Does financial development reduce income inequality and poverty? Evidence from emerging countries

The objective of this paper is to examine whether bank and stock market development contributes to reducing income inequality and poverty in emerging countries. Using dynamic panel data methods with an updated dataset for the period 1987–2011, we assess the finance–inequality–poverty nexus by taking the separate and simultaneous impacts of banks and stock markets into account. Mixed explanatory findings on panel studies suggest that although financial development promotes economic growth, this does not necessarily benefit those on low-incomes in emerging countries. For the finance–poverty link, we find that neither banks nor stock markets play a significant role in poverty reduction.     

Are Human and Social Capital Linked? Evidence from India

This paper develops a two‐period Overlapping Generations (OLG) model of endogenous growth in which a two‐way relationship between social capital and human capital is studied. In order to illustrate the impact of public policies, the model is calibrated using the data for a low‐income country, India and a sensitivity analysis is reported under different parameter values. Based on the numerical analysis, this paper focuses on possible trade‐offs in the allocation of government spending between two productive components, that is, social capital‐related activities and education. The results of this paper show that an increase in the share of public spending on social capital‐related activities through a cut in spending on education or vice versa entails trade‐offs. However, the trade‐off fades away and the net impact on long‐run growth turns out to be positive for different parameter values in the case where a higher share of spending on education is financed by a cut in spending on social capital‐related activities but a policy in improving social capital accumulation at the expense of education is always detrimental to long‐run growth.     

Does financial liberalization reduce income inequality? Evidence from Africa

This paper investigates the impact of financial liberalization on income inequality by using the country-level panel data from 51 African countries in more than two decades. We find that income inequality increases, rather than decreases, with the level of financial liberalization. This finding is consistent with the hypothesis that financial liberalization likely induces banks to allocate the scarce financial resources in African countries more discriminatively to rich clienteles but excludes the poor ones from financial access, which thus widens the income gap.     

Are entrepreneurs special? Evidence from board appointments

As shown in previous studies, founder-led firms perform better than those run by professional managers. Does this reflect the special relation of founders to their firms or do entrepreneurs possess attributes and experiences that are valuable even at firms not founded by them? Drawing on the resource-based view of the firm, we study this question by evaluating the effect of entrepreneurs who serve as outside directors of other firms. We find that the stock market reacts positively to appointments of outside entrepreneur directors and that firms with these directors have higher long-term value as measured by Tobin's q. Entrepreneur directors are also associated with increased R&D investment and higher sales growth, and their effect on firm value is larger among firms in R&D-intensive and competitive industries. We conclude that outside entrepreneur directors enhance firm value through their propensity to take risk and their ability to anticipate demand patterns and create new markets.     

Do remittances spur economic growth? Evidence from developing countries

This paper provides original econometric evidence on whether international remittance transfers spur economic growth based on data for a sample of 49 developing countries during the period 2001-2013. Using Panel Smooth Transition Regression (PSTR), difference and system generalized methods of moment models, we find two main results. First, remittances have a positive and significant impact on economic growth in developing countries, while aid and foreign direct investments have insignificant impact. Secondly, as far as the nonlinear relationship is concerned, we find two extreme regimes with a sharp shift characterizing the remittance–growth relationship, with respect to conditional variables, where the remittances effects are positive and significant under the first regime and negative or insignificant under the second. Our findings suggest that the nonlinear relationship between remittances and growth mainly depends on financial development and investment, and less on remittance level and consumption.     

Are there demonstration-related spillovers from FDI?: Evidence from Switzerland

This paper examines whether there are signs of demonstration-related spillovers from foreign direct investment (FDI). It hypothesizes that the size and the extent of such benefits vary according to the level of the absorptive capacity of local firms. Using detailed firm data from Swiss manufacturing and services/construction, we find strong evidence for demonstration-related spillovers when (a) local firms are not far behind the technological frontier of the industry with a technological gap slightly greater than one, and (b) local firms demonstrate high investment in the absorptive capacity. The results are found to be more consistent in manufacturing than services/construction.     

Do financial structures affect exchange rate and stock price interaction? Evidence from emerging markets

We investigated the relationship between stock prices and exchange rates in eleven emerging markets over the period of 1988 to 2014 using cointegration methodology and multivariate granger causality tests. We find that in emerging markets, the inner-financial structure, which reflects the proportion of direct financing and indirect financing, plays an important role in the link between exchange rates and stock prices. For ten out of the eleven emerging markets studied, the financial structure had a significant impact, either through the flow channel or stock channel. The effects of financial-economic structure (FIR) were much smaller.     

Are disposition effect and skew preference correlated? Evidence from account-level ELW transactions

This paper examines whether two well-known cognitive biases, disposition effect and skew preference, may reflect a common feature of certain investors. On the basis of a unique proprietary dataset that provides the details of all transactions in the Korean equity-linked warrant (ELW) market between 2009 and 2011, we find that investors who realize gains faster than losses are also more likely to trade out-of-the-money ELWs. Investors who are less (more) subject to both biases exhibit the best (worst) risk-adjusted trading performance. Our findings suggest that disposition effect and skew preference occur simultaneously, which could adversely affect trading performance.     

How does the global microfinance industry determine its targeting strategy across cultures with differing gender values?

In this paper we empirically investigate the role of culture in determining the gender-targeting strategy of microfinance institutions (MFIs). We use female/male grammatical distinctions in language as the manifestation of culturally-inherited gender values. Our findings indicate that grammatical gender distinctions have a significant effect on the targeting strategy of MFIs. Specifically, MFIs target women in cultures where they are most likely to experience financial discrimination. This suggests that MFIs adapt to disparate discriminatory cultures in a way that serves their core mission of outreaching financially-excluded women, particularly where such strategy is most needed.     

Economic creativity and innovation implementation: the entrepreneurial drivers of growth? Evidence from 63 countries

This paper examines the effect of culture on national innovation and prosperity. Because culture shapes the way people think about and behave in regard to risk, opportunities, and rewards, it should influence the nature of entrepreneurial activity and, by extension, economic outcomes. Using structural equation modeling on a sample of 63 countries, we propose and test a comprehensive explanation of how culture as an umbrella construct (as opposed to an analysis of its constituent parts) affects innovation and national prosperity. We propose a two-stage model of innovation, and find support for our hypothesized relationship that “economic creativity” influences “innovation implementation.” At the national level, we find that culture does indeed influence economic creativity. We also find that innovation implementation explained some of the variation in prosperity across countries. By establishing that “big picture” culture matters to innovation, the door has opened for researchers to evaluate this relationship using data from any one of a number of rival culture frameworks. Moreover, these empirical finding buttress the theoretical arguments that culture powerfully shapes the character of national innovation.     

Does shared consumption affect consumers' values,attitudes, and norms? A panel study

Shared consumption is proposed as a comparably sustainable consumption practice. However, little is known about effects of shared consumption on individuals. We build on the theory of planned behavior and the value-belief-norm theory using cross-lagged structural equation modeling based on a two-wave panel study with 168 consumers to examine the effects a shared consumption pattern has on consumers' values, attitudes, and norms. Our structural model explains a medium to large amount of variance in self-reported shared consumption. We find shared consumption has statistically significant positive cross-lagged effects on future altruistic values, attitudes, subjective norms, and personal norms. However, no statistically significant effects of shared consumption are found on consumers' future biospheric and egoistic values. Thus, the more consumers engaged in shared consumption, the more concerned they were for others, while it did not affect their concern for the environment or themselves. Theoretical and practical implications of our results are discussed.     

What explains default risk premium during the financial crisis? Evidence from Japan

As is well documented, subprime mortgage markets carried significant default risk. This paper investigates the relationship between default risk premium, stock market conditions and macroeconomic variables during the financial crisis. Using iTraxx Japan Credit Default Swap (CDS) index spreads covering the period from March 2006 to November 2009, we employ a time-varying dynamic factor model with Markov regime switching to generate regime probabilities for default risk. We analyze the sensitivity of default risk premium changes to stock market conditions and macroeconomic variables by using two-state Markov switching models: a crisis regime sparked by rising loan defaults in the sub-prime mortgage market, and a non-crisis regime. We found strong evidence that the relationship between default risk premium changes, stock market and macroeconomic variables is regime-dependent. Our results suggest that during periods of crisis, CDS indices behave as a higher-risk indicator and become more sensitive to stock market conditions and macroeconomic variables. This paper examines the effects of the financial crisis in explaining the default risk premium. Understanding the determinants of default risk premium is important for financial analysts, economic policy makers and credit risk management.     

The economic growth and foreign direct investment nexus: Does democracy matter? Evidence from African countries

This article investigates the impact of democracy on the foreign direct investment (FDI)–economic growth nexus by considering both a country's current and past political regimes. We apply a linear dynamic panel data model to data from 53 African countries over the period 1989–2014. Standard errors of the estimates are Weidmeijer corrected, following an orthogonal deviations transformation. The results show that the direct impact of FDI on growth is positive and significant. Likewise, the stock of democracy plays a positive and significant role in the growth process. However, the positive impact of FDI on growth decreases with the improvement in the historical experience of a country with democracy. These findings imply that with contemporary efforts to expand political rights in Africa, it is critical to identify alternative channels that facilitate the transmission of the flow of FDI into further and sustainable growth.     

Are business groups different from other family firms? Evidence from corporate investments during political uncertainty

Using a large sample of Indian family firms, we examine the investment behaviour of group-affiliated family firms versus standalone family firms during local state elections. While state elections negatively affect corporate investments, family firms invest more than non-family firms. Therefore, using a difference-in-difference estimation, we find that group-affiliated family firms invest significantly more than standalone family firms. Additionally, we find no evidence of distortive investments by group-affiliated family firms due to political pressure; rather, it appears that the unique structure allows these firms to make value-relevant investments when other firms adopt a conservative approach. Overall, our study improves the understanding of family firm investments during periods of political uncertainty.     

Do networks of financial intermediaries help reduce local bias? Evidence from cross-border venture capital exits

Contributing to the literature on local bias and financial networks, we examine how direct and indirect network ties of financial intermediaries mitigate the effects of distance and preference for local investments. In our analysis of cross-border venture capital exits, we find that proximity within networks facilitates cross-border transactions, which suggests that network distance is an important dimension of distance in addition to its geographical and cultural dimensions. The results also suggest that network distance affects the reach and quality of mediated information: indirect ties to partners' partners, with their broad reach, facilitate the identification of investment opportunities, whereas direct ties, which have certification effects, facilitate quality assessment.     

Are Women CEOs Valuable in Terms of Bank Loan Costs? Evidence from China

Drawing on the recent discussion about the role information intermediaries (infomediaries) play in affecting corporate responsibility (CR) adoption, we analyze the representation of CR issues in a business infomediary distributed by a leading business organization. The explicit task of the business infomediary is to promote a competitive national business environment. This paper contributes to (1) research on CR, by providing new knowledge on the current CR discourse within the business community, and (2) research on infomediaries, by introducing a distinction between watchdog-oriented and business-oriented infomediaries. The findings show that the business infomediary promotes green practices and constructs a national business identity in terms of environmental business when responsible practices are voluntary. We argue that as business-oriented infomediaries shape the meaning of CR according to their own interests, signifiers that refer to the positive contributions of business become preferred in the articles.     

Do mergers and acquisitions promote trade? Evidence from China

Many studies have shown that mergers and acquisitions (M&A) raise firms' productivity. Few researches investigate whether exporters can enhance export performance after M&A through higher levels of efficiency. Based on detailed information on M&A activities of Chinese firms, China's customs trade data and National Bureau of Statistics surveys, we investigate the causal effect of M&A on trade performance. In particular, the value and the volume of firm exports, product quality, product scope and the number of export destinations have been examined. We find positive and significant effects of M&A on all the examined indicators of export performance. These findings are generally robust to a variety of robustness checks. We further observe that state-owned firms are the least likely to benefit from M&A. We also obtain evidence that firms benefit more from M&A deals if they are targets or merge with foreign firms. Overall, this paper is to our knowledge the first study that uses micro-level data in multiple industries to examine the relationship between M&A and exports of heterogeneous firms. Our results deepen our understanding of the consequences of M&A by suggesting another potential benefit, and hence provide policy implications for merger regulation.     

Angels and devils?: How do benevolent and authoritarian leaders differ in shaping ethical climate via justice perceptions across cultures?

The current study examines the effects of two major dimensions of Paternalistic Leadership (PL), authoritarian and benevolent leadership, on the perceived workplace ethical climate in different cultural contexts. Based on social influence and organizational justice theories, we illuminate the processes underlying the effects of these leadership styles on ethical climate by proposing perceived procedural and interactional justice as potential mediators. We also test how these mediating effects vary in three different countries: Taiwan, Turkey, and the United States. Based on a sample of 674 Taiwanese, 409 Turkish, and 479 American employees, we identified several interesting mediation and moderation results on leadership‐justice‐ethical climate paths. To our surprise, while procedural justice was an important mechanism linking benevolent leadership and ethical climate in all three countries, it mediated the relationship between authoritarian leadership and ethical climate only in Turkey. However, interactional justice was found to be a significant mediating mechanism only in the United States and for both authoritarian and benevolent leadership. In addition, cultural context moderated the PL‐justice link such that the strongest positive benevolent leadership and interactional justice relationship, as well as the strongest negative association between authoritarian leadership and both types of justice, were observed in Turkey.