from academia. This study fills in this gap by conducting a review of this stock market, including its institutional background, its regulations, and a series of indicators on corporate finance and equity pricing. Most importantly of all, this study provides an agenda for future research.

Shareholders, Not Politicians, Should Decide on Takeovers
Jessop, Julian
The ongoing controversy over Melrose’s purchase of engineering company GKN illustrates many common misunderstandings about how free markets can work to the benefit of all. Shareholders, not politicians, should decide how to run their businesses, including whether a new management team could do better. There is only a limited set of circumstances where it might be right for the government to intervene â€" such as on grounds of national security, or to mitigate the risks of taxpayer bailouts. But these concerns are usually exaggerated. Some have also argued that decisions on takeovers should not be left to ‘vulture funds’ or ‘asset strippers’ who, they claim, are only looking to make a quick profit with no regard for the wider implications. This analysis is misleading (as well as the language), because one sure way to maximise shareholder value in any company is to improve its long-term performance. The interests of investors should therefore already be aligned with those of others who also want a company to thrive, including employees and customers. This alignment can be strengthened further via market mechanisms, if necessary, such as financial packages that reward managers for long-term results. This is far preferable to a more protectionist approach, where change is resisted, competitive pressures are weakened, and shareholders rights are undermined. Indeed, playing politics with companies might actually be the worst form of ‘short-termism’.

The Black Swan Problem: The Role of Capital, Liquidity and Operating Flexibility
Jankensgård, Håkan,Marinelli, Nicoletta,Christie, Nick
How firms cope with tail risk is an under researched problem in the literature on corporaterisk management. This paper presents stylized facts on the nature of revenue shocks based on 65years worth of Compustat data. We define a Black Swan as an unexpected year-on-year drop inrevenue between 30-90%. The rate of Black Swans has increased markedly since the 1970s andthere are more pronounced cyclical peaks in the three most recent decades. We also examine therole of three general determinants of firms’ ability to absorb Black Swans:equity capital, liquidity,and operating flexibility. The conclusion to emerge from this analysis is that the deciding factor inmediating the effects of revenue shocks on employment is liquidity. Cash reserves and cash marginsmake firms less fragile, but neither equity capital nor operating flexibility robustly buffer againstBlack Swans.

The EU Preventive Restructuring Framework: A Hole in One?
Emke, David Christoph,Gant, Jennifer L. L. ,Boon, Gert-Jan,Ghio, Emilie,Langkjaer, Line
The perception of insolvency and restructuring law in Europe has been subject to significant changes in recent years; with a fresh breeze coming from national reforms, topped by a radical and substantive reform as reflected in the U Drective on restructuring and insolvency (“Directive”). For decades, the (continental) European understanding of insolvency was merciless. The troubled debtor’s directors were threatened with strict liability and, in some jurisdictions, even criminal punishment for a failure to file for an insolvency procedure. This would almost always lead to the dissolution of the debtor and the (piece-meal) liquidation of its assets. The stigma of insolvency was firmly attached to the insolvent debtor.Compared to the United States,3 it has taken some time for the European paradigm of insolvency and restructuring procedures to accept that they should be a tool to facilitate a going-concern rehabilitation of the business and to grant the debtor a second chance for the benefit of value-maximization. Legal reforms in the recent years were aimed at establishing a more restructuring-friendly culture in Europe, espousing a rescue culture for insolvency frameworks.4 The underlying proposition is that a timely and cooperative restructuring, incentivized by carrots rather than sticks, should create a surplus in contrast to a delayed in-court insolvency procedure; a surplus that could be shared amongst the debtor and its creditors.In this article, following a short description of the background of the Directive in section 2, an analytical overview of the state of the art of restructuring practice in five European countries (Denmark, France, Germany, the Netherlands, and the UK) will be provided in section 3, prior to which the key elements necessary for a successful restructuring will be extracted and explained. These key elements also reflect the main obstacles to be overcome in agreeing the contents and approach in the Directive and its eventual legislative counterpart as is demonstrated in a comparative review of the position in section 4. In section 5, an analysis of the findings set out herein linked to the Directive is given, followed by a brief conclusion and commentary on the issues present as seen from the authors’ points of view.

The Housing Wealth Effect: a comparative study of Italy and the Netherlands
Caloia, Francesco,Mastrogiacomo, Mauro
This paper tests whether disregarding home-improvements biases the housing wealth effect, the marginal propensity to consume out of housing wealth. The housing wealth effect is decomposed in its endogenous and exogenous component by filtering out previously stated expectations of house prices and accounting for endogenous home improvements.Results of the empirical analysis show that the size of the bias is zero, due to the zero correlation between home-investments and changes in house values. Our results are consistent with a lifecycle model with exogenous home improvements. The use of a comparative empirical approach excludes that these are only internally valid.

The Impacts of Microcredit on Informal Risk Sharing: Experimental Evidence from China
Cai, Shu
This study examines the impacts of a large-scale government-led microcredit program on informal risk sharing among poor households in rural China based on a randomized controlled trial. The results show that financial inclusion, on average, reduced households’ borrowing from informal financial networks, and informal borrowing decreased substantially among households that were program members, regardless of whether they had borrowed from the program. Further analyses suggest that the program alleviated the dependence on informal financial networks to afford consumption shocks for program members who did not obtain program loans, and the crowding-out effect on informal borrowing existed even during the announcement period of the program for these households. These results are consistent with limited commitment models, which predict that access to microcredit raises the expected value of autarky utility relative to the utility derived from risk-pooling arrangements, and thus reduces the scope of implementable risk-sharing contracts.

Tutorial on Blockchain Applications in Supply Chains
Babich, Volodymyr,Hilary, Gilles
This tutorial builds on the earlier work by Babich and Hilary (2019) and Babich and Hilary (2020) and updates the status of various applications of blockchain technology to supply chains. We present a revised framework for analyzing the value of blockchain applications, based on five strengths and the corresponding five weaknesses. We describe industry efforts to take advantage of these strengths and to address these weaknesses. We outline the main academic research themes and discuss examples of research questions.