Journal of Applied Finance & Banking

Determinants of Asset Value Adjustments: The Case of Germany’s Cooperative Banks

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• Abstract

   

  This paper studies the driving forces behind asset value adjustments in the German cooperative banking sector. Firm-specific as well as macroeconomic factors are considered. We estimate a Vector Error Correction Model for the post-unification period from 1992 to 2022. The main factor behind the improvement in value adjustments is the declining long-term interest rate. Besides these macroeconomic factors, the average bank size and the loans-to-deposits ratio are important. The trend towards larger banks has counteracted the improvement as well as the more loan-oriented business strategy of recent years.

   

  JEL classification numbers: C580, C58, G21, P13, P34.

  Keywords: Cooperative Banks, Asset Value Adjustments, Mergers, Vector Error Correction Model.