European financial systems in post-crisis recovery

Project Information

FINSYS RECOVERY

Grant agreement ID: 101029788

DOI

10.3030/101029788

Project closed

EC signature date 23 April 2021

Start date 15 November 2021

End date 13 November 2024

Funded under

• EXCELLENT SCIENCE - Marie Skłodowska-Curie Actions

Total cost

€ 219 312,00

EU contribution

€ 219 312,00

Coordinated by

COPENHAGEN BUSINESS SCHOOL
Denmark

Periodic Reporting for period 1 - FINSYS RECOVERY (European financial systems in post-crisis recovery)

Reporting period: 2021-11-15 to 2023-11-14

Summary of the context and overall objectives of the project

The project European financial systems in post-crisis recovery (FINSYS RECOVERY) aimed to understand how financial systems (FS) developed from 2005 to 2020 across European countries, and how crises affected the trajectories of the different countries’ FS during this period. FS profoundly affect societies and our everyday lives through resource accumulation and distribution, but the understanding of how they respond to shocks, evolve and embark on different paths is limited.
The project provided a detailed view of European FS and their post-crisis trajectories, and quantitatively investigated how shocks in the shape of crisis events (e.g. the global financial crisis, the EURO crisis) and related policy responses influenced them. Insights on how and why FS evolve in response to shocks could hardly be timelier. There are ongoing political initiatives to promote deeper integration of EU FS, while at the same time counterfactors such as Brexit and nationalism appear to pull the EU apart. All this occurs against the backdrop of another major economic crisis, as the grip of the COVID-19 pandemic has tightened over our economies.
The project was conducted at CBS´s EGB department which bases its research on international business, economics, and politics, and is an international research center of excellence on the interaction between states and markets, and how business and governments interact to influence each other.
The overall conclusions from the project is that traditional dichotomous typologies of financial systems have become less suited to understanding contemporary financial systems. Instead, alternative typologies of institutional variation and transformation are proposed, allowing for a more complex and multi-dimensional understanding of financial systems and their evolution. The conclusions also demonstrate co-existence of multiple and different equilibria even within national geographical institutional configurations. Results also show that institutional transformation (and indeed sluggishness) is a fragmented process with incoherent consequences.
These conclusions matter to the ongoing debates about how financial systems shape growth opportunities, the distribution of resources and opportunities in society and our everyday lives.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

The fellowship was mostly conducted at CBS´s EGB department with interactions with colleagues from other departments and universities. This included research visits and conference participations . The fellowship complemented the fellow’s expertise by allowing him to gain new scientific skills in complementary disciplines (political economy, corporate governance/finance) and knowledge on how they relate to the interaction between firms, markets and governments.
One main dissemination activity of the fellowship was conference participation. Given the project´s interdisciplinary character, presentations were made at a wide range of conference in different fields. These conferences enabled the project to benefit from a variety of theoretical and methodological inputs (selection):
˗ World Finance & Banking Symposium - Vilnius 2023
˗ Bank of England: policy workshop on UK SMEs’ experience during Covid, 2022
˗ Joint International Political Economy Conference of the Austrian, German and Swiss Political Science Associations, 2022.
˗ 14th International Conference "Challenges of Europe: DESIGN FOR THE NEXT GENERATION, 2023
˗ SASE2022 Society for the Advancement of Socio-Economics, 34th Annual Meeting, 2022.
˗ WINIR 2023 Institutional Innovation and Evolution Challenges to the Modern World Order University of Catania, Sicily, Italy, 20-23 September 2023
˗ 29th Annual Global Finance Conference, 8th The Role of State in Varieties of Capitalism (SVOC), Structural Transformations in a Crises-driven World Economy, 2022
˗ European Consortium for Political Research (ECPR) General Conference in Prague, 2023
In addition, working papers and a crisis database have been published on SSRN to enable wider exploitation. Findings have already been integrated in teaching modules and attained media attention.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

Three submitted articles and work-in-progress together provide the expected results:
A. Stability or change? An analysis of European financial systems 2007-2017 studies how financial systems developed across European countries in the period. It adopts an exploratory empirical approach that combines micro level company data with a cross-disciplinary analytical framework, which in turn highlights new insights on sources of institutional variation and transformation.

The results illustrate a long-term change that emphasizes continued divergence and larger internal heterogeneity in Europe. However, outcomes and transition processes display considerable variation between countries´ financial system, depending on the size of countries´ economies and financial sectors; initial institutional set-up; and geographical location.

B. European financial systems recovery: A micro approach on institutional transformation studies how firms respond to crises episodes and thereby contribute to and engage in institutional transformation.

The study combines frameworks from comparative capitalism and economic sociology, and a rich micro-level panel dataset. Overall, it provides insights into institutional variety and transformation across time and space, which is a generally underdeveloped area of research. Among other findings, it shows that crisis episodes function both as catalysts and impediments to institutional change, and changes are conditional on the type of firm and the institutional configuration in which they are embedded. These results suggest co-existence of multiple and different equilibria - that differ from mainstream and often dichotomous theoretical concepts - even within different geographical institutional configurations

C. European Financial Systems in Transition – The role of crisis episodes and policy responses. It studies how financial institutions contribute to and engage in institutional transformation through changes in their ownership and governance structures. The paper answers similar research questions as European financial systems recovery but focuses entirely on how financial institutions – in contrast to non-financial corporations – respond.

The study integrates frameworks from comparative capitalism and economic sociology with a detailed micro-level panel dataset to address its research questions. It offers valuable insights into the diversity and evolution of institutions over time and across regions—an area often overlooked in research. Notably, the study finds that crises can act both as drivers and barriers to institutional change, depending on the type of firm and the institutional context in which they operate.
This, together with ongoing research that further considers how contextual factors shape the response functions of economic actors to crisis episodes and recoveries, point to important the socio-economic impact and the wider societal implications. These conclusions matter to the ongoing debates about how financial systems shape growth opportunities, the distribution of resources and opportunities in society our everyday lives. In essence, the overly simplistic models of prior research need to be complemented with more complex models to facilitate more informed debates and decision-making.

picture1.png