Globalization and the state–profession relationship: the case the Bank of Credit and Commerce International

Globalization of businesses raises major questions about the regulation of corporations, both in the national and international context. The debate is marked by two competing views. The ‘hyperglobalists’ claim that in a globalized world, nation-states cannot take effective actions to regulate multinational businesses, especially those relating to banking and finance. In response, the ‘skeptics’ accept the view that to regulate corporations, the nation-state has always had to restructure itself. However, they challenge the contention that globalization has reduced the power, functions and authority of the state. The paper contributes to the debate through an examination of some of the processes leading to the forced closure (and the aftermath) of the Bank of Credit and Commerce International (BCCI), a bank that operated from 73 countries. It particularly focuses upon the role of the banking regulators and their reliance upon auditing technologies to regulate major banks. The paper sides with the ‘skeptics’ and argues that the nation states, especially major Western states, remain important players in the regulation of global businesses. It concludes that the nation-state’s capacity to regulate global enterprises is compromised by history, domestic concerns and relationships with class and capitalist interests rather than by globalization per se.     

The Hedge Fund and the Strategies

The hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. The st…     

China and Kazakhstan’s Oil and Gas Partnership at the Start of the Twenty-First Century

Over the past decade, cooperation between China and Kazakhstan in the oil and gas sector has developed significantly. For China, security of its energy supply is a key strategic objective. This paper analyzes the evolution of Sino-Kazakh oil and gas relations, assesses their long-term prospects, and explores how Chinese demand for oil and gas could divert Kazakhstan’s hydrocarbon resources from other energy markets. The netback approach has been used to assess the prices that China will need to offer other producers in Kazakhstan. Sino-Kazakh energy and economic cooperation could create a good basis for free economic zones and development of beneficial ties for both countries.     

Apples and oranges? Corporate rescue and functional convergence in the US and UK

This paper challenges the standard characterisation that US law in the sphere of corporate bankruptcy is ‘pro debtor’ and UK law is ‘pro creditor’. It suggests that the traditional thesis is, at best, a potentially misleading over‐simplification. It also offers the conclusion that there is functional convergence in practice, while acknowledging that corporate rescue, as distinct from business rescue, still plays a larger role in the US. The functional convergence has partly come through the UK Enterprise Act 2002 but the paper suggests that the main move has been that of US law and practice in a UK direction with more emphasis on business disposals and speedier cases than on corporate reorganisations, as traditionally understood. This mirrors practice in the UK where the emphasis has always been on business disposals. Unfortunately, the current economic recession on both sides of the Atlantic has shone a heightened spotlight on business bankruptcy and is likely to generate further changes in practice and ultimately legislation. Copyright © 2009 John Wiley & Sons, Ltd.     

Housing, consumption and monetary policy: How different are the US and the euro area?

This paper provides a systematic empirical analysis of the role of the housing market in the macroeconomy in the US and the euro area. First, it establishes some stylised facts concerning key variables in the housing market on the two sides of the Atlantic, such as real house prices, residential investment and mortgage debt. It then presents evidence from Structural Vector Autoregressions (SVAR) by focusing on the effects of monetary policy, credit supply and housing demand shocks on the housing market and the broader economy. The analysis shows that similarities outweigh differences as far as the housing market is concerned. The empirical evidence suggests a stronger role for housing in the transmission of monetary policy shocks in the US. The evidence is less clear-cut for housing demand shocks. Finally, credit supply shocks seem to matter more in the euro area.     

Predictability and the earnings–returns relation

This paper studies the effects of predictability on the earnings–returns relation for individual firms and for the aggregate. We demonstrate that prices better anticipate earnings growth at the aggregate level than at the firm level, which implies that random-walk models are inappropriate for gauging aggregate earnings expectations. Moreover, we show that the contemporaneous correlation of earnings growth and stock returns decreases with the ability to predict future earnings. Our results may therefore help explain the apparently conflicting recent evidence that the earnings–returns relation is negative at the aggregate level but positive at the firm level.     

Survival of the Fittest or the Fattest? Exit and Financing in the Trucking Industry

This paper studies the impact that capital market imperfections have on the natural selection of the most efficient firms by estimating the effect of the prederegulation level of leverage on the survival of trucking firms after the Carter deregulation. Highly leveraged carriers are less likely to survive the deregulation shock, even after controlling for various measures of efficiency. This effect is stronger in the imperfectly competitive segment of the motor carrier industry. High debt seems to affect survival by curtailing investments and reducing the price per ton-mile that a carrier can afford to charge after deregulation.     

The Renaissance of the Big Cities—and the Opportunities for Berlin

Original Papers

The Renaissance of the Big Cities—and the Opportunities for Berlin     

Investor sentiment and the mean–variance relation

This study shows the influence of investor sentiment on the market's mean–variance tradeoff. We find that the stock market's expected excess return is positively related to the market's conditional variance in low-sentiment periods but unrelated to variance in high-sentiment periods. These findings are consistent with sentiment traders who, during the high-sentiment periods, undermine an otherwise positive mean–variance tradeoff. We also find that the negative correlation between returns and contemporaneous volatility innovations is much stronger in the low-sentiment periods. The latter result is consistent with the stronger positive ex ante relation during such periods.     

Who Are the Value and Growth Investors?

This paper investigates value and growth investing in a large administrative panel of Swedish residents. We show that, over the life cycle, households progressively shift from growth to value as they become older and their balance sheets improve. Furthermore, investors with high human capital and high exposure to macroeconomic risk tilt their portfolios away from value. While several behavioral biases seem evident in the data, the patterns we uncover are overall remarkably consistent with the portfolio implications of risk‐based theories of the value premium.     

Housing and the Tax System: How Large Are the Distortions in the Euro Area?*

This paper presents new evidence on the impact of the preferential treatment of owner‐occupied housing in the euro area. We find that tax benefits to homeowners reduce the user cost of housing capital by almost 40 per cent compared with the efficient level under neutral taxation. On average, the tax subsidy translates into an excess consumption of housing services equivalent to 7.8 per cent of the value of owner‐occupied housing, or about 30 per cent of financial asset holdings in household portfolios. The bulk of the subsidy stems from undertaxation of the return to home equity, while the average contribution of the tax rebate for mortgage interest payments is driven down by relatively low loan‐to‐value ratios in the data. However, at the margin, the tax‐induced incentive to use mortgage debt to finance the purchase of the main residence is sizeable.     

Are Investors Sensitive to the Quality and the Disclosure of Financial Statements?

This paper investigates the influence of Swiss firms' disclosurepolicy and of their financial analysts' coverage on stock priceabnormal reactions to the publication of the annual reports.It first shows that, after controlling for the number of analysts,the absolute abnormal returns are significantly and positivelyaffected by the rating measure used as a proxy of the informationalquality of annual reports. It furthermore emphasises asymmetryin the relationship between stock price abnormal reactions andtwo informational variables, namely the quality of the firm'sdisclosure policy and its financial analysts' coverage. It appearsthat while positive abnormal returns are significantly and positivelyrelated to the rating variable, negative abnormal returns areonly affected by the number of financial analysts. The inverserelationship between abnormal negative returns and the financialanalysts' coverage supports the fact that competition amonganalysts reduces investors' adverse selection problem. Finally,the study evidences a non-linear relationship between ratingand positive abnormal returns which is meaningful for the "good"and "very good type" firms and thus emphasises the signalingrole played by a firm's financial disclosure policy.     

Is There a Connection Between the Tax Administration and the Political Power?

This paper offers empirical evidence from Spain of a connection between the tax administration and the political power at the regional level. Firstly, the system of unconditional grants from the central layer of government provokes an “income effect” which disincentivises the efforts of the regional tax administration. Secondly, these efforts tend to be lower in those electoral districts where vote turnout is high, the margin to lose a parliamentary seat is narrow and their parliamentary representation is high, although the importance of these disincentives decreases according to the parliamentary strength of the incumbent. Finally, leftist governments, through the tax administration, tend to exert a greater effort in ensuring tax compliance.     

Olympics and Business Opportunities for the Tourist Industry

Compared with other industries, the chance and potential is bigger for the tourist industry to participate in the Olympic Games, which not only present themselves in the preparation and holding of the Games, but contribute to the post-Olympic economic development.     

Corruption and the shadow economy: like oil and vinegar, like water and fire?

From a theoretical point of view, the relationship between corruption and the shadow economy is ambiguous: They can either be substitutes or complements. This paper contributes to this debate by using a structural equation model with two latent variables to extract information on various dimensions of corruption and the shadow economy. Analyzing a sample of 51 countries around the world over the period 2000 to 2005, we present empirical evidence for a complementary (positive) relationship of corruption and the shadow economy.     

Multinational Banks and the Global Financial Crisis: Weathering the Perfect Storm?

We use data on the 48 largest multinational banking groups to compare the lending of their 199 foreign subsidiaries during the Great Recession with lending by a benchmark of 202 domestic banks. Contrary to earlier and more contained crises, parent banks were not a significant source of strength to their subsidiaries during 2008–09. When controlling for other bank characteristics, multinational bank subsidiaries had to slow down credit growth almost three times as fast as domestic banks. This was in particular the case for subsidiaries of banking groups that relied more on wholesale funding.     

Do bears and bulls swim across oceans? Market information transmission between greater China and the rest of the world

This study investigates returns and volatilities transmission across Greater China’s four emerging stock markets and three developed international markets, Tokyo, London, and New York. Using daily open and close price data from 1994 to 2001, we provide empirical evidence that the overnight returns on all the Greater China stock indices can be estimated by using information from at least one of the three developed markets’ daytime returns. The contemporaneous return spillovers are in general unidirectional from more advanced major international markets to the Chinese markets. However, split-sample analysis suggests that there is also evidence of bi-directional return spillovers after the 1997 Asian financial crisis. We also find that there are no one-period lagged return spillover effects from the three advanced markets to the Chinese markets, except for Taiwan. Finally, Mainland China’s two stock markets are not affected by contemporaneous nor delayed “bad news”.