Finance–Growth Nexus: New Insights from the West African Region

This article examines the impact of financial development on economic growth in the West African region accounting for both structural breaks and cross-sectional dependency. Although the panel data study reveals that financial development has positive impact on economic growth in the entire West African region, the disaggregated data analysis discovers that variations in financial development can only explain variations in economic growth in about 75% of the countries in West Africa. This study has succeeded in revealing the countries where finance accelerates growth and countries where it does not. The weak impact of finance on growth in some of the countries could be due to low income level, low level of financial development, weak institutions, macroeconomic instability, and high inflation rates. Knowing where finance spurs growth and where it does not is fundamental for policymaking.     

Energy-Driven Economic Growth: Energy Consumption—Economic Growth Nexus Revisited for China

This paper revisits the relationship between energy consumption and economic growth in the case of China using an autoregressive distributed lag (ARDL) bounds testing procedure for the period from 1952 to 2008. The results suggest that energy is one of the engines of growth in China, along with labor, capital, and international trade. In particular, a 1 percent increase in energy consumption leads to a 0.17 percent increase in gross domestic product. In addition to energy consumption, results also suggest that labor, capital, and international trade are also important factors stimulating China’s economic growth.     

The Ultimate Irrelevance Proposition in Finance?

I survey 457 published papers in top finance journals across two decades to assess whether these papers misuse tests of significance. More than 80% of published studies are diligent about distinguishing between statistical and economic significance and quantifying and interpreting the economic magnitudes of the statistical relationships they measure. Yet, only 10% of these acknowledge limits to the power of their tests and even fewer do anything about them. Recent demographic trends in publishing, such as larger co‐author teams and increased participation by non‐North American scholars, women, and those outside the top finance departments are not associated with these outcomes.     

The lead–lag relationship between the spot and futures markets in China

Based on daily and one-minute high-frequency returns, this paper examines the lead–lag dependence between the CSI 300 index spot and futures markets from 2010 to 2014. A nonparametric and non-linear method based on the thermal optimal path method is adopted. Empirical results of the daily data indicate that the lead–lag relationship between the two markets is within one day but this relationship is volatile since neither of the two possible situations (the futures leads or lags behind the spot market) takes a dominant place. Our results using the high-frequency data demonstrate that there is a price discovery in the Chinese futures market: the intraday one-minute futures return leads the cash return by 0–5 min regardless of the price trend of the market.     

The Urban–Rural Gap of Chinese Household Finance

Using data from a large household survey, we investigate the size of China’s urban–rural gap in ownership of bank deposits, risky financial assets, and credit cards. We further examine the factors underlying the gap using decomposition analysis. Compared to their urban counterparts, rural Chinese are much less likely to own a variety of financial products. Both demand-side barriers and supply-side barriers to financial inclusion exist in China. More, we use instrumental variable analysis to address the endogeneity of the local supply of financial service. Above all, our study indicates that a large financial services vacuum in rural areas needs to be filled.     

Machine Learning and Expert Judgement: Analyzing Emerging Topics in Accounting and Finance Research in the Asia–Pacific

In this paper, we focus on the question to what extent machine learning (ML) tools can be used to support systematic literature reviews. We apply a ML approach for topic detection to analyze emerging topics in the literature—our context is accounting and finance research in the Asia–Pacific region. To evaluate the robustness of the approach, we compare findings from the automated ML approach with the results from a manual analysis of the literature. The automated approach uses a keyword algorithm detection mechanism whereby the manual analysis uses common techniques for qualitative data analysis, that is, triangulation between researchers (expert judgement). From our paper, we conclude that both methods have strengths and weaknesses. The automated analysis works well for large corpora of text and provides a very standardized and non-biased way of analyzing the literature. However, the human researcher is potentially better equipped to evaluate current issues and future trends in the literature. Overall, the best results might be achieved when a variety of tools are used together.     

Explaining Industrial Growth in Coastal China: Economic Reforms ... and What Else?

In the 1980s China experienced "an explosion of pent-up entrepreneurship"facilitated by wide-ranging, although often unorthodox, economicreforms. This article uses data on the output of 23 industrialsectors in seven coastal regions (provinces and counties) overthe period 1985 to 1989 to study the correlates of growth. Althoughindustry-specific feature—the degree of specializationand competition—had some influence on growth, much ofthe action came from region-specific influences and regionalspillovers. Regional influences included the open-door policiesand special economic zones that successfully attracted investmentsfrom overseas Chinese to particular locations. Existing regionalstrengths, especially high-quality human capital and infrastructure,also contributed to growth. The results illuminate the interplaybetween conditions conducive for growth—for example, thecontribution of foreign expertise is greatly enhanced by availablehuman capital. China made judicious use of the advantages ofbackwardness by targeting areas that were less developed andless encumbered by the legacy of existing institutions, althoughit was fortunate in this regard that the backward regions werein close proximity to Hong Kong and Taiwan (China). Importantalso was the transmission of growth impulses across the provincesand counties, possibly through prereform cadre and administrativenetworks.     

The Three-Factor Model and Size and Value Premiums in China’s Stock Market

Using monthly data from China’s Shanghai Stock Exchange (SSE) A-share market between 2005 and 2012, this article performs an empirical study on the applicability of the three-factor model to China’s stock market. After testing twenty-five size-BE/ME stock portfolios and four stock sector portfolios, we found that the three-factor model, adjusted for the unique features of China’s stock market, generally fits the SSE A-share market well. The results show that size and value premiums are significant in China’s stock market, although there exist modest differences among industrial sectors. In addition, our empirical results are robust to factor sorting and construction methods.     

The more the better? Foreign ownership and corporate performance in China

We examine the relationship between the degree of foreign ownership and performance of recipient firms, using a panel of 21,582 Chinese firms over the period 2000–2005. We find that joint-ventures perform better than wholly foreign-owned and purely domestic firms. Although productivity and profitability initially rise with foreign ownership, they start declining once it reaches a certain point. This suggests that some domestic ownership is necessary to ensure optimal performance. We referred these findings to a model of a joint-venture, where strategic interactions between a foreign and a domestic owner's inputs may lead to an inverted U-shaped ownership–performance relationship.     

The pricing and performance of IPOs in China’s poor counties

In the context of China’s drive to alleviate poverty, we focus on the initial public offering (IPO) firms located in China’s poor counties and investigate their IPO pricing and post-IPO performance. Contrary to the findings reported for the U.S., we find that the problem of information asymmetry between Chinese firms located in rural areas and their investors is so severe that these IPO firms are associated with significantly higher underpricing. This effect is more pronounced for firms located in rural areas with poor traffic systems. We do not find significant market performance differences between rural and urban firms after their IPOs, but the operating performance of rural firms improves in the short term. Our additional analyses indicate that rural IPO firms have significantly lower investor attention and higher agency costs than urban firms. Overall, we enrich the literature on IPO pricing and the economic effects of geographic location.     

Why Does the Law Matter? Investor Protection and Its Effects on Investment,Finance, and Growth

Investor protection is associated with greater investment sensitivity to q and lower investment sensitivity to cash flow. Finance plays a role in causing these effects; in countries with strong investor protection, external finance increases more strongly with q, and declines more strongly with cash flow. We further find that q and cash flow sensitivities are associated with ex post investment efficiency; investment predicts growth and profits more strongly in countries with greater q sensitivities and lower cash flow sensitivities. The paper's findings are broadly consistent with investor protection promoting accurate share prices, reducing financial constraints, and encouraging efficient investment.     

The Modigliani and Miller Propositions: The History of a Failed Foundation for Corporate Finance?

The Modigliani and Miller (MM) propositions provide a foundation for corporate finance theory. Nevertheless, this paper argues that their adoption has led to a disengagement of such theory from the humanity of business, as well as, more broadly, from concepts of corporate strategic management. As a result, the context within which textbooks allow corporate investment and financial decisions to take place is severely distorted from reality. The paper argues that we require the context of behavioural and strategic corporate management if we are to accommodate the reality of business, the behaviour of formalised groups, and an ethical dimension to business.     

One-and-a-half decades of global research output in Finance: 1990–2004

We provide a ranking of world finance research output by countries and institutions. Based upon 21 finance journals, the top five most productive countries are in the following order: U.S., U.K., Canada, Hong Kong, and Australia. We find that higher per capita GNP, English-speaking countries, and a capital market that offers her investors more protections are associated with higher level of finance literature production. New York University, the University of Pennsylvania, Harvard University, the University of Chicago, and UCLA take the top five spots among the 1,126 academic institutions with most JF-pages appeared in 21 finance journals during the 15-year period from 1990 to 2004. The share of U.S. in the top-100 institutions is overwhelming; 78 out of the top-100 institutions come from U.S. We also show some factors that help to explain the cross-institutional variations among a sub-sample of the institutions. Specifically, faculty size, catalyst effect, and per capita budget are positively associated with research output.

Regulating Wall Street: The Dodd–Frank Act and the New Architecture of Global Finance,a review

This article is a review of a 531 page book that in turn is a review and evaluation of the 2319 page Dodd–Frank Wall Street Reform and Consumer Protection Act passed by Congress on July 16, 2010. The overriding theme of the book is to pose two approaches to attaining financial stability in the future. One approach is to establish a council of wise men and women supported by an army of highly skilled professional financial economists to formulate and implement regulations designed to prevent future financial crises that wreak havoc on the real economy and require financial support from taxpayers. This is the approach of the Dodd–Frank Act. The second approach proposed by the authors of this book is to design a taxing system that taxes systemically important financial institutions on the basis of their contribution to systemic risk. Borrowing ideas from the literature on the taxation of negative externalities their view is that financial institutions that create crises should pay for the clean-up. They also argue that requiring the financial polluters to pay for the creation of systemic risk will reduce the supply of systemic risk. The reader is invited to decide which approach is best.     

The Panzar–Rosse revenue test and market power in banking

The Panzar–Rosse H statistic is a commonly used measure of market power in banking. It is widely believed that $H>0$ is inconsistent with significant market power. This study rigorously disproves that perception. Instead, the possibility of $H>0$ under conditions of substantial market power turns out robust to the timing of banks’ actions, relative costs, choice of strategic variable, degree of product differentiation, strategy (static or dynamic), and degree of heterogeneity in banks’ conduct (collusive versus fringe), and hence may be common in practice.     

Borrowing to Finance Public Investment? The ‘Golden Rule of Public Finance’ Reconsidered in an Endogenous Growth Setting*

In this paper, we look for long‐run and short‐run effects of fiscal deficits on economic growth and welfare in a standard endogenous growth model. We show that, under very general hypotheses, the ‘golden rule of public finance’, which allows a government to run public‐investment‐oriented fiscal deficits, leads to a lower balanced‐growth path in the long run, and eventually in the short run, compared with balanced‐budget rules. Welfare effects are more difficult to assess, and depend on the form of the utility function. Our model shows that debt rules such as the golden rule may improve (if the consumption elasticity of substitution is ‘low’) or weaken (if the consumption elasticity of substitution is ‘high’) intertemporal welfare. Consequently, a balanced‐budget rule does not necessarily dominate debt rules from the point of view of welfare, while it does from the point of view of long‐run economic growth.     

FDI and Economic Development: Evidence from China’s Regional Growth

Abstract:

Using China’s provincial data for 1978–2011, we examine the channels through which foreign direct investment (FDI) affects China’s regional growth and inequality. We find that FDI facilitates growth by enhancing physical and human capital accumulation. FDI also has a negative effect on output growth by crowding out domestic investment, reducing local government revenue, and increasing the opportunity cost of technology innovations. The imbalance of FDI inflows among regions widens the interregional growth gap through its effect on physical capital accumulation and technology progress while it narrows the growth gap by affecting the level of higher education, industrial structure, government revenue, degree of openness, and trade surplus.     

The accountability demand for information in China and the US – A research note

This study replicated Evans, Heiman-Hoffman and Rau’s (hereafter, EHR) [Evans, J. H., III, Heiman-Hoffman, V. B., & Rau, S. (1994). The accountability demand for information. Journal of Management Accounting Research, 6, 24–42] US study, using Chinese MBA students as participants. The Chinese students acted as owners and selected one of two control systems. One control system requires truthful reporting and the other control system permits the manager to falsify the report. The two systems have the same expected payoff to the owner if the owner believes that the manager will always lie when given the opportunity. If the owner believes that there is any probability that the manager will tell the truth, then the more Lenient System has the higher expected payoff. We compared the US versus Chinese control system choices, and examined whether the Chinese owner-participants would be willing to sacrifice wealth to get accountability. The results indicate that a significant proportion of Chinese participants do have an accountability demand for information, and that this proportion is at least as high as that of the US participants in EHR.     

Central–local collaboration in regulating food safety in China

This paper analyses how China's inter-governmental arrangements have functioned in different ways to reduce food risk. While there is greater transparency, consistency, and inclusiveness in the process of setting food safety standards than in the past, the central government has almost exclusive power over these standards. Local governments are mainly responsible for gathering timely information and enforcing standards. This institutional design has redistributed costs for both the food producers and regulators alike, and enhanced public participation.