Measuring the interconnectedness of financial institutions

This paper uses sophisticated empirical methodology to measure the interconnectedness of financial institutions in five developed economies – France, Germany, Japan, UK and USA – for the period January 2000 to November 2009. The study goes beyond the conventional use of first and second moments of returns and uses the timevarying equity price of risk methodology to measure the level of convergence of the financial sectors in the countries of interest. More specifically, Kalman filter convergence tests are applied to the weekly equity price of risk data to measure the interconnectedness between these countries’ and the US finance sectors. Results indicate the presence of short-term timevarying interconnectedness of the finance sectors of France, Germany and the UK with that of the US and steady-state longer term interconnectedness only between Germany and the US. Short-term and long-term steady-state interconnectedness between Japan and the US is not evident. We conclude that going forward in an environment of increased interconnectedness of international financial markets, a coordinated global financial regulatory policy with discretionary allocation of resources and execution strategy at a national level is the preferred regulatory structure to ensure sound operations of international financial systems.     

WHAT HAS 20 YEARS OF PUBLIC–PRIVATE PAY GAP LITERATURE TOLD US? EASTERN EUROPEAN TRANSITIONING vs. DEVELOPED ECONOMIES

This paper surveys the literature on public–private sector pay differentials based on 20 years of research in transitioning countries of Eastern Europe (EE) and compares the results with estimates obtained from developed market economies. The majority of empirical studies from EE economies found evidence of public sector pay penalties during the period of economic transition from a communist to market‐based economy. In developed economies, however, the average differential is usually around zero or positive. The public sector pay inequality reducing effect relative to the private sector is greater in transitioning economies than in developed economies. Nevertheless, there is evidence that the sign of the public sector pay gap as well as the relative public sector pay distribution change with the progress of economic transition towards those usually observed in developed economies. Different pay‐setting arrangements between private and public sectors and competition for workers seem to be major arguments for the existence of systematic pay differences between the two sectors.     

Impact of EU exit on our UK industry forecasts

• We have lowered our forecast for UK economic growth following the vote to leave the EU on 23 June. GDP growth is now forecast at 1.1% in 2017 and 1.4% in 2018, and the medium‐term outlook has also been nudged down. We have also lowered our forecast for all of the main industrial sectors, with the biggest reductions in the long‐term forecasts for construction and manufacturing, although the weak pound could provide some short‐term boost to the latter.
• Our baseline forecast assumes that the government triggers Article 50 by the end of this year and that the UK leaves the EU by end‐2018. We assume that the government draws a red line under the freedom of movement and thus loses access to the single market. Trade relations revert to WTO rules.
• A number of factors determine the relative impact on each sector. First, in the short term, heightened uncertainty will hit business confidence, causing firms to delay capital spending. Second, less favourable trade relations with the EU could see export‐oriented sectors migrate production away from the UK. Finally, restrictions on migration will reduce the potential size of the labour force.
• Consequently, investment‐oriented sectors such as construction and machinery have seen some of the largest downgrades. Moreover, transport equipment is heavily exported to Europe, so increased trade barriers could see some production move out of the UK. Meanwhile, labour shortages could weaken growth prospects in labour‐dependent sectors. In addition, the vote has created uncertainties around the long‐term viability of London as Europe's major financial centre.
• The outlook for more consumer‐focused sectors is less downbeat, although an uptick in inflation may erode household purchasing power in the near‐term, and the multipliers from lower economic activity are likely to permanently reduce household incomes in the long term relative to our last baseline

     

Total Reward and pensions in the UK in the public and private sectors

Recent controversy has surrounded the relative value of public and private sector remuneration. We propose a comprehensive measure of Total Reward (TR) which includes not just pay, but pensions and other ‘benefits in kind’, evaluate it as the present value of the sum of all these payments over the lifetime and compare it for the highly educated in the UK public and private sectors. Our results suggest that TR is broadly equalised over the lifecycle for highly educated men while highly educated women have a clear TR advantage in the public sector by the end of their career. We suggest that the current controversy over public–private sector pension differentials and the perennial issues of public/private sector pay gaps requires a lifetime perspective and that the concept of TR is appropriate.     

Because you're worth it? Determinants of Vice Chancellor pay in the UK

Wage inequality has increased across most developed nations; this has been manifested in a wide range of organisations and sectors, with implications for well‐being and sustainability; within UK universities, this has become increasingly visible. There is increasing pressure on universities to deliver social and economic impact in an increasingly market‐driven and metric‐driven environment. In the UK context, increasing financial pressure has led to both an escalation of student fees and constrained wage growth for faculty. In contrast, most Vice Chancellors have secured substantive pay packages raising concerns that regulatory failures may be contributing to the rise. We show that Vice Chancellors use their internal power within organisations to extract a disproportionate amount of the value created by the institution. However, we encountered much diversity according to the quality of governance, highlighting the extent to which not only contextual but also internal dynamics drive wage inequality.     

Environmental reporting by the Fortune Global 250: exploring the influence of nationality and sector

While research on environmental reporting frequently includes large multinational enterprises, the number of surveys that systematically analyses a whole set of such firms, including the non‐reporters, is limited – and mainly focuses on the United States. This article presents the state of environmental reporting by the Fortune Global 250, all large multinationals with a potentially large impact on other firms. Of these 250 firms, 35% has a recent environmental report, with another 32% publishing other types of environmental information. Reporting frequencies between the financial and non‐financial sector differed considerably, at 15 and 44% respectively. Besides an analysis of the number and contents of environmental reports, the importance of sectoral differences and firms' nationality is also considered. A framework is developed that posits the existence of reporting legislation in firms' home countries (some in place/pending, or none) against the direct environmental impact of the sector (large or small). The results of the analysis fit partially in this framework. Only a small number of reporting firms originates from countries with some kind of legislation (particularly The Netherlands), but national societal pressure seems to play a large role (especially in the UK, The Netherlands and Germany). Many operate in sectors with a substantial direct environmental impact (chemicals, pharmaceuticals, oil and motor vehicles and parts); reporting in sectors with more indirect effects is getting off the ground. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment     

The taxation of bonuses and its effect on executive compensation and risk‐taking: Evidence from the UK experience

This paper explores the effects of a bonus tax adopted in the UK in December 2009 on the compensation structure of executives and on risk‐taking behavior in the financial sector. Excessive bonuses are blamed for encouraging risk taking and are regarded as one of the pull factors of the financial crisis. The British government attempted to reduce bonuses and accordingly bank risk taking by means of a special tax on cash‐based bonuses. Using a comprehensive dataset on executive compensation, we show that the introduction of the bonus tax decreased the net cash bonuses awarded to directors by about 40%, accompanied, however, by a simultaneous increases in other forms of pay leaving total compensation as well as risk levels unaffected.     

The conditional dependence structure of insurance sector credit default swap indices

This study assesses the dependence structure of insurance sector credit default swap indices, using a copula-GARCH approach. We use daily data of the US, EU, and UK insurance sectors, covering the period from January 2004 to June 2013. We find substantial increases in dependence during the financial crisis periods. Prior to the crises, various copulas are found to best fit each pair; specifically, asymmetric tail dependence is found for the UK–US pair, suggesting the possibility of large simultaneous losses. However, during the crisis periods, the Frank copula fits best, with no significant tail dependence detected, implying low systemic risks.     

Labour market enforcement in the 21st century: should whistleblowers have a greater role?

Labour market enforcement can be achieved through a variety of mechanisms. On the basis that inspectorates in the UK have been under‐resourced historically and that reliance on self‐regulation is particularly objectionable in sectors that have a record of providing low pay and poor working conditions, this article explores the potential for using whistleblowing by both workers and non‐workers as a method of enforcing labour standards. The author believes that, in principle, policing by inspectors working in conjunction with unions is particularly important in industries where small firms are prevalent and individuals may feel particularly vulnerable to retaliation if they speak up. Nevertheless, given the low likelihood of government inspections and low levels of unionisation in the private sector, it is suggested that enhancing the protection given to whistleblowers who report suspected wrongdoing might deter employer non‐compliance and prove cost effective.     

INFORMATION IN THE YIELD CURVE: A MACRO‐FINANCE APPROACH

We use a macro‐finance model, incorporating macroeconomic and financial factors, to study the term premium in the US bond market. Estimating the model using Bayesian techniques, we find that a single factor explains most of the variation in bond risk premiums. Furthermore, the model‐implied risk premiums account for up to 40% of the variability of one‐ and two‐year excess returns. Using the model to decompose yield spreads into an expectations and a term premium component, we find that, although this decomposition does not seem important to forecast economic activity, it is crucial to forecast inflation for most forecasting horizons. Copyright © 2012 John Wiley & Sons, Ltd.     

Spillovers among CDS indexes in the US financial sector

By employing the robust cross-correlation function approach proposed by Hong (2001), and conducting pre-tests for structural breaks in the variances as well as removing the causality-in-mean effects in the causality-in-variance tests, we investigate volatility and mean transmissions between the credit default swaps (CDS) indexes of three US financial sectors. We use daily series on five-year banking, insurance, and financial services sector CDS indexes at the sector level from January 2004 to December 2011. We find evidence of significant causality-in-mean effects running from the banking sector to the insurance and financial services sector CDS indexes and from the financial services to the insurance sector CDS indexes, suggesting the leading role of the banking and financial services sectors in terms of price discovery. Moreover, we find significant causality-in-variance effects from the financial services sector CDS index to that of the banking sector, implying the existence of information transmission and contagion from the former, the least regulated of the three. The implications of these findings on traders and policymakers are also provided.     

The Central Government-Private Sector Wage Differential

Since Ehrenberg and Schwarz (1986) there has been a plethora of articles investigating the relationship between public and private sector wages. This article examines part of this post 1986 literature by reviewing articles that examine central government-private sector wage differentials. In sum, most articles find that there is a premium paid to central government workers, although the premium has declined in recent years. In developing countries, however, the differential is usually negative. Women and minorities tend to do better in the public sector relative to their private sector counterparts. The evidence on union premiums between sectors is mixed, although the premium tends to be higher in the private sector. However public sector union workers do not do much better than private sector union members. The magnitude of all of the wage differentials discussed are sensitive to the estimation technique and data source used. The most common explanation for the public sector wage premium is economic rent accruing to government workers, although the public sector wage determination literature suggests that the differential is due to returns to political and 'vote producing' activities not relevant in the private sector.     

The impact of digital finance on financial efficiency

This paper quantitatively analyzes the impact of digital finance on financial efficiency. The results show that digital finance has slightly improved the efficiency of the financial sector, but there are significant differences in the impact of provincial efficiency in China. Although financial sector efficiency positively correlates with digital financial efficiency, digital finance gives backward regions disadvantages. The efficiency score and ranking of the financial sector in the eastern region are significantly higher than noneastern region. The progressive effect of digital finance on the efficiency of the financial sector in the eastern region is better than that in the noneastern region.     

Costly external finance and labor market dynamics

We study the role of agency frictions and costly external finance in cyclical labor market dynamics, with a focus on how credit-market frictions may amplify aggregate TFP shocks. The main result is that aggregate TFP shocks lead to large fluctuations of labor market quantities if the model is calibrated to the empirically observed countercyclicality of the finance premium. A financial accelerator mechanism thus amplifies labor market fluctuations by rendering rigidity in real wage dynamics. In contrast, if the finance premium is procyclical, which the model can be parameterized to accommodate, amplification is absent, and labor-market fluctuations display the Shimer (2005) puzzle.     

Nonlinearity in the effects of financial development and financial structure on unemployment

The positive role of the financial sector in promoting economic growth has been well established among academics and practitioners since the early 1990s. However, more recently, there has been increasing evidence pointing to a vanishing, and even negative, effect of financial sectors at high levels of financial depth, particularly since the global financial crisis of 2007?2009. Too much finance could hurt growth. The paper shifts the focus towards labor market outcomes by examining whether too much finance also hurts unemployment. Using a dynamic simultaneous model via system GMM estimation and a panel of 97 OECD and non-OECD countries for the period 1991–2015, we find that the answer depends on the type of finance and the extent of a country’s labor market flexibility. Specifically, (i) too much financial development hurts unemployment for countries with more rigid labor markets; (ii) too bank-centered or too little market-oriented financial systems worsen unemployment, particularly for countries with more flexible labor markets; and (iii) too much credit to private enterprises deteriorates unemployment in countries with more rigid labor markets, whereas too little credit to households worsens unemployment in countries with more flexible labor markets. Evidence also shows that these unemployment consequences possibly run through investment and entrepreneurship channels.     

Influential ownership and capital structure

This paper explores the relation between ownership structures and capital structures in Russia—an economy with a state‐run banking sector, weak corporate governance, and highly concentrated ownership. We find that firms with the state as controlling shareholder have significantly higher leverage than firms controlled by domestic private controlling shareholders other than oligarchs. Both firms controlled by the state or oligarchs finance their growth with more debt than other firms. Profitability is negatively related to leverage across all types of controlling owners, indicating a preference for internal funding over debt. The results indicate that firms with owners that have political influence or ties to large financial groups enjoy better access to debt. Copyright © 2009 John Wiley & Sons, Ltd.     

Financial sector strategies and financial sector outcomes: Do the strategies perform?

Financial sector strategies enable financial policymakers and stakeholders to take a holistic view at the financial development needs in their country and to formulate balanced financial policies. They help policymakers consider the systemic risk that different development policies involve and choose an informed way forward. We construct a new dataset of historical financial sector strategies covering 150 countries over the period 1985–2014, and assess the strategies using the rating criteria proposed by Maimbo and Melecky (2014). We then investigate how the quality of the strategies can affect financial sector outcomes such as financial depth, inclusion, efficiency and stability. We find that the use of financial sector strategies helped increase financial sector deepening, inclusion and stability, and that this impact could be greater for higher quality strategies. One way how financial sector strategies can improve financial sector outcomes is by improving the regulatory framework for finance. A significant relationship between the use of strategies and the efficiency of banks is not confirmed.     

Inefficiency and heterogeneity in Turkish banking: 1990–2000

Recent studies have stressed the importance of privatization and openness to foreign competition for bank efficiency and economic growth. We study bank efficiency in Turkey, an emerging economy with great heterogeneity in bank types and ownership structures. Earlier studies of Turkish banking had three limitations: (i) excessive reliance on cost‐function frontier analyses, wherein volume of loans is a measure of banking output; (ii) pooling all banks or imposing ad hoc heterogeneity assumptions; and (iii) lack of a comprehensive panel data set for proper analysis of productivity and heterogeneity. We use an estimation–classification procedure to find likelihood‐driven classification of bank technologies in an 11‐year panel. In addition, we augment traditional cost‐frontier analysis with a labour‐efficiency analysis. We conclude that state banks are not particularly inefficient overall, but that they do utilize labour inefficiently. This partially supports recent calls for privatization. We also conclude that special finance houses (or Islamic banks) utilize the same technology as conventional domestic banks, and do so relatively efficiently. This suggests that they do not cause harm to the financial system. Finally, we conclude that foreign banks utilize a different technology from domestic ones. This suggests that one should not overstate their value to the financial sector. Copyright © 2005 John Wiley & Sons, Ltd.     

An anatomy of zero‐hour contracts in the UK

We present the first attempt to locate zero‐hour contract (ZHC) jobs—jobs that lack a guaranteed minimum number of hours—within theoretical frameworks of the employment relationship and occupational class and empirically explore their characteristics using successive UK Labour Force Survey. In line with these theories, we find this contentious form of employment to be strongly differentiated by the nature of occupational tasks and to overlap with nonstandard employment features (e.g. part‐time and temporary). They are also highly concentrated in a small number of occupations and sectors, with over half of ZHC jobs found in just 10 occupations. We further show that ZHCs are associated with indicators of inferior job quality such as low pay and underemployment. Although we find no evidence that ZHCs are a particularly pervasive feature of the UK labour market, further growth cannot be ruled out in certain occupations.     

金融发展的路径依赖与利率市场化

我国金融改革虽然取得了一定的成绩,但仍未突破以银行为主导的金融发展路径,存贷款利差扩大成为利率市场化的阻碍因素。本文运用金融发展的路径依赖理论对此进行了分析,指出在实行赶超型金融发展战略中,为不被旧的路径锁定,使利率市场化顺利进行,减少金融改革中银行业的风险,必须在既有路径中边发展边修正改造,变银行主导型为资本市场主导型金融体系,促使政府主导的供给型金融向市场主导的需求尾随型金融转变。