ROLE OF GOVERNANCE IN EXPLAINING DOMESTIC INVESTMENT IN NIGERIA

This study examines the determinants of domestic investment in Nigeria with a special focus on the role of governance. The estimations are carried out with time series data from 1975 to 2009 using the Johansen estimation techniques. The results conform to the findings of existing literature that real output, user cost of capital and level of financial development are significant determinants of domestic investment in Nigeria. The distinctive feature of the paper is the significant role played by governance in explaining the long‐term pattern of domestic investment in Nigeria. The results from the long‐run estimation and the impulse responses revealed that a well‐structured and stable socio‐economic environment will boost domestic investment over the long run. Therefore, in modelling domestic investment for Nigeria, it is imperative to incorporate the significant role played by governance. 1     

Africa's Money in Africa

Workers' remittance and compensation of employees received in Sub‐Sahara Africa (SSA) increased from USD 1.398 billion in 1980 to USD 4.834 billion in 2000 and soared to USD 21.101 billion in 2010. The impact of remittance on recipient economy requires further empirical investigation as there has not been consensus on whether remittance induces “financial prodigality” or investment in Africa. Differing from extant studies, this study employed rule of law, regulatory quality and government effectiveness as indicators of institutional quality. This is with a view to exploring how institutional quality and financial depth interact with remittance to influence investment in 44 African countries (1995‐2010). The major finding from the study, inter alia, is that institutional quality and financial depth play complimentary role in influencing remittance for investment in Africa. This study concludes that the impact of Africa's money in Africa will be enhanced in the presence of reliable institutional quality and viable financial sector. Thus, the side effect of “financial prodigality” that might be associated with remittance can be ameliorated.     

The Impotence of Accountability: The Relationship Between Greater Transparency and Corporate Reform

This paper explores the role of accounting in the attempted reform of the corporation during the “progressive era” in the United States. Focusing on the activities of three institutional bodies in the early twentieth century, the paper documents how their repeated recourse to “publicity,” which relied crucially on accounting technologies, failed to turn the corporation into an entity more sensitive to the public interest. Specifically, two interrelated contributions are made to existing literature on accounting and corporate governance. Firstly, the paper documents the early historical development of the now taken‐for‐granted phenomenon of accounting and adjudicating at the entity level (Miller and Power 2013). Secondly, the paper offers a rejoinder to present‐day projects of corporate governance which identify better and enhanced accountability as key to the successful reform of the corporation. During the progressive era, accounting expanded and territorialized new spaces, bringing trusts out of a hitherto secretive, private realm and into the view of the public. Yet this was not enough to engender substantive corporate reform.     

SAVING IS NEVER A CONSTRAINT ON INVESTMENT1

Saving is regarded in mainstream macroeconomics as a volitional relationship, like consumption. This paper argues that this view is incorrect. There is no independent volitional saving function. Since all goods produced are either consumption goods or investment goods, saving, defined as “income not consumed”, is the accounting record of investment spending. Changes in the definition of investment produce identical changes in saving, with no accompanying volitional change in saving behavior. “Saving” in economics should properly be termed “abstention” since it does not constitute transitive behavior. To understand saving behavior a Hicksian definition of income must be used, and capital gains and losses must be included in the definition of income. In modern capitalist economies most saving undertaken by agents is non‐volitional, and takes the form of permitting the market value of total net wealth to increase.     

SOUTH AFRICA'S POST‐LIBERALISED CAPITAL FLOWS AND BUSINESS CYCLE FLUCTUATIONS

This study used Christiano and Fitzgerald filtered correlation analysis to investigate the cyclical relationships between South Africa's post‐liberalised capital flows and domestic business cycle fluctuations. The results show that foreign direct investment inflows are counter‐cyclical and proactive, while the “hot” inflows are acyclical. Thus, South Africa's post‐liberalisation “hot” inflows have not been significantly associated with domestic business cycle fluctuations. In contrast, the capital outflows are found to be consistently procyclical and proactive, suggesting that the outflows are more significantly associated with domestic business cycle fluctuations than the capital inflows. In addition, it is found that the cyclical relationships between the capital inflows and the business cycle components of exports, household consumption and gross fixed investment are generally procyclical, except for portfolio inflows, which have a counter‐cyclical relationship with fixed investment. In contrast, the capital outflows are counter‐cyclically associated with exports and household consumption, and procyclically associated with fixed investment.     

Forty Years Development of China's Outward Foreign Direct Investment: Retrospect and the Challenges Ahead

Outward foreign direct investment (OFDI) has increasingly become an important method for China to integrate into the world economy. This paper comprehensively reviews and analyzes policy development and the changing pattern of China's OFDI over the past 40 years. We divide the development into “restricted” (1978–1999), “relaxed” (2000–2016) and “regulated” (2017 onwards) stages. This paper also reviews literature on the impact of Chinese OFDI on China and host countries. Despite its generally positive effects, large‐scale and unbalanced OFDI activities have alarmed Chinese policymakers. Both developing and developed host countries have expressed their concern over national security and the misbehavior of some Chinese overseas enterprises. Therefore, greater supervision and adjustment from quantity to quality growth is necessary for the future development of China's OFDI.     

Credibility and Reputation Building in the Developmental State: A Model with East Asian Applications

We use a game-theoretic model to analyze the role of credibility, reputation and investment coordination in a developmental state. Our model focuses on why a “soft” state serving narrow social groups so often obtains in less-developed countries and under what conditions a “hard” or developmental state can emerge. The model highlights the dilemma that although state and private sector alike may want economic growth, both must simultaneously invest to achieve it. But the equilibrium outcome—analogous to the prisoner's dilemma—is investment by neither. Even when initial conditions are favorable and a state is potentially developmental with the genuine capability to elicit private sector investment, this may not materialize and an equilibrium of low, or no, investment will prevail. To avoid this deadlock and foster growth, the successful developmental state must demonstrate commitment by promoting its “developmental” credentials through a process of reputation building. A consequent incentive to act “tough” together with seeming advantages of authoritarianism in implementing the developmental state may help to explain why it is often associated with an authoritarian political system.     

SOCIAL SECURITY AND WELL‐BEING IN A LOW‐INCOME ECONOMY: AN APPRAISAL OF THE KERALA EXPERIENCE

The State of Kerala, which is considered to have attained a level of social well‐being comparable to that of advanced countries despite its relatively low income standard, is widely known as an example of “welfare by public intervention” in developing economies. This paper, focusing on the four areas of food provision, health services, elementary education, and pension schemes, and paying attention to the participation of the private sector as well as the activities of political parties and labor unions, points out that in Kerala, the private sector and organized activities have played a vital role, in addition to “public intervention,” in the betterment of public welfare.     

Abstracts/Résumés

We investigate how private information and monitoring affect the role of accounting quality in reducing the investment–cash flow sensitivity. We argue that access to private information and direct restrictions on investments are likely to affect the extent to which accounting quality reduces financing constraints. Our results suggest that, for financially constrained firms, banks’ access to private information decreases the value of accounting quality. We further find that, for both financially constrained and unconstrained firms, covenants directly restricting capital expenditures also mitigate the importance of accounting quality. Our results suggest that, when information asymmetry problems are likely to be the largest, accounting quality is most important. However, the importance of accounting quality is mitigated if outside capital suppliers have access to private information and is eliminated if they impose contractual restrictions on investment. We also provide evidence that banks’ access to private information reduces the cash flow sensitivity of cash and mitigates the importance of accounting quality in reducing this sensitivity. This additional evidence suggests that our investment–cash flow sensitivity results are not driven by measurement error of the investment opportunity set.     

Internal Information Quality and the Sensitivity of Investment to Market Prices and Accounting Profits

We ask whether the quality of internal information matters for investment decisions. We predict that investment is more sensitive to internal profit signals and less sensitive to external price signals when managers have higher‐quality internal information. Consistent with recent theoretical and empirical research, we proxy for internal information quality using observable information properties. We find that the sensitivity of investment to profitability is increasing, while the sensitivity of investment to market‐to‐book is decreasing in internal information quality. Our focus on internal information and decision making offers new and unique insights on the importance of information quality and complements the growing literature on the role of external reporting quality in reducing financing frictions.     

Earning the “Write to Speak”: Sell‐Side Analysts and Their Struggle to Be Heard

This paper explores the ways in which sell‐side (SS) financial analysts seek to position themselves advantageously within the wider field of investment advice in spite of widespread skepticism over the value that their forecasts and recommendations add to investment decisions. The field of investment advice has been characterized in recent years by a number of regulatory and technological changes that have forced SS analysts to reconstitute the ways in which they influence the investment decisions of buy‐side (BS) actors. Faced with existential threats, SS analysts have responded to the disruptive impact of technology and regulation by struggling hard to ensure that their services are still valued by fund managers. Key to this ongoing process is the recalibration of professional expertise, which previous research has alluded to but not explored in detail. Central to the persistence of SS analysts in processes of investment decision making are activities revolving around the production and use of analyst reports which, our findings indicate, are less valuable for their informational content than their role as “relational devices,” ascribing legitimacy to SS analysts and earning them an entry ticket to more substantive, value‐adding interactions with companies and BS actors. We also show that economic considerations in the area of investment advice are influenced by social ties, the motivations of various actors in the field, and their relative position vis‐à‐vis other actors. More generally, we contribute to the literature on professional projects by showing how professional groups are constantly engaged in attempts to reposition themselves in the social space, but that field‐level changes can restrict the outcomes of these strategies to mitigation rather than advancement for the professionals concerned.     

PARTIAL DOLLARIZATION,EXCHANGE RATES,AND FIRM INVESTMENT IN PARAGUAY

Between 1989 and 1993 the government of Paraguay removed most restriction on financial transactions in domestic and foreign currency. The resulting financial deepening also involved partial dollarization. This investigation sought to determine whether partial dollarization led to negative balance sheet effects (in the form of reduced access to investment credit due to depreciation‐induced reduction in firms’ net worth as a result of currency mismatches on their balance sheets) and, therefore, to investment contractions, at the firm level, in the face of real currency depreciations. Support was found for that thesis. However, there was also evidence that banks expanded credit more rapidly in the face of currency depreciations. These apparent contradictory movements in credit and investment were shown to be a result of the absence of any clear causal link (in a Granger sense) between bank credit to the private sector and private investment in Paraguay.     

Should I stay or should I go? Foreign direct investment,employment protection and domestic anchorage

This paper examines theoretically and empirically how employment protection legislation affects location decisions of multinationals. We depart from the “conventional wisdom” by examining not only the effect of protection on inward foreign direct investment (FDI), but also a country’s ability to “anchor” potential outward investment. Based on our simple theoretical framework, we estimate an empirical model, using data on bilateral FDI and employment protection indices for OECD countries, and controlling for other labour market institutions and investment costs. We find that, while an “unfavourable” employment protection differential between a domestic and a foreign location is inimical to FDI, a high domestic level of employment protection tends to discourage outward FDI. The results are in line with our conjecture that strict employment protection in the firm’s home country makes firms reluctant to relocate abroad and keeps them “anchored” at home.     

AN ANALYSIS OF INVENTORY INVESTMENT IN SOUTH AFRICA

This paper describes the evolution of inventory investment in South Africa over the past two decades, and identifies the factors influencing inventory investment over this period. An econometric model of inventory investment in South Africa, based on the production smoothing approach, is constructed. The results of the model indicate that actual sales, production, unfilled orders, price levels, interest rates and expected sales have an influence on the evolution of inventory investment. These variables are directly or indirectly influenced by macroeconomic policy decisions and through their influence on inventory investment they also influence changes in gross domestic product. Therefore, prior information on the factors that influence inventory investment contributes to explaining changes in gross domestic product and may help to prepare more accurate short‐term forecasts of overall economic activity.     

如何制定好的政策--基于《不变的是原则，万变的是方法》的实证研究

文章对《不变的是原则，万变的是方法》中民政部的一些政策出台过程进行案例式的实证研究，并从政策与制度、程序与机制以及智库与数据等角度对以民政部为代表的国家部委的善政之道进行多视角和多层次的阐述。认为，民政部这些善政的出台，其宏观的时代背景就是党中央建设和谐社会理念的提出以及对社会建设尤其是民生建设的重视和投入。而这些善政的出台和实施过程不仅提供了经验和借鉴，也是中国渐进改革路径的具体体现。     

THE CYCLICALITY OF MONETARY AND FISCAL POLICY IN SOUTH AFRICA SINCE 1994

This paper uses a structural vector‐autoregression approach to discuss the cyclicality of fiscal and monetary policy in South Africa since 1994. There is substantial South African literature on this topic, but much disagreement remains. Though not undisputed, there is growing consensus that monetary policy has contributed to the remarkable stabilisation of the South African economy over this period. The evaluation of the role of fiscal policy in stabilisation has been less favourable and there is little evidence that a countercyclical fiscal stance was a priority over this period. This paper considers these issues in an empirical framework that addresses some of the shortcomings in the literature. Specifically, it constructs a structural model in contrast with the reduced form models typically used in the South African literature, incorporates the dynamic interaction between monetary and fiscal shocks on the demand side and supply shocks on the other, and avoids controversy over “neutral” base years and the size of fiscal elasticities. The model confirms the consensus on monetary policy, finding it to have been largely countercyclical since 1994. On fiscal policy, this paper finds evidence of pro‐cyclicality, especially in the more recent period, though the policy simulations suggest that the pro‐cyclicality of fiscal policy has had little destabilising impact on real output.     

"SIN" TAXES AND POOR HOUSEHOLDS: UNANTICIPATED EFFECTS

This paper presents several hypotheses relating to the effects that tax hikes on tobacco and alcohol products may have on poor households. Its focus is limited to patriarchal households in which the head is “egoistic” and/or addicted (to alcohol and tobacco) and is also in control of the household budget. It is argued that “sin” tax hikes may adversely affect the welfare of household members other than the head, either directly through a re‐allocation of the household budget, or indirectly through higher health expenses caused by the substitution of cheaper and lower quality alcohol and tobacco products for higher quality products.     

Corporate Governance Reforms in the Post-1997 Asian Crisis: Is There Really a Convergence to the Anglo-American Model?

Abstract

Following the 1997-Asian crisis, a number of crisis-hit countries were committed to the rapid transformation of the corporate governance system to one that is modeled after the Anglo-American system. This, as the article argues, is based on a false premise, that what may have worked in the United States/United Kingdom can also be applied in East Asia. In this regard, the convergence at the firm level is seen to be more in “form” rather than in “substance”. This study assesses Singapore's corporate system in terms of its recognition of the merits of the Western model. It then details the corporate governance style of Temasek Holdings Limited (THL), a state- owned enterprise (SOE) in charge of monitoring government investments in companies. The choice of THL as a case study is based on the premise that THL operates very much like a private sector corporation. In addition, it has the ability to influence the standard of corporate governance of Singaporean SOEs. Because the SOEs are large players in their respective industries, the corporate governance of SOEs establish the standards and expectations for monitoring in non-SOEs. There are indications to suggest that the THL has taken into consideration certain aspects of corporate governance practices that may not necessarily be in line with those advocated by the Singapore government. The article argues that selective adaptation such as the style adopted in the THL more realistically portrays the corporate governance practices of East Asian corporations.     

MACROECONOMIC UNCERTAINTY AND AGGREGATE PRIVATE INVESTMENT IN SOUTH AFRICA

This paper investigates the effects of time varying uncertainty on aggregate private fixed investment in South Africa. The GARCH generated measures of volatility of selected macroeconomic variables indicating five measures of uncertainty are used in the analysis. These are output growth uncertainty, uncertainty about changes in the real effective exchange rate, uncertainty about changes in the real interest rate, producer inflation uncertainty, and terms of trade uncertainty. The results of the estimation by an empirical ECM model of conventional investment determinants controlling for the effects of uncertainty indicated that, over all, time varying macroeconomic uncertainty significantly reduces private fixed investment.     

Do Mutual Fund Investors Care About Auditor Quality?

We study the influence of perceived auditor quality on investment decisions by bond mutual fund investors. Audits of bond mutual funds require significant auditor expertise. Fund managers estimate daily the fair market values of holdings that are often opaque and illiquid. Managers can use their discretion to manipulate their fund's performance results. While it is known that investment flows into funds that report good past performance, little evidence exists about whether investors' confidence in the reliability of fund financial reports is influenced by auditor quality. Using hand‐collected data from SEC filings, we find that the positive association between reported performance and investment flows is stronger for funds with auditors who are industry specialists and are longer‐tenured, as well as for funds that pay higher audit fees. We do not find that auditor office size strengthens the association. We also find that the presence of industry‐specialist auditors, long‐tenured auditors, and higher audit fees lead to additional disclosure in the form of emphasis‐of‐matter. This study contributes to the streams of research investigating perceived audit quality, fund investment decisions, and auditing for financial services.