The market impact of the involvement of the EU/ECB/IMF in crisis-affected countries during the European sovereign debt crisis

2017 ◽  
Vol 16 (2) ◽  
pp. 162-178
Author(s):  
Dimitrios V. Kousenidis
Keyword(s):  
Sovereign Debt ◽  
Debt Crisis ◽  
Real Economy ◽  
Sovereign Debt Crisis ◽  
Content Type ◽  
Eu Countries ◽  
Policy Responses ◽  
Policy Interventions ◽  
News Announcements ◽  
National Governments

Purpose This paper aims to examine whether the release of news about policy interventions by the troika [European Union (EU)/the European Central Bank (ECB)/International Monetary Fund (IMF)] in the crisis-affected EU countries (Cyprus, Greece, Ireland, Italy, Portugal and Spain) and whether the policy responses of these countries’ governments had impacts on the return and risk of stocks in the financial and real-economy sectors of these countries. Design/methodology/approach The paper uses a broad set of news announcements concerning the troika authorities’ policy interventions and the policy responses of the affected Eurozone states’ governments. To test for the risk and return effects of these announcements during the crisis period, a set of regression equations is estimated under a difference-in-difference approach using intercept and slope dummy variables for news releases from troika authorities and from the national governments of the six EU countries. This enables unraveling the effects of the crisis (first difference) and the effects of news announcements (second difference). Findings The results indicate that the involvement of the troika managed to reverse some of the unfavourable market effects of the crisis. Moreover, the policy response of national governments was found to have stronger favourable effects in the markets of the affected countries implying that investors likely waited for the response of the national governments before they reacted to the policy actions of the troika. The simultaneous release of news from the troika and from national governments had adverse effects on the returns and risk of the firms in the real economy sectors, suggesting that cross-news announcements conveyed negative information in the markets. Originality/value The paper provides evidence on the effects of policy-related news announcements on the development of the recent sovereign debt crisis in Europe. This issue is highly important, as it can reveal the effectiveness of the IMF’s and EU authorities’ policy interventions in affected Eurozone member states during the first major crisis in Europe since the monetary union.

Assessing sovereign risk: the case of rich countries

2014 ◽  
Vol 6 (3) ◽  
pp. 212-225 ◽  
Author(s):  
Norbert Gaillard
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Bond Yields ◽  
Content Type ◽  
The Great Recession ◽  
Market Participants ◽  
Investment Grade ◽  
Rich Countries

Purpose – This paper aims to shed new light on the inability of credit rating agencies (CRAs) to forecast the recent defaults and so-called quasi-defaults of rich countries. It also describes how Moody’s sovereign rating methodology has been modified – and could be further improved – to solve this problem. Design/methodology/approach – After converting bond yields into yield-implied ratings, accuracy ratios are computed to compare the respective performances of CRAs and market participants. Then Iceland’s and Greece’s ratings at the beginning of the Great Recession are estimated while accounting for the parameters included in the new methodology implemented by Moody’s in 2013. Findings – Market participants outperformed Moody’s and Standard & Poor’s in terms of anticipating the sovereign debt crisis that hit several European countries starting in 2008. However, the new methodology implemented by Moody’s should lead to more conservative and accurate sovereign ratings. Originality/value – The chronic inability of CRAs to anticipate public debt crises in rich countries is dangerous because the countries affected – which are generally rated in the investment-grade category – are substantially downgraded, amplifying the sovereign debt crisis. This study is the first to demonstrate that Moody’s has learned from its recent failures. In addition, it recommends ways to detect serious threats to the creditworthiness of high-income countries.

scholarly journals How Do Estimates of Inflation Persistence in Malta Compare with Other EU Countries?

2020 ◽  
Vol 12 (7) ◽  
pp. 31
Author(s):  
Brian Micallef ◽  
Reuben Ellul
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Inflation Persistence ◽  
Eu Countries ◽  
Gdp Growth Rate ◽  
European Sovereign Debt Crisis ◽  
Specific Factors ◽  
Country Specific

After the European sovereign debt crisis in 2012, inflation has been unexpectedly low across most of the economies making up the euro area, as well as the Monetary Union aggregate, with economists referring to this phenomenon as the “missing inflation” puzzle. As the smallest and one of the most open economies in the euro area, Malta has also registered a period of low inflation post-2012, despite registering an average GDP growth rate of 6.9% per annum over the period 2013-2019. This paper estimates the extent of inflation persistence of Malta and a number of EU economies for both the pre- and post-2012 period. Measures of persistence are computed as the sum of autoregressive coefficients derived from univariate regressions on both aggregated and disaggregated inflation series. Estimates of persistence in Malta have increased when the sample covers the post-2012 period. In terms of the main sub-components, energy inflation has a substantially higher persistence compared to the pre-2012 period, reflecting both external and country-specific factors. Most other EU countries also reported an increase in persistence when including the post-2012 period in the sample although the estimates for Malta, both at the aggregate and disaggregated indices, remain less persistent.

Flight-to-quality and contagion in the European sovereign debt crisis

2019 ◽  
Vol 11 (2) ◽  
pp. 193-217
Author(s):  
Inês Prates Pereira ◽  
Sérgio Lagoa
Keyword(s):  
Sovereign Debt ◽  
Debt Crisis ◽  
Special Focus ◽  
Bond Markets ◽  
Subprime Crisis ◽  
Sovereign Debt Crisis ◽  
German Market ◽  
Content Type ◽  
Flight To Quality ◽  
European Sovereign Debt Crisis

Purpose The purpose of this paper is to analyze the co-movements between the Portuguese, Greek, Irish and German government bond markets after the subprime crisis (2007 to 2013), with a special focus on the European sovereign debt crisis. It aims to assess the existence of contagion between the Portuguese, Greece and Irish bond markets and to explore the phenomenon of flight-to-quality from the Portuguese and Greek bond markets to the German market. Design/methodology/approach The analysis is undertaken using a DCC-GARCH model with daily data for 10-year yield government bonds. The change in correlation from the stable periods to the crisis periods is used to identify contagion or flight-to-quality. Findings Results suggest that there was contagion between the Greek and Portuguese markets, and to a lesser extent between the Irish and Portuguese markets. During most of the identified crisis periods, there are evident flight-to-quality flows from the Portuguese and Greek bond markets to the German market. Originality/value This paper contributes to the literature by applying the methodology DCC-GARCH to several crisis episodes for the analysis of contagion and flight-to-quality during the European sovereign debt crisis.

Internal auditor perceptions of corporate governance in Greece after the crisis

2019 ◽  
Vol 17 (2) ◽  
pp. 201-227
Author(s):  
Charilaos Mertzanis ◽  
Vangelis Balntas ◽  
Thodoris Pantazopoulos
Keyword(s):  
Corporate Governance ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Internal Audit ◽  
Sovereign Debt Crisis ◽  
Structured Interviews ◽  
Content Type ◽  
Internal Auditors ◽  
Short Period

Purpose This paper aims to present the views of internal auditors in Greece on the relation between the internal audit function (IAF) and corporate governance (CG) after several years of European market integration and in the aftermath of the sovereign debt crisis. Design/methodology/approach Data are collected using semi-structured interviews with 15 internal auditors working in firms with different size and in different sectors of activity. Interviewees have diverse experience and hold various positions in the firm. Findings Respondents perceive a strong relation between the IAF and CG. They view the IAF as a preventive tool that provides monitoring and advisory services to firms. They stress the inadequate monitoring role of the board in the IAF, and they support a proactive intervention in the strategic audit planning process. They see a small role for shareholders in CG. They stress the need to focus more on the efficiency and effectiveness considerations in carrying out the IAF. They perceive CG-related information as important for meeting formal compliance needs rather than contributing to decision-making or audit process planning. They believe that audit committees (AC) are weak in implementing effective monitoring, due to inadequate knowledge and expertise of their members. They would like to see a two-way interaction between auditors, AC and management. They would like to enjoy more independence through the implementation of international standards of auditing and statutory regulation. Research limitations/implications The sample covers 15 auditors from an equivalent number of firms and few sectors of activity. Accessing potential interviewees was difficult due to the perceived conflict between their work requirements and public statement of their views. Practical implications The proposed method adds to the qualitative analysis literature with regard to measuring and evaluating the personal views of auditors on CG. The study provides empirical evidence of the need to use extensive qualitative research to assess the auditors’ views on the role of CG for their work. Originality/value The role of internal audit in CG effectiveness is a key policy concern, especially in countries with diverse market environments. Greece is such an environment for it has undergone a major institutional change within a short period and suffered greatly from its sovereign debt crisis. Further, few studies have sought and evaluated the views of internal auditors by using semi-structured interviews. The latter provide details, which other methods cannot capture. The results of this study are especially useful to the competent regulators, for they reflect market perceptions on the importance and effectiveness of CG practices. They are also useful to practitioners to identify potential root causes of audit deficiencies.

Trade credit in times of crisis: evidence from European SMEs

2018 ◽  
Vol 25 (2) ◽  
pp. 277-293 ◽  
Author(s):  
Candida Bussoli ◽  
Francesca Marino
Keyword(s):  
Financial Crisis ◽  
Sovereign Debt ◽  
Trade Credit ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Content Type ◽  
Accounts Payable ◽  
Before And After ◽  
Credit Channels ◽  
The Impact

Purpose The purpose of this paper is to investigate the use of trade credit in a sample of small and medium enterprises in Europe, before and after the outbreak of the subprime financial crisis and the sovereign debt crisis (2006-2013). This study aims to verify whether trade credit is an alternative source of funding compared to other sources of financing. In addition, it tests whether firms that grant extended payment terms to their customers demand delayed accounts payable terms from their suppliers. Design/methodology/approach The empirical analysis is conducted on a sample of European SMEs that were observed over the period immediately before and after the outbreak of the subprime crisis (2008) and the sovereign debt crisis (2010-2011). A panel data analysis is conducted using the generalized method of moment. Findings The results suggest that SMEs with a high probability of insolvency use trade credit more extensively. Distressed and weaker SMEs are less able to match accounts receivable to accounts payable. Finally, the evidence suggests that during the financial crises, the substitution hypothesis is weakened and liquidity shocks are propagated through trade credit channels. Originality/value This study contributes to the extant literature as very few studies have analyzed intercompany financing for European SMEs during periods of financial crisis. The results suggest that supporting trade credit channels, through timely injections of liquidity to companies, could reduce the impact of both financial and intercompany credit crunch on SMEs.

European Economies Stability Faced With Potential Outburst of Sovereign Debt Crisis. An Empirical Study Using Neural Network

2013 ◽  
Vol 12 (2) ◽  
pp. 3255-3260
Author(s):  
Stelian Stancu ◽  
Alexandra Maria Constantin
Keyword(s):  
Neural Network ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Banking System ◽  
Sovereign Debt Crisis ◽  
European Level ◽  
Continuous Growth ◽  
Economic Context ◽  
European Economies ◽  
The Impact

Instilment, on a European level, of a state incompatible with the state of stability on a macroeconomic level and in the financial-banking system lead to continuous growth of vulnerability of European economies, situated at the verge of an outburst of sovereign debt crises. In this context, the current papers main objective is to produce a study regarding the vulnerability of European economies faced with potential outburst of sovereign debt crisis, which implies quantitative analysis of the impact of sovereign debt on the sensitivity of the European Unions economies. The paper also entails the following specific objectives: completing an introduction in the current European economic context, conceptualization of the notion of “sovereign debt crisis, presenting the methodology and obtained empirical results, as well as exposition of the conclusions.

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