Overall effects of financial liberalization: financial crisis versus economic growth

ABSTRACT

The contribution of this work consists firstly in decomposing the effect of financial liberalization into a global direct positive effect on growth and an indirect negative effect via financial fragility and crisis. We show that the aggregate positive effect of financial liberalization outweighs the negative partial or temporary effect. Secondly, contrary to previous works, we distinguish many types of financial reforms. We found that equity market liberalization is the most important component in reducing economical costs associated with financial crisis. Thus, equity market liberalization is the most important favoring growth. Interest rate liberalization enhances significantly the probability of crisis leading to a short-run indirect effect more important than other financial reforms. Thirdly, we improved our work by addressing model uncertainty using Bayesian Model Averaging techniques to choose appropriate indicators for model crisis specification.     

The quality effect: Does financial liberalization improve the allocation of capital?

We document evidence of a “quality effect” of financial liberalization on allocative efficiency, as measured by dispersion in Tobin's Q across firms. We predict that financial liberalization, by equalizing access to credit, is associated with reduced variation in expected marginal returns. We test this prediction using a new financial liberalization index and firm-level data for five emerging markets: India, Jordan, Korea, Malaysia, and Thailand. We find robust evidence that financial liberalization, rather than financial deepening, is associated with improved allocative efficiency.     

Credit growth,current account and financial depth

Exploring the determinants and dynamics of the current account balance is one of the priorities of academic literature and policy circles. Although the effects of structural variables are deeply analysed, a lesser attention has been paid to the impact of financial variables. Drawing on standard empirical current account models and with a large sample of industrial and developing countries, we report a significant deterioration in the current account balance in case of an increase in the credit growth. Moreover, we find that this link is substantially stronger for the developing ones motivating a closer examination. Therefore, we further advance our analysis and show that credit growth causes a stronger impact on the current account balance for lower levels of financial depth. In other words, at the early stages of financial development, acceleration in the credit growth might cause a larger deterioration in the current account balance; thus, it might be suggested that monetary policy and macro-prudential measures aimed at preventing financial excess might be more effective to reduce the external imbalances at the early stages of financial deepening.     

Industrial districts and financial constraints to innovation

Informational frictions between borrowers and lenders are particularly acute for innovative firms undertaking high‐risk projects. As a consequence, banks may end up denying credit to them. However, the literature on relationship finance predicts that a closer relationship between credit suppliers and obligors is deemed to alleviate information asymmetries, hence preventing credit rationing from occurring. The question of whether such situations also apply to innovative firms has so far remained relatively unexplored. Using a cross‐section of Italian manufacturing firms, I find that credit constraints appear to be more severe for firms undertaking innovative activities, although such effects are weaker when measures of R&D intensity are included. The empirical analysis also shows that firms located in an industrial district have easier access to external finance. If I move to consider firms engaged in substantial R&D activities located in a district, results suggest that they can benefit from better financial conditions.     

Financial Development and Inequality in the Global Economy

We build a heterogeneous firms model with firm‐specific wages and credit frictions to study the role of financial development for inequality in the global economy. If there are many small (non‐exporting) firms, better access to external funds reduces wage and profit inequality as well as unemployment. In contrast, if there are many large (exporting) firms, financial development might have opposite effects – especially if trade costs are low. In summary, the implications of financial development for inequality depend on the size distribution of firms and on the costs of exporting. Trade liberalization, however, raises inequality unambiguously.     

“私募股权基金的基金”的差异化发展——基于政府财政资金运用研究

在后金融危机时代,随着政府财政职能的不断完善和创新以及国家财政收入持续增长,科学合理的使用国家和地方财政资金,将对提高财政资金管理水平和使用效率,促进私人资本投资活动、扩大政府资金影响力、减轻政府负担以及转变职能等方面都具有重要意义.成熟的私募股权基金市场,是政府实现其政策的重要工具之一,其中“私募股权基金的基金”(PEFOF)为政府财政投资提供了不错的选择,也是政府设立并按照市场化运作的引导基金.本文将对政府财政投资PEFOF在投资标的差异化、投资额度及使用条件差异化、投资对象与投资策略差异化、投资模式及投资区域差异化等方面进行了分析与研究,提出加快发展我国政府财政资金PEFOF的建议与对策.     

Dynamic R&D choice and the impact of the firm's financial strength

ABSTRACT

This article investigates how a firm's financial strength affects its dynamic decision to invest in R&D. We estimate a dynamic model of R&D choice using data for German firms in high-tech manufacturing industries. The model incorporates a measure of the firm's financial strength, derived from its credit rating, which is shown to lead to substantial differences in estimates of the costs and expected long-run benefits from R&D investment. Financially strong firms have a higher probability of generating innovations from their R&D investment, and the innovations have a larger impact on productivity and profits. Averaging across all firms, the long-run benefit of investing in R&D equals 6.6% of firm value. It ranges from 11.6% for firms in a strong financial position to 2.3% for firms in a weaker financial position.     

浅议金融仓储服务的社会价值

金融仓储服务是仓储服务与金融服务相结合的创新融资服务模式之一,诞生以来,在支持中小微企业实现动产融资和转型升级、支持三农产业发展、扩展银行服务外包、扩大社会就业、支持社会诚信建设等方面发挥着一定作用。金融仓储服务也获得了政府、专家学者、银行和中小微企业的高度认同。目前,新的金融仓储服务机构不断涌现,体现了良好的社会价值。     

The impact of international financial integration on economic growth: New evidence on threshold effects

Recent research highlights that countries differ with respect to their experience with capital flows and do not systematically gain from capital account liberalization. This paper contributes to the empirical literature that investigates the circumstances under which international financial integration (IFI) is growth-enhancing. Relying on non-linear dynamic panel techniques, we find that countries that are able to reap the benefits of IFI satisfy certain threshold conditions regarding the level of economic, institutional and financial development, and government spending. Our results also reveal a differentiated behavior of FDI and portfolio equity liabilities compared to other types of capital flows, with threshold conditions being systematically less restricting for the former and growth effects significantly larger.     

Bank versus nonbank financial institution lending behaviour: indictors of firm size,risk or ownership?

Using 1251 matched commercial loan deal terms of listed companies over the period 2003–2014, we examine the heterogeneity of lending behaviours of bank and nonbank financial institutions. The results show that large firms have a higher likelihood of getting loans from nonbank financial institutions. Compared to banks, nonbank financial institutions are more likely to provide credit help to high operation risk firms. State-owned listed firms have a higher probability to get finance from nonbank financial institutions than private firms, which highlights the situation that private firms are in a weak position to get credit help from China’s financial system. Moreover, the process of increasing the banks’ noninterest income ratio tends to drives firms to borrow from nonbank financial institutions.     

Financial sector opening and financial constraints: an empirical study based on China’s experiences

ABSTRACT

The paper investigates the effect of financial sector opening on financial constraints based on the experiences in China. We firstly review the policy of China’s financial sector opening and set up exogenous policy measures. Then based on the panel data of listed firms from 2010 to 2015, we calculate four indices to measure China’s firm-level financial constraints through internal and external finance channels. We find that China’s financial sector opening alleviates financial constraints and upgrades the financing structure for China’s listed firms. Financial sector opening also eliminates ownership discrimination and promotes financing efficiency, to alleviate financial constraints of private enterprises and profitable enterprises. The mechanism of the effects of financial sector opening on financial constrain is mainly through the collateral channels and the elimination of information asymmetry.     

Effects of financial constraints on export performance of firms during the global financial crisis: microeconomic evidence from Korea

This study uses a manufacturing firm-level panel data set of South Korea for 2006–2013 to investigate the effect of financial constraints on the export performance of firms, with particular emphasis on the corporate ownership structure. The empirical results show that foreign multinational corporation (MNC) subsidiaries are not affected by financial constraint during both crisis and noncrisis periods, implying advantages of foreign ownership. However, domestic firms suffer more from financial constraints on exports during crisis years. In particular, domestic firms without parent firms are financially constrained during both crisis and noncrisis periods. However, those with parent firms do not experience financial constraints during noncrisis periods, although they too suffer from them during crisis periods. Thus, parent–subsidiary linkage among domestic firms plays an important role in alleviating financial constraints on export activity in noncrisis years but not as much during crisis years. Therefore, domestic parent firms exhibit less resilience to the global financial crisis, in comparison to foreign MNC parent firms.     

Trade credit, bank lending and monetary policy transmission

This paper investigates the role of trade credit in the transmission of monetary policy. Most models of the transmission mechanism allow firms to access only financial markets or bank lending according to some net worth criterion. In our model we consider external finance from trade credit as an additional source of funding for firms that cannot obtain credit from banks. We predict that when monetary policy tightens there will be a reduction in bank lending relative to trade credit. This is confirmed with an empirical investigation of 16,000 UK manufacturing firms.     

What matters for financial development? Capital controls,institutions, and interactions

We investigate whether financial openness leads to financial development after controlling for the level of legal development using a panel encompassing 108 countries over the period 1980 to 2000. We also examine the issue of the optimal sequence of liberalization in both goods and financial markets. Our findings suggest that a higher level of financial openness spurs equity market development only if a threshold level of legal development has been attained. On the issue of sequencing, we find that trade openness is a prerequisite for capital account liberalization while banking system development is a precondition for equity market development.     

Evaluating international financial integration under leverage constraints

The global financial crisis has undermined many economists' views about the benefits of open financial markets. Anecdotal evidence seems to indicate that financial linkages may propagate shocks during crises. This paper develops a simple two-country model in which financial liberalisation across countries takes place in the presence of credit market distortions within countries. Countries may be subject to macro risk coming from productivity shocks and direct shocks to the credit system (‘financial shocks’). Three different degrees of financial linkages between countries are examined. It is shown that the type of financial integration is critical for both macroeconomic outcomes and welfare. In particular, financial integration in bond markets alone may increase aggregate consumption volatility and reduce welfare. Financial integration in both bond and equity markets generates high positive co-movement across countries, but is welfare-improving.     

Firm investment and financial conditions in the euro area: evidence from firm-level data

We explore whether the sensitivity of firm-level investment to cash flow, typically associated with an external financing premium, is time-varying and in particular whether it varies with overall financial conditions. We find that financial conditions have indeed played a significant role in corporate investment decisions over recent years, rendering financing constraints even more binding. This finding appears to be robust to a number of control variables and robustness tests. Moreover, the impact of credit conditions is not uniform across firms, but rather it varies depending on firm size and leverage, with constrained firms being substantially more likely to condition their investment decisions on overall credit conditions. Our results cast new light on the interplay between financial and real cycle downturns and underline the need for monetary, fiscal and macroprudential policy to be countercyclical with respect to financial conditions.     

Does the impact of financial liberalization on income inequality depend on financial development? Some new evidence

Instead of empirically finding that higher levels of financial development reduce the positive impact of financial liberalization on inequality, as others do, we come up with the opposite result: financial development strengthens the inequality-raising impact of financial liberalization. We suggest that by, e.g., allowing financial liberalization to lead to more volatility and uncertainty, the model of Bumann and Lensink (2016 “Capital Account Liberalization and Income Inequality.“ Journal of International Money and Finance 61: 143–162.) can be extended as such that also an amplifying instead of reducing effect of financial depth on the impact of financial liberalization on income inequality can be theoretically justified.     

Imperfect competition in financial markets and capital structure

We consider a model of corporate finance with imperfectly competitive financial intermediaries. Firms can finance projects either via debt or via equity. Because of asymmetric information about firms’ growth opportunities, equity financing involves a dilution cost. Nevertheless, equity emerges in equilibrium whenever financial intermediaries have sufficient market power. In the latter case, best firms issue debt while the less profitable firms are equity-financed. We also show that strategic interaction between oligopolistic intermediaries results in multiple equilibria. If one intermediary chooses to buy more debt, the price of debt decreases, so the best equity-issuing firms switch from equity to debt financing. This in turn decreases average quality of equity-financed pool, so other intermediaries also shift towards more debt.     

Monetary shocks,equity returns and volatility: a firm-level panel data analysis

This article studies the impact of monetary policy shocks on equity returns and their volatility among nine industries and their affiliated firms in the United States. We use an extension of the traditional CAPM as the analytical framework and approximate policy shocks with the unexpected component of the federal funds rate. Data on the characteristics of firms and industries are obtained from Compustat and the Center for Research in Security Prices, covering a sample period from 1987 to 2009. Our results clearly show that responses to policy shocks vary by industry and across firms. Furthermore, credit availability matters in certain industries, and small, financially constrained, and bank-dependent firms are found to be more vulnerable to unexpected federal funds rate shocks.     

Employment and output effects of financial shocks

This paper develops a New Keynesian model featured with financial frictions in the form of an exogenous credit constraint to explore the employment and output effects of financial shocks. I show that the equity payout adjustment costs are crucial for the transmission mechanism of financial shocks. The model is estimated using the Bayesian methods and simulated using the observed exogenous shocks for two periods, 1954:III–1983:IV and 1984:I–2015:I. Overall, it is found that financial shocks can account for the observed dynamics of employment and output, especially the sharp decreases during the Great Recession 2007–2008. Additionally, the financial shock is the third and second biggest contributor to output and employment variations, respectively, in the earlier period, but it turns out to be the main source of employment and output fluctuations in the later period. I find that firms are faced higher equity payout adjustment costs in the period 1984:I–2015:I, which accounts for greater variations in the equity payouts in the period.