Literature Review Women on boards and in TMTS and firm performance 115 5 1 Introduction The banking industry in the United States and in Europe has experienced fundamental restructu ring since the beginning of the millennium further accelerated by the global financial crisis and the ensuing recession After the millennium change EU 15 banks profitability fell for two consecuti ve years but improved in 2003 ECB 2004 Main sources for profit improvement were cost cuttings non interest income and reduced provisioning The positive development attributable to aggressive restructuring ECB 2004 continued in 2004 When banks come under pressure to reduce costs induced by macroeconomic factors tightened re gulation or mismanagement the most obvious and straightforward solution is a reduction in workforce During the 1999 to 2009 period the share of per sonnel expenses in operating costs ranged from about 54 percent for banks based in Luxemburg Germany and Ireland up to 61 percent in Spain and even 63 percent for banks based in Switzerland OECD 2010 Through layoffs banks can save ope rating costs and potentially improve efficiency The key efficiency figure in banking is the cost income ratio Driving down costs improves the ratio The lower the ratio value the higher the bank s effi ciency e g Beck Demirgüç Kunt Levine 2009 Moreover operationally efficient banks are more profitable than banks with a lesser degree of ope rational efficiency Dietrich Wanzenried 2011 Banks cost cutting efforts were thus inter alia concentrated on staff expenditure over the past years The global financial sector has seen massi ve layoffs during the past decade The first wave of layoffs in 2008 is closely linked to the global finan cial crisis The second wave started in 2011 and is related to the European sovereign debt crisis The large cross country differences in the percenta ge of personnel expenses may indicate that banks face various degrees of restriction regarding the adjustment of labor costs Mamatzakis Tsionas Kumbhakar Koutsomanoli Filippaki 2015 The se restrictions are presumably imposed by national labor law In the past and still today layoffs could be executed quite quickly in the United States due to the employer friendly labor law OECD 2016a The United Kingdom has the least stringent legisla tion in Europe followed by Ireland Banks that are headquartered in these countries will most likely realize improvements in efficiency through layoffs in the short term at moderate costs In other Euro pean countries particularly in Portugal the Nether lands and Italy but also in Germany execution will presumably be more difficult lengthier and costly due to relatively strict employment protection re gulation OECD 2016a As a result of the 2008 financial crisis regulatory requirements for banks were tightened in order to ensure stability of the financial system Over recent years Euro zone banks steadily strengthened their balance sheets and improved their resistance to negative shocks ECB 2015 The higher capital requirements and cuts in trading profits partially explain declines in bank profitability IMF 2015 Bank profitability as measured by return on equi ty ROE has fallen in all advanced economies from an average of about 13 percent during the 2000 06 period down to 8 percent in 2014 IMF 2015 While North American banks profitabili ty had reached its lowest point in 2008 and re covered to reasonable levels by 2014 Euro area banks aggregate ROE reached its trough in 2011 and remained in the low single digits in 2014 Given a strengthened regulatory and prudential environment historically low interest rates and low macroeconomic growth prospects banks today still find it difficult to enhance operating 5 Layoffs and shareholder wealth effects Evidence from the banking industry18 18 This chapter is largely based on a joint working paper with Sascha Kolaric and Dirk Schiereck Layoffs and shareholder wealth

Vorschau DIRK-Forschungsreihe Band 21 Workforce diversity and personal policies Seite 115
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