Contractionary effects of devaluation

A simple model is developed to illustrate a number of contractionary effects of currency devaluation, some of which have been noted previously. In a Keynesian model, it is shown that depreciation can lead to a reduction in national output if (i) imports initially exceed exports: (ii) there are differences in consumption propensities from profits and wages; (iii) government revenues are increased by devaluation, e.g. when there are significant export taxes. Similar effects are also shown to exist in monetarist models, via reductions in both real balances and the nominal money supply. A numerical example illustrates the results for an economy ‘typical’ of semi-industrialized countries.     

Determinants of Speed of Adjustment (SOA) toward Optimum Capital Structure: Evidence from Listed Firms in Sri Lanka

This research article aims at examining the determinants of speed of adjustment (SOA) toward the optimum capital structure (OCS). Particularly, this study focuses the impact of firm-specific factors and corporate governance factors on the capital structure adjustment in the Sri Lankan context. The methodology utilizes the benefits of the partial (stock) adjustment model, namely, two-step panel framework using generalised method of moments (GMM) to determine the SOA to OCS. The results indicate that Sri Lankan firms are found to have an OCS and do rapidly adjust toward their target structures. Further this study reveals that profitability, size, tangibility, nondebt tax shields, and governance factors such as directors’ compensation and CEO duality significantly affect the SOA to OCS. The past studies in the emerging market context hardly go into corporate governance factors, leaving a large space for research in the area of capital structure. This study of the listed firms in Sri Lanka contributes to the literature, by examining the determinants of SOA to OCS decision.     

Editorial Note

This study empirically explores the relationship between firm characteristics and capital structure in Sri Lankan companies. Six years of data for 158 firms listed on the Colombo Stock Exchange are analyzed using a conditional quantile regression. The findings indicate that the capital structure of Sri Lankan firms differ between firms in different quantiles of leverage. These differences are significant with the sign of explanatory variables change with the level of leverage. The results indicate that individual firm’s finance policy needs to be responsive to the firm characteristics and should match with the different borrowing requirements of listed firms.     

Public-Sector Accounting and E-Governance in Developing Countries: Case of Sri Lanka

This article analyzes how new public financial management system should address the efficiency and effectiveness of the public sector and the emerging accrual basis accounting with e-governance for greater e-transparency on public-sector accounting in Sri Lanka. Despite the setting up of e-framework in 1983, the Sri Lankan public-sector accountancy environment during the last two decades raises concerns about efficiency, effectiveness, and accountability of the e-framework. The findings provide evidence of the importance of the economy and efficiency in the usage of public funds to provide more convenient access to government accounting information for citizens in Sri Lanka.     

Sectoral Analysis of Corporate Capital Structure Choice–Emerging Market Evidence from Sri Lanka

ABSTRACT

This paper empirically investigates the overall corporate capital structure of the Sri Lankan-listed companies, the determinants in general and the inter-industry differences in particular. The impact of ten determinants has been analyzed cross-sectionally, both for the market as a whole and for each individual industry, to observe any sectoral differences. Though the long-term debt utilization is relatively low in the financial structure of Sri Lankan firms, the variables of capital structure choice are not significantly different from those located in developed markets signaling a positive move towards a market-driven economy. Yet, variations could be seen across industry classes to some extent in terms of their capital structure decisions, confirming the evidences of literature.     

汇率升值对产出的作用机制与效果文献述评

汇率升值会从多个渠道影响一国的产出水平,并通过不同渠道不同方向产出不同作用,但从理论和实证角度都难以直接确定其产出的最终作用方向.从实证角度分析,汇率升值对产出的作用方向也并无定论,研究对象的不同,研究时间区间的差异是造成研究结论分化的重要原因,但在研究中没有很好地解决内生性问题也是造成结果出现偏差,进而容易得出“紧缩性贬值”结论的一个重要原因.     

Doing business in…Sri Lanka

Having a well‐developed human resource base and a relatively well‐developed capital market infrastructure, Sri Lanka offers a liberal and dynamic investment environment. Over the years, macrostability has been achieved and considerable reforms have been implemented, contributing to a healthy economic growth. This article provides useful information on the business environment and is intended to help foreign businessmen and investors to develop a good grasp of essential background knowledge for being successful in Sri Lanka. It reviews the Sri Lankan political structure, climate, and economy. Sri Lanka's infrastructure, legal framework, and sociocultural set‐up, as well as market structure and potential, are also analyzed. © 2005 Wiley Periodicals, Inc.     

Tariff Preferences,WTO Negotiations and the LDCs: The Case of the ‘Everything But Arms’ Initiative

By assessing the impact of the recently adopted ‘Everything But Arms’ (EBA) initiative of the EU on the Least Developed Countries (LDCs) and by showing how further multilateral trade liberalisations erode the EBA preferences and impact the LDCs, this paper attempts to uncover the LDCs’ difficult positions in the WTO trade negotiations. Due to its limited product coverage and previous preferences granted by the EU, welfare impacts of the EBA on the LDCs are shown to be small and the bulk of these gains are associated with the ‘sensitive’ products that are subject to gradual liberalisations. Moreover, these small gains are likely to disappear if the EU conducts trade policy reforms in fulfilling its WTO obligations, resulting in an actually worse‐off situation for the LDCs. Extending the analysis to a multilateral trade liberalisation scenario reinforces the above results that the LDCs may well lose due to preference erosion and higher world market prices. It concludes that other development assistance measures from developed countries should be made available to the LDCs to ease their dependency on trade preferences and to foster their supply capacities. The LDCs themselves should attempt to integrate the duty and quota‐free market access status contained in the EBA into a binding WTO agreement to secure a stable trading environment. But more importantly, in order to solve the difficulties at the root these countries should actively engage in reforming their own trade policies.     

Influence of home‐country culture and regulatory environment on corporate social responsibility perceptions: The case of Sri Lankan immigrant entrepreneurs

Drawing on the findings of semistructured interviews, this article aims to understand the meaning of the term corporate social responsibility (CSR) as perceived by Sri Lankan immigrant entrepreneurs in Australia. It also explores the influence of home‐country culture and institutional environment on their perceptions of CSR. The term CSR was found to be interpreted differently among the immigrant entrepreneurs. Findings reiterate the influence of culture and regulatory environment on the perceptions of CSR and are consistent with the findings of Hamilton, Dana, and Benfell (2008) that the immigrant entrepreneurs adjust their beliefs, values, traditions, and norms to acclimatize to the host country but at the same time also maintain links with the traditional culture. Due to the increasing number of immigrant businesses and their potential socioeconomic impact, the article has important policy implications as it leads to a better understanding of the immigrant entrepreneurs' interpretation of social responsibility and how that is being influenced by home‐country factors. © 2012 Wiley Periodicals, Inc.     

A NOTE ON TRADE ELASTICITIES IN ASIAN COUNTRIES

This article estimates the price and income elasticities of import and export demands for India, Japan, the Philippines, Sri Lanka, and Thailand using annual time series data. Both price and income elasticities of import demand are found to be in the inelastic range for all five countries. Export demand is found to be price elastic for Japan, the Philippines, and Thailand and price inelastic for India and Sri Lanka. Export demand is found to be income elastic for Japan but not for the other four countries. The Marshall-Lerner-Robinson condition states that a devaluation improves the balance of trade position only if the sum of the absolute values of price elasticity of import demand and the price elasticity of export demand is greater than one. This condition is met for India, Japan, the Philippines, and Thailand but not for Sri Lanka.     

The determinants of foreign product preference amongst elite consumers in an emerging market

By integrating the Theory of Reasoned Action (TRA) and self-image congruence, this study seeks to investigate elite consumers’ purchase intentions towards products made in foreign countries. The data were gathered via a survey conducted amongst 316 Sri Lankan elite consumers across two product categories. The findings demonstrate that consumers’ attitudes towards products made in foreign countries are driven by subjective norms and self-image congruence. The study shows that self-image congruence is the stronger predictor of consumers’ attitudes towards products made in foreign countries. Also, the effect of self-image congruence on consumers’ purchase intentions is partially mediated by their attitudes towards products made in foreign countries.     

Devaluations and emerging stock market returns

Stock returns over the 2 years surrounding 24 currency devaluations are examined. Using bootstrapped distributions, returns preceding the devaluation are shown to be significantly below normal, in both dollar and local currency terms. Most of the downturn, however, occurs well before the month of the devaluation. Returns following a devaluation are normal. While industry and company specific effects appear to influence return behavior, only country effects and leverage levels are statistically significant. At the country level, both aggregate economic activity (GDP) and the size of the devaluation are important in explaining return behavior. The stock of foreign debt has little impact on returns. Finally, even though returns appear to anticipate devaluations, they are not statistically significant at predicting the size of the devaluation.     

Responsibility Cost Control System in China: The Han Dan Experience

This study undertakes a longitudinal analysis of the ethical management practices of Sri Lankan companies by comparing the results from a survey conducted in 2003. During this period regulatory developments have taken place within Sri Lanka and internationally aimed at improving the level of corporate governance. Based upon this survey data we conclude that progress has been made in ensuring that ethical management practices are more homogenous and standard practice across companies. Internationalized companies remain the ones that are more aware of the environmental consequences of their actions, although few companies, unfortunately, recognize this as an issue of concern.     

COVID-19 and business renewal: Lessons and insights from the global airline industry

The emergence of the COVID-19 pandemic has adversely affected the fortunes of multiple companies around the globe. Accordingly, questions are increasingly being asked about how organizations can revitalize during and after a crisis. Yet, we have limited understanding of how organizations renew themselves during crises over time. We explore this question through the lens and examination of two South-Asian airlines: Pakistan International Airlines and Sri Lankan Airlines. The cases offer important insights into the reasons behind underperformance of state-controlled enterprises and renewal activities. We shed light on strategic renewal (SR) in the wake of increasing liberalization and deregulations in the global airline industry. To this end, we propose a four-stage approach towards renewing such underperforming organizations to respond effectively to black swan events and external shocks.     

Are Trade Preferences more Effective than Aid in Supporting Exports? Evidence from the ‘Everything But Arms’ Preference Scheme

This study examines the effect of the ‘Everything But Arms’ (EBA) trade preferences regime on exports from the African, Caribbean and Pacific countries (ACP) to the European Union (EU). With this aim, an augmented gravity model is estimated for exports from the 79 ACP countries to the EU‐15 for the time period of 1995—2013 using panel data techniques. The results are used to quantify the effect of the eligibility for EBA preferences on the export performance of the ACP least developed countries (LDCs) and to relate it to the impact of official development assistance on exports. In addition to their separate effects, the combined impact of EBA and aid flows is examined. The main results do not provide evidence for an additional positive effect of the EBA agreement on the export performance of the ACP LDCs. However, receiving aid shows a significant and positive effect on exports from EBA‐eligible ACP countries to the EU‐15, supporting an EU development strategy that includes both sorts of assistance, aid and trade preferences.     

Aid for trade and export diversification in recipient‐countries

The Aid‐for‐Trade (AfT) Initiative was launched by the Members of the World Trade Organization (WTO) with a view to helping developing countries and the least‐developed countries (LDCs) expand their trade. The current paper contributes to the literature on AfT effectiveness by examining how AfT affects recipient‐countries' export product diversification. The analysis has been carried out on a sample of 104 AfT recipient‐countries over the period 2002–2015 and uses the two‐step system generalised methods of moments (GMM) approach. Results show that AfT flows are conducive to export product diversification in recipient‐countries. In addition, the analysis has shown a positive impact of the cumulative AfT flows on the export product diversification path of these countries. These results apply as well to the subsamples of LDCs and other developing countries. One policy implication of these results is that a scale‐up of AfT would help recipient‐countries to diversify their export products baskets and hence facilitate their greater integration into the global trading system.     

After‐sales services of home appliances: evidence from Sri Lanka

The provision of after‐sales services is considered as a source of product differentiation leading to competitive advantage of a firm. As a consequence, there is a need of monitoring and measuring the activities of after‐sales service departments to ensure that the objectives of their existence are satisfied. Yet, it is very rare to find previous studies that investigated after‐sales service provision. We investigated different dimensions of after‐sales service provision of home appliances in the Sri Lankan context. The study operationalized different dimensions of after‐sales service provision from three different perspectives and used multiple parameters to evaluate the nature of provision.     

Market imperfections, wealth inequality, and the distribution of trade gains

Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink — which makes access to credit particularly difficult for the least-affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.     

A global analysis of factors impacting the intensive and extensive margins of bilateral foreign direct investment

This study investigates determinants of bilateral foreign direct investment (FDI) on both margins, the extensive margin (whether to invest) and the intensive margin (how much to invest), based on the recent structural gravity model for FDI developed by Anderson et al. (Trade and investment in the global economy. National Bureau of Economic Research, Cambridge, MA, 2017). I examine a global data set comprised of 110 countries over 9 years, 2004–12. Apart from conventional gravity variables, the source country's technology capital shows a significant and positive impact on both FDI margins. Bilateral investment treaties play a significant role only in determining the extensive margin. Results on FDI stocks and FDI flows can lead to different conclusions; thus, research should consult both types of data series to find which variables have robust effects. Furthermore, breaking down the sample by country development levels reveals that FDI from less‐developed countries (LDCs) is not affected by many common variables, and thus, there is a need to develop more theories and empirical work to investigate the FDI from LDCs in particular.     

Performance feedback and location choice of foreign direct investment

Integrating the behavioral theory of the firm and the OLI paradigm, this paper studies how performance feedback affects the location choice of emerging market firms between developed countries (DCs) and less developed countries (LDCs) during the process of internationalization. Using the sample of 1,306 Chinese public listed firms which established new foreign subsidiaries between 2008 and 2019, we find that the further a firm’s performance is below aspiration, the more likely it will invest in LDCs than DCs, whereas the further a firm’s performance is above aspiration, the more likely it will invest in DCs than LDCs. In addition, technology-based capability and labor intensive production capability have moderating effects on the relationship between performance feedback and location choice between DCs and LDCs. This paper complements and extends the OLI paradigm by injecting dynamic and non-economic factors to explain OFDI location choice.