Is the cure worse than the disease? The effect of emerging market MNEs on host country corruption

In recent years, there has been an exponential increase in the amount of foreign investment by emerging market multinational enterprises (EMNEs). While it has been debated whether EMNEs strengthen or weaken the institutions in host countries they invest in, the literature has paid limited attention to how EMNE investment impacts corruption in other emerging markets, one of the most significant destinations of EMNEs. Following Hoskisson et al. (2013), we categorize two types of emerging markets as targets of EMNE investment, a) low-income emerging markets and b) middle-income emerging markets, based on their institutional and market development. Building on the theory of firm-specific advantages (FSAs) and the institutional advantage (IA) of EMNEs, we reason that EMNEs enter foreign markets in accordance to where their skills and competencies can be effectively utilized, and this impacts corruption in the host country. We make two key arguments: (1) EMNEs predominantly use their IA in low-income emerging markets, which in the long term increases corruption in the host market, and (2) EMNEs predominantly use their FSAs to gain competitive advantage in middle-income emerging markets, which decreases corruption in the host market. Empirical analysis of Chinese outward FDI from the 2008-2018 period supports our hypotheses. Our research contributes to both the literature on EMNEs and corruption.     

Institutional determinants of emerging market returns and flows

Investors commonly rely on macroeconomic variables to drive capital allocation decisions. But other institutional factors may alter investor returns as well, particularly in emerging market countries. Given these concerns, this paper examines the effects of institutional factors—specifically democracy, transparency and corruption—on emerging market equity returns and flows. We find that institutional quality impacts stock market returns and flows in emerging markets where corruption, transparency, and democracy levels are below average. We also find that government-owned or controlled industries are positively impacted by a deterioration in the corruption and democracy indexes, while highly concentrated sectors, like the financial industry, are negatively impacted by improving transparency.     

On the prediction of financial distress in emerging markets: What matters more? Empirical evidence from Arab spring countries

This study explores the main determinants of financial distress in 11 emerging countries. Using two-way cluster-robust standard errors, evidence shows that matured, profitable, liquid, small firms with high market-to-book ratio and low growth in assets are less prone to financial distress. Moreover, well-developed financial markets in countries with low levels of corruption reduce financial distress. Furthermore, it uses tests for equality between coefficients and moderates multiple regressions to capture the effect of firm life cycle on financial distress, over three Arab Spring sub-periods. The results imply adopting strategies to increase earned capital and cash holdings, avoid over-investment, and facilitate risk diversification strategies.     

Does corruption increase emerging market bond spreads?

We study the relationship between corruption and borrowing costs for governments and firms in emerging markets. Combining data on bonds traded in the global market with survey data on corruption compiled by Transparency International, we show that countries that are perceived as more corrupt must pay a higher risk premium when issuing bonds. The global bond market ascribes a significant cost to corruption: an improvement in the corruption score from the level of Lithuania to that of the Czech Republic lowers the bond spread by about one-fifth. This is true even after controlling for macroeconomic effects that are correlated with corruption. We find little evidence that investors became more sensitive to corruption in the wake of the Asian financial crisis.     

Friend or foe: The divergent effects of FinTech on financial stability

Whether FinTech causes the fragility of financial institutions is a controversial issue. Using a panel sample of listed banks from 84 countries, we exploit the introduction of FinTech regulatory sandboxes as an exogenous shock and examine the heterogeneous effect of FinTech on the fragility of financial institutions. We find that (i) a shock to FinTech innovations has no net effect on the fragility of financial institutions when we ignore market characteristics, (ii) promoting FinTech decreases (increases) the fragility of financial institutions in emerging (developed) financial markets, and (iii) FinTech affects the fragility of financial institutions through the channel of profitability.     

Financial Globalisation and Emerging Markets Volatility

The volatility of capital flows to emerging market (EM) countries and frequency of financial crises have imposed high welfare costs on the countries involved. The empirical literature provides, at best, a mixed picture on the relationship between long‐run EM country growth and financial integration. Meanwhile, the prevailing policy discourse regarding reform of the international financial system remains incomplete: the focus has largely been on either institutional and policy measures required of EM countries or international crisis‐resolution procedures. The role played by private financial markets and institutions in the developed world has not received adequate attention. This paper describes some of the structural features inherent in today's financial markets that directly contribute to the instability in EM capital flows.     

Markets versus institutions in developing countries: National attributes as determinants

While there is some discussion of national preferences for banking versus financial markets, there is little research on how national financing preferences are determined by legal, cultural, and other national characteristics. Using panel analysis on data for a recent eight-year period for sixteen emerging-economies, this paper documents that, in such countries, an increased predilection for equity markets is associated with increased prevention of corruption and countries being Asian. A decreased predilection for financing via equity markets is associated both with greater power of bank regulators and with more globalization and an English legal origin. One interpretation of our results suggests that while common law promotes both banking and financial markets, common law and societal openness act to promote banking more than markets in less developed environments. Our results have important public policy implications given that financial systems are still evolving in developing countries.     

Corruption,South African Multinational Enterprises and Institutions in Africa

We examine the responses of South African multinational enterprises (MNEs) to corruption in African markets in the context of institutional voids. Corruption is a source of uncertainty and additional transactional costs for MNEs and it necessitates a strategic response. The research employs a qualitative study of a sample of MNEs with experience in internationalising into Africa. The results indicate that corruption in African markets is pervasive and closely associated with the institutional voids in these countries. MNEs see themselves as ‘institution takers’ responding to countries’ institutional makeup at the organisational and individual level but fail to fully appreciate their impact on institutions both positively and negatively. Rather MNEs focus on strategic responses at the organisational level to address corruption operationally in the host country. We add to the existing literature by providing a dynamic framework of the complex webs of association between institutions, MNEs and corruption in conditions of economic underdevelopment. The research suggests that MNEs do not need to get caught in a vicious cycle whereby they perpetuate corruption in conditions of underdevelopment and institutional voids but instead can contribute towards a virtuous cycle through which they institutionalise ethical foundations.     

Institutional voids,liability of origin,and presence of women in TMT of emerging market multinationals

This study examines the association between the pervasiveness of institutional voids in emerging markets and the inclusion of women in top management teams (TMTs) by emerging market multinational corporations (EMNCs) as a legitimation strategy. Leveraging institutional theory, we argue that EMNCs increase women presence in TMTs as a legitimation strategy to overcome the challenges of stakeholders' skepticism in foreign markets by disassociating themselves from the image of their home markets. Using a subsidiary level dataset of 1047 EMNCs from 26 emerging countries between 2009 and 2018, we find robust evidence indicating that the pervasiveness of institutional voids at home is positively related to the percentage of women in TMT's EMNCs' foreign units. This effect is particularly stronger for firms operating in countries with high institutional gender parity and low level of corruption.     

Predicting financial crises in emerging markets using a composite non-parametric model

The large number of financial crises in emerging markets over the past ten years has left many observers, both from academia and financial institutions, puzzled by an apparent lack of homogenous causal relations between endogenous economic variables and the bursting of large financial shocks. The paper aims at showing that the key difficulty is not the identification of proper endogenous variables, but the ability to combine them in a way that is able to capture the combinatorial aspect of such causal relations. The paper is based on a newly developed non-parametric methodology for country risk signaling: the RiskMonitor CDM-Model. Using a combination of macroeconomic indicators and a composite model of 5 modern non-parametric classification methods, we constructed 9 early warning signals to predict financial crises in emerging markets. These signals are constructed for 3 types of crises (cyclical crises, exchange rate crises and transfer crises) and over 3 horizons (less than 1 year, 1 to 3 years, 3 to 5 years). This complex use of quantitative models is able to provide excellent early warning information, with impressive back-testing results on 50 developing countries over the period 1980 to 2002.     

Syndicated loans in emerging markets

There has been a considerable expansion of the volume of syndicated loans in emerging markets in the recent years. We provide the first analysis of the determinants of the decision of banks to syndicate a loan on a sample of loan facilities from 50 emerging countries. We show the significant role of loan characteristics and of financial development, banking regulation, and legal institutions, in the decision to syndicate a loan. We support the efforts of authorities to increase banking competition and efficiency, and to implement binding banking regulation on capital requirement to promote the expansion of syndicated loans.     

Private equity exits in emerging markets

Using deal level data from 2733 private equity (PE) deals from 35 emerging markets, we find that PE fund managers have a higher probability of successful exits in countries with better business and legal environments. We also find that they are able to mitigate the potential costs associated with inefficient and corrupt business environments to increase the probability of exits by IPOs in countries with higher levels of corruption. Moreover, we find that market shocks in the developed markets result in a negative ripple effect as the probability of successful exits, especially by way of IPOs, decreases in emerging markets.     

Corruption’s impact on foreign portfolio investment

Corruption has significant effects on a nation’s financial markets through its adverse impact on foreign portfolio investment (FPI). Yet, the effects of corruption on FPI are nonlinear and reverse J-shaped, with intermediate levels of corruption yielding the most negative effects. Highly transparent nations, where a “level playing field” exists between foreign and local investors due to lack of information asymmetries related to corruption, attract the most foreign investment. However, at the margin, very corrupt countries attract more investment than moderately corrupt countries because a “perverse level playing field” in the former countries may put foreigners and locals on an even footing in terms of resolving asymmetric information problems. This nonlinear pattern is consistent with foreign investors’ desire to trade in markets where they are not at an informational disadvantage.     

The impact of banks and non-bank financial institutions on economic growth

Empirical studies examining the relationship between financial sector development and economic growth without including non-bank financial institutions (NBFIs) will likely generate biased empirical results. This study provides evidence that NBFIs can have a statistically significant negative impact on economic growth using cross-country data for both emerging and advanced countries. This finding suggests that these non-bank institutions, often loosely regulated, may introduce an excessive level of risk into the financial sector and the general economy. It is consistent with the current global financial crises where NBFIs, such as investment banks and insurance companies, introduced an excessive level of risk into the global economy. Hence, policy-makers may need to consider more timely and effective regulation of NBFIs and insure that adequate transparency and disclosure is provided to all financial markets participants.     

Effects of world market oriented regional integration on developing countries

The inward-oriented wave of regionalisation in the mid-sixties in the so-called developing countries was judged, twenty years later, to have been a failure almost everywhere. Since the beginning of the nineties a new trend towards regionalisation has been emerging, this time more strongly oriented towards world markets. Do the new regional integration agreements complement the economic and development policy effects aimed at by the structural adjustment programmes of the international financial institutions? What effects do they have on the economic development and the industrialisation of the countries involved?     

Foreign Direct Investment in Africa: The Role of Natural Resources,Market Size,Government Policy,Institutions and Political Instability

Data from several investor surveys suggest that macroeconomic instability, investment restrictions, corruption and political instability have a negative impact on foreign direct investment (FDI) to Africa. However, the relationship between FDI and these country characteristics has not been studied. This paper uses panel data for 22 countries over the period 1984–2000 to examine the impact of natural resources, market size, government policies, political instability and the quality of the host country's institutions on FDI. It also analyses the importance of natural resources and market size vis‐à‐vis government policy and the host country's institutions in directing FDI flows. The main result is that natural resources and large markets promote FDI. However, lower inflation, good infrastructure, an educated population, openness to FDI, less corruption, political stability and a reliable legal system have a similar effect. A benchmark specification shows that a decline in the corruption from the level of Nigeria to that of South Africa has the same positive effect on FDI as increasing the share of fuels and minerals in total exports by about 35 per cent. These results suggest that countries that are small or lack natural resources can attract FDI by improving their institutions and policy environment.     

Impact of the Financial Crisis on Cross‐Border Mergers and Acquisitions and Concentration in the Global Banking Industry

The global banking industry has seen dramatic changes in the past 40 years. Most recently, the financial liberalization of emerging markets and the global financial crisis have significantly impacted the market share of banks worldwide. This article investigates the impact of the 2007–2008 financial crisis on cross‐border mergers and acquisitions (M&As) in the banking sector and emphasizes the role of emerging‐market banks in the postcrisis consolidation trend. Using M&A data and concentration data over the period 2000–2013, our analysis indicates that the financial crisis had a significant impact on worldwide M&As, especially on the direction of the transactions. Emerging‐market banks appear to be major acquirers in the postcrisis period, targeting both neighboring countries and developed economies in Europe. We also observe an increase in bank concentration in developed markets most hit by the financial crisis, especially in the United States and the United Kingdom, whereas bank concentration decreased in emerging markets. © 2015 Wiley Periodicals, Inc.     

Mapping the impact of home‐ and host‐country institutions on human resource management in emerging market multinational companies: A conceptual framework

While there is a growing literature concerned with multinational companies from emerging markets (EMNCs), it does not contain a robust conception of how institutions shape human resource (HR) practices in such firms. We contribute to filling this gap through developing a framework of how institutions create a range of constraints and opportunities for EMNCs. Specifically, our framework contains three key elements of how MNCs from emerging markets interact with institutions: EMNCs develop approaches that to some extent reflect the perceived strengths and weaknesses of the institutions in the home country (institutional conditioning); the strategies of actors in EMNCs can overcome the weaknesses of the home country by drawing on institutions in other countries (institutional arbitrage); and the actions of EMNCs can reinforce, or create pressures for change in, the institutional context in the countries in which they operate (institutional change/consolidation). By mapping this set of strategies of EMNCs, we contribute to a fuller understanding of the relationship between institutions and HR practices, and we outline how the rise of EMNCs reshapes the global landscape by adding new kinds of firm behavior to capitalist diversity.     

Early warning indicators of asset price boom/bust cycles in emerging markets

We apply recently developed early warning indicator systems to a cross-section of emerging markets. We find that, with little or no modification, models designed to predict asset price booms/busts in advanced countries may be useful for emerging markets. The concept of monitoring a set of asset prices, real activity and financial indicators is generally found to be efficacious. We also find that, in addition to this set of variables, early warning indicator systems for emerging countries may be augmented with capital flow indicators.     

新兴经济体市场需求变化态势与中国企业选择——基于东莞外向型企业拓展新兴市场的调研

国际金融危机后,新兴经济体成为世界经济复苏及其持续发展的主要动力来源。以IMF界定的26个新兴市场国家为范围,通过东莞外向型企业拓展新兴市场的情况调研,发现新兴市场需求具有进口规模不大、增速快、市场需求差异比较大等特征,对中国企业拓展新兴市场具有一定挑战。中国企业必须转变对新兴市场的观念,采取多路径进入新兴市场,并加强对新兴市场的维护。