Corporate Finance and Monetary Policy: The ECB s Approach

Transcription

1 Corporate Finance and Monetary Policy: The ECB s Approach Petra Köhler-Ulbrich and Adrian van Rixtel Capital Markets and Financial Structure Division Directorate General Economics Frankfurt am Main, 15 May 2006 The opinions expressed here should not be interpreted as reflecting the views of the European Central Bank

2 Why corporate finance analysis at ECB? Analysis of financing conditions: The specific use of the sources of finance and their terms and conditions at a particular moment in time (ECB OP 37, 2005) Financing conditions/constraints are important for monetary policy transmission process: Monetary Policy Transmission Network (CUP book, 2003) Broadening of sources corporate financing (ECB MB articles, Jan. 2000, Feb.2001, Oct.2003, Nov.2005). For example corporate bond market or high-yield market (ECB WP 164 and 313).

3 Corporate finance analysis at ECB Cost of external financing Bank lending survey (enterprises) External financing flows Financial statement data Central in presentation

4 Corporate finance analysis at the ECB Capital Markets and Financial Structure Division, DMP, DG-E: Input in regular monthly mon. pol. briefing notes to Executive Board (EB) and Governing Council (GC) Regular quarterly briefing notes for monetary policy meetings: EAFC (joint with MSN), BLS, CMQ Ad-hoc briefing notes and analytical projects (joint with FIR) Financial Research Division, DG-R: Cost of capital of non-financial corporations Trade credit Other issues

5 Capital Markets and Financial Structure Div. COST OF EXTERNAL FINANCING

6 Real financing costs non-financial corporations according to source (percent per annum, monthly data) Real financing costs remain low overall cost of financing real short-term MFI lending rates real long-term MFI lending rates real cost of market-based debt real cost of quoted equity Source: ECB.

7 Real cost of quoted equity 3-stage Gordon dividend discount model: The cost of equity depends on current dividend yield and future dividend growth rates; dividends are assumed to be a constant proportion of earnings (Fuller and Hsia, FAJ, 1984). Assumption that there are 3 stages or episodes in corporate earnings growth Measure is surrounded by higher uncertainty than the other components of the cost of financing Other measures may be used

8 Capital Markets and Financial Structure Div. BANK LENDING SURVEY

9 Bank lending survey (loans to enterprises) Eurosystem project Main reasons: To obtain more detailed information on credit conditions (credit standards, credit conditions and terms, loan demand) and thus on role of credit in monetary policy transmission process (ECB OP 23, 2005) To get better info on future economic developments (projection exercise) Use of net percentages, published on ECB website

10 Credit standards applied to the approval of loans to enterprises (net percentages of banks reporting tightening) Easing credit standards, more optimism econ. activity realised 60 expected FACTORS CONTRIBUTING TO TIGHTENING CREDIT STANDARDS Bank's ability to access market financing Expectations regarding general economic activity Risk on collateral demanded Competition from other banks Q1 04Q2 04Q3 (a) 04Q4 05Q1 05Q2 05Q3 05Q4 06Q1 06Q2 04Q1 04Q2 04Q3 (b) 04Q4 05Q1 05Q2 05Q3 05Q4 06Q1 04Q1 04Q2 04Q3 (c) 04Q4 05Q1 05Q2 05Q3 05Q4 06Q1 04Q1 04Q2 04Q3 (d) 04Q4 05Q1 05Q2 05Q3 05Q4 06Q1 04Q1 04Q2 04Q3 (e) 04Q4 05Q1 05Q2 05Q3 05Q4 06Q1-40 Source: ECB.

11 Capital Markets and Financial Structure Div. EXTERNAL FINANCING FLOWS

12 External financing of non-financial corporations in the euro area (annual rates of change in percentages) Strong rise in debt financing, mainly of MFI loans 12 overall external financing (left-hand scale) MFI loans (left-hand scale) quoted shares (left-hand scale) debt securities (right-hand scale) OFI loans (right-hand scale) Source: ECB.

13 Loans and M&As in the euro area non-financial corporate sector (annual growth rate for loans; in EUR billions for M&As) Strong rise in MFI loans and M&A activity 600 total non-financial M&A transactions, all methods of payment (left-hand scale) non-financial M&A transactions paid in cash or debt (left-hand scale) MFI loans to non-financial corporations (right-hand scale) Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q Q Q Q1 Source: ECB, Bureau van Dijk (Zephyr database). Note: M&As refer to the 12-month moving sum of the value of completed deals, euro area non-financial firms as acquirer.

14 Real loans of non-financial corp. and euro area non-financial investment (annual percentage changes) Rise in MFI loans and gross fixed capital formation gross fixed capital formation, euro area real loans to non-financial corporations Q3 2000Q1 2001Q3 2003Q1 2004Q3 Source: ECB, Eurostat. Note: Loans have been deflated by the GDP deflator.

15 Debt ratios of non-financial corporations (in percentages) Renewed increase in debt ratios 165 Debt to gross operating surplus ratio (left-hand scale) Debt to GDP ratio (right-hand scale) Q1 1999Q4 2000Q3 2001Q2 2002Q1 2002Q4 2003Q3 2004Q2 2005Q1 2005Q4 50 Source: ECB, Eurostat.

16 Capital Markets and Financial Structure Div. FINANCIAL STATEMENT DATA

17 Aggregate financial statement data on listed non-financial corporations in the euro area Samples on listed non-financial corporations: mainly large enterprises Thomson Financial DataStream: annual data for around 2000 firms, less encompassing quarterly sample Sample on listed and unlisted non-fin. corp.: AMADEUS data Main areas: Corporate profitability, leverage developments (debt, interest burden), asset developments Mainly structural analysis of SMEs, based on AMADEUS data, the BLS and bank spreads

18 Profitability and cost developments of listed non-financial corporations in the euro area Strong rise in profitability since 2003 to high levels Operating income to sales (LHS) Net income to sales (LHS) Cash flow to sales (LHS) Operating expenses to sales (RHS) Source: Thomson Financial DataStream, ECB calculations.

19 Profitability developments of listed non-fin. corporations across sectors in the euro area Total non-financial corporations Manufacturing Wholesale and retail trade Transportation and communications Construction Source: Thomson Financial DataStream, ECB calculations. Note: Profitability has been defined here as the ratio of net income to sales. Figures show the median value.

20 Financing gap of listed non-fin. corporations in the euro area Financing surplus of listed enterprises for Financing gap (fixed investment) -2.5 Extended financing gap (fixed and financial investment) Source: Thomson Financial DataStream, ECB calculations. Note: The financing gap is defined broadly as the ratio of (fixed investment cash flow)/fixed investment. The extended financing gap refers to both fixed and financial investment.

21 Conclusions Efforts to build up analytical tools and models as well as the statistical framework Obstacles : gaps in the euro area statistics despite large progress during recent years, for instance no quarterly data on non-fin. assets of non-fin. corporations and unquoted shares Work in progress: generally close cooperation with other ECB business areas, with NCBs and non- Eurosystem experts Examples: cost of capital, financing of SMEs, analytical work related to the BLS, euro area IPOs, structural issues report on corporate finance