The Financial Crisis

Consider that you are about to undertake a long-term project, such as building a house, providing piano lessons as an ongoing business, growing apples, or manufacturing a new medicine. Within the academic field of finance, the goal of this project is to maximize the value of what you produce. The best way to put a measurable value on your project’s output is to wait until it is produced and see how much it sells in the marketplace. That is, the future market value of your output measured in monetary terms can be used to arrive at an accurate indication of your project’s current value.

Various aspects of corporate governance in the process of corporate restructurings are analyzed using the sample of completed spin-offs in 12 European countries between 1989 and 2005. We show that spin-off decisions are often triggered by firm’s governance earthquakes, such as an appointment of a new CEO or a takeover threat. Abnormal long-run stock returns and operating performance are observed for spin-off firms only and mostly for internally grown business units and parent-related (non-focusing) subsidiaries. We find no evidence that post-spin-off mergers of either parents or subsidiaries enhance long-term performance or that focus-increasing spin-offs lead to efficiency improvements.

In this chapter, I compare a capital budgeting model of bank lending based on stock valuations to a supply/demand model based on an interest rate channel for France and Germany using non-nested hypothesis tests and omitted variables tests. For France, the results of these two statistical tests indicate a strong rejection of the supply/demand model with an interest rate channel and non-rejection of the capital budgeting model. The results for Germany are mixed. For Monetary Financial Institutions, the non-nested hypothesis test and omitted variables test rejected both models. For the banking sector of Monetary Financial Institutions, both tests rejected the supply/demand model but did not reject the capital budgeting model. Do these results have any implications for policy? If volatility in share prices leads to volatility in bank lending which in turn leads to volatility in real economic activity, then governments may want to begin thinking of ways to dampen the volatility in the stock market.

This chapter reviews the main elements of the progress toward a banking union in Europe and addresses some of the challenges on the way forward. It discusses the changing banking landscape and the current fragmentation of European markets. This chapter also reviews the main elements of the anticipated European banking union and analyzes some of the challenges on the way toward an eventual full-fledged banking union.

Our economic environments have become more volatile and financial tools ever more sophisticated. This chapter presents a disruptive idea in a different direction. Fiat money in the past never lasted for more than 4–5 decades before related systems collapsed. Prof. Schneck presents a thought-provoking alternative—a world without money, therefore without rating agencies and related problems. Five scenarios are presented and critically discussed, questioning assumptions and drafting alternative futures.

We use simulated data to examine the ability of standard statistical tests to detect the presence of price pressure resulting from attempts to manipulate the stock options market. We find limited ability of difference tests to detect anomalous price pressure in cases where limits to arbitrage are absent or the degree of price pressure is low and when the anomalous price pressure occurs for a short period relative to the overall window analyzed. To help with pedagogical use of our method, we provide a detailed case study of Porsche’s takeover attempt of Volkswagen (VW). The case study helps students to devise classroom tools for detecting and taking timely actions against financial misconduct.

Prof. Amann clarifies that executive education must be fully customized to fit the course participants exactly at the level where they are in in their careers. With the help of the development channel as a concept, he outlines that motives, learning needs, and personal challenge vary over time. He also clarifies that textbook approaches do not generally work at times of disruptive change and ongoing volatility, and during major crisis in our business environments. Complexity skills must represent an essential element of a holistic finance education as it is the case with a solid ethics and humanism training.

This chapter reports on the state of finance teaching in Ukraine following the worldwide financial crisis of 2008. It focuses on teaching behavioural finance and making appropriate revisions in the economic theory so that it can be utilized in a transitional economy such as the one in Ukraine.

It is widely accepted that managerial compensation packages contributed to the excessive risk-taking practices that led to the onset of the Great Recession (2007–2009). We argue that the relationship between managerial compensation and risk taking is procyclical. A given level of performance incentives may result in significantly lower firm risk when economy is in a systemic crisis because managers face an increased employment risk during economic downturns. Students of finance who will become policy makers or who will sit on compensation committees would benefit from realizing that in order to implement a given level of firm risk, managerial compensation packages may need to be adjusted according to the state of the economy.

Past approaches to depicting value in executive education seminars were limited to participants’ satisfaction, transfer of knowledge into the businesses, observing behavioral change, and making progress towards measuring impact. There is another layer which starts to matter, especially since many of the recent crises originate in short-termism, greed, and opportunistic behavior of a minority of players. This chapter presents and discusses a holistic six-level framework for a more modern approach of evaluating training and executive education seminars.

This chapter presents the principal insights from the learning journey into the implications of the largest financial crisis in the last 90 years. Research and teaching have hitherto been based, to some extent, on questionable or wrong assumptions and frameworks. Beyond concepts on financial modeling, the underlying assumptions on human nature are in need of an overhaul. Homo economicus thinking characterized by the infinite ability to make rational decisions represents just one possible view which should guide research, teaching, and action in financial institutions.