Inflation and financial development: Evidence from Brazil

We examine the impact of inflation on financial development in Brazil, and the data available permit us to cover the period between 1985 and 2004. The results—based initially on time series and then on panel time series and panel data and analyses—suggest that inflation presented deleterious effects on financial development during the period investigated here. The main implication of the results is that poor macroeconomic performance has detrimental effects to financial development, a variable that is important for affecting, (e.g., economic growth and income inequality). Therefore, low and stable inflation, and all that it encompasses, is a necessary first step to achieve a deeper and more active financial sector with all its attached benefits.     

Financial liberalization,financial sector development and growth: Evidence from Malaysia

The objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of Malaysia. Using time series data from 1960 to 2001, we conduct cointegration and causality tests to assess the finance-growth link by taking the real interest rate and financial repression into account. The empirical evidence suggests that financial liberalization, through removing the repressionist policies, has a favorable effect in stimulating financial sector development. Financial depth and economic development are positively related; but contrary to the conventional findings, our results support Robinson's view that output growth leads to higher financial depth in the long-run.     

A decision support system for financial and social investment

This article proposes a decision-making model that assesses the different aspects associated to Social Venture Capital (SVC) investment decisions. SVC companies buy shares of investee companies, valued according to financial and social aspects. The proposed model includes three main factors: the previous experience with the company (the past); its financial information and intangible assets (the present); and the proposed project, considering financial and social criteria (the future). The model has 26 criteria and 160 indicators, prioritized by means of Analytic Hierarchy Process (AHP). AHP simplifies a complex problem using a hierarchical analysis methodology, which enables subjective judgements among different criteria. The model has been tested in a given SVC company. Its development is explained in this article.     

Predicting restaurant financial distress using decision tree and AdaBoosted decision tree models

The restaurant industry has been facing tough challenges because of the recent economic turmoil. Although different industries face different levels of competition and therefore the likelihood of financial distress can differ for firms in different industries, scant attention has been paid to predicting restaurant financial distress. The primary objective of this paper is to examine the key financial distress factors for publicly traded U.S. restaurants for the period from 1988 to 2010 using decision trees (DT) and AdaBoosted decision trees. The AdaBoosted DT model for the entire dataset revealed that financially distressed restaurants relied more heavily on debt; and showed lower rates of increase of assets, lower net profit margins, and lower current ratios than non-distressed restaurants. A larger proportion of debt in the capital structure ruined restaurants' financial structure and the inability to pay their drastically increased debt exposed restaurants to financial distress. Additionally, a lack of capital efficiency increased the possibility of financial distress. We recommend the use of the AdaBoosted DT model as an early warning system for restaurant distress prediction because the AdaBoosted DT model demonstrated the best prediction performance with the smallest error in overall and type I error rates. The results of two subset models for full-service and limited-service restaurants indicated that the segments had slightly different financial risk factors.     

Entrepreneurship, windfall gains and financial constraints: Evidence from Germany

We investigate the link between the propensity to become an entrepreneur and the exogenous release from financial constraints in Germany. This is defined in terms of the movement from employment to self-employment on receipt of a financial windfall. A theoretical framework developing Evans and Jovanovic (1989) is set up and tested with panel data from German households. The results show that financial constraints do exist given that individuals are more likely to start a personal business after receiving a windfall gain. The value of windfall gains has a significant but non linear effect on the decision to become self employed. The data reveal that differences in ability and income affect the change in employment status. We also report that there is no evidence that becoming self-employed involves the anticipation of windfall gains.     

R&D,export and investment decision: evidence from European firms

This article provides an empirical investigation of the mechanism through which R&D influences export and tangible investment decisions. The analysis is based on a large representative and cross-country comparative sample of manufacturing firms across seven European countries. The novelty of this work lies in the three aspects. First, we expand the results on the R&D–export and R&D–investment relationships to a wide sample of cross-European firms. This differentiates from previous works based on single-country samples. Second, to the best of our knowledge, this study is the first in years which assess empirically the relationship between R&D and tangible investment at the micro level. Third, we control for endogeneity of R&D and simultaneity in firms’ decision whether to export and carry out tangible investment. The results of the analysis suggest that R&D positively affects export propensity and tangible investment. The results also reveal that neglecting endogeneity and simultaneity issues leads to underestimate the effect of R&D to both export and investment propensities.     

Corruption and legislature size: Evidence from Brazil

This paper studies whether and how legislatures affect political corruption. Using a regression discontinuity design in the context of Brazilian municipalities, we find a positive causal impact of council size on corruption levels, as detected by random federal audits. This indicates that an extra councilor represents an additional political actor potentially interested in diverting public resources, which we define as a rent extraction effect. However, we find further evidence that, in some contexts, larger councils enhance the representation of opposition parties and effectively increase monitoring over the executive, attenuating the rent extraction effect. Namely, in municipalities where opposition parties are typically underrepresented, the additional seat in the council is absorbed by the opposition and corruption outcomes do not worsen. In addition, only in such context, mayors are more commonly sentenced for misconduct in office by judicial authorities, whose investigations anecdotally often originates from councilors denouncing mayors to local courts. Overall, our findings show that legislature size is detrimental to corruption outcomes but less so where the representation of opposition parties improves with the enlargement of the legislature.     

GDP competition and corporate investment: Evidence from China

This study examines whether and how macroeconomic performance competition is related to investment at firm level. We use GDP competition as a proxy of dynamic macroeconomic conditions. We find that the effect of GDP competition on firm investments is significantly positive. We also find that GDP competition destroys investment efficiency significantly, especially by increasing overinvestment. Further tests show that GDP competition is more likely to affect the investment decisions of firms controlled by governments and firms located in regions with low marketization. In addition, our analyses reveal that the provincial officials facing competitive pressure are more likely to be promoted if firm investments accelerate. We use alternative proxies to measure GDP competition and find similar results that support our inference. Our findings support the notion that GDP competition of governments distorts investment behaviour. The present paper also elucidates investment problems and dilemmas faced by emerging economies.     

Tenure security and land-related investment: Evidence from Ethiopia

We use a large data set from Ethiopia that differentiates tenure security and transferability to explore determinants of different types of land-related investment and its possible impact on productivity. While we find some support for endogeneity of investment in trees, this is not the case for terraces. Transfer rights are unambiguously investment-enhancing. The large productivity effect of terracing implies that, even where households undertake investments to increase their tenure security, the level of such investment may be below the social optimum. In Ethiopia, government action to increase tenure security and transferability of land rights can significantly enhance rural investment and productivity.     

Factors of production,productivity, institutions,and development: Evidence from Brazil

The economic growth and development literature emphasizes that investment in technology and physical and human capital is essential for achieving higher levels of development. Political and economic institutions are also relevant in this process. With a sample of 5,503 Brazilian municipalities, this study carries out a development accounting exercise and measures the effects of institutional quality on per capita gross domestic product (GDP), physical capital intensity, human capital stock, and productivity. The empirical results indicate that institutional quality affects GDP per capita mainly through human capital accumulation and total factor productivity.     

Foreign debt and financial hedging: Evidence from Australia

We investigate the role of foreign currency denominated debt (FCDD) as a natural hedging instrument using a sample of Australian firms. Our results show that the incidence of foreign debt use among industrial sector firms is associated with a lower level of exchange rate exposure. The practice of issuing foreign debt within the industrial sector also conforms better to the hypothesis that firms do so to satisfy a demand for hedging. In contrast, although the incidence of foreign debt issues is higher in the resource/mining sector, the underlying motive for such arises from a demand for financing.     

对外贸易、金融改革和经济增长:来自中国的证据

本文根据技术扩散模型阐释,中国的技术进步取决于它对先进技术的吸收能力和可吸收的世界先进技术集合的乘积。金融改革通过消除经济扭曲提升我国的吸收能力。如果国际先进技术通过对外贸易扩散到中国,那么对外贸易和金融改革在增长中就存在相互促进的作用。利用中国改革开放后的数据,我们没有发现对外贸易(出口或进出口)和金融改革在促进经济增长中有显著的互补作用。该结论在控制条件收敛、其他经济增长因素、分省和时间效应后成立,并在解决贸易的内生性后仍然稳健。将该结论和我们已发现的金融改革和外商直接投资在促进经济增长中有显著的互补作用的结果相对照,可见,与国际贸易相比,国际先进技术更可能通过外商直接投资扩散到中国。     

Self-employment,financial development,and well-being: Evidence from China,Russia, and Ukraine

This study investigates the association between financial development and entrepreneurs’ well-being in China, Ukraine, and Russia. We find that Chinese and Russian entrepreneurs have a higher level of well-being, while Ukrainian self-employed individuals have more dissatisfaction. The link between financial development and the utility of entrepreneurs varies as well. The utility differences between the self-employed and paid workers in Russia reduce with financial development and the effect is stronger for job satisfaction. However, financial development barely correlates with Ukrainian entrepreneurs’ happiness while having no correlation with life satisfaction of Chinese self-employed. Further investigation suggests that the financial development – entrepreneurial utility association works through both monetary and non-monetary channels.     

Foreign direct investment,heterogeneous workers and employment security: Evidence from Germany

We analyze how foreign direct investment (FDI) affects employment security using administrative microdata for German employees. Measuring FDI intensity at the industry level enables us to take into account the sum of direct effects at multinationals as well as indirect effects of FDI throughout the affected industry. We find that both inward and outward FDI significantly reduce employment security. This is particularly the case for inward FDI coming from the western part of the European Union as well as for outward FDI going to Central and Eastern Europe. The effects are sizeable for older and low‐skilled workers.     

Local financial development,socio-institutional environment,and firm productivity: Evidence from Italy

This paper uses the case of Italy to investigate the effects of local financial and socio-institutional development on productivity. The analysis employs firm-level productivity data and exploits variations in banking sector development, judicial enforcement, and social capital across Italian provinces. After controlling for potential endogeneity, our empirical results suggest that the real effects of financial development are conditional on the quality of the socio-institutional environment. In particular, we find that the positive effects of greater financial depth on productivity are stronger when the socio-institutional environment is sufficiently developed. Therefore, to exploit potential productivity gains stimulated by financial development, it is necessary to achieve a higher-quality socio-institutional environment, including reducing the duration of civil trials.     

Religious polarization,religious conflicts and individual financial satisfaction: Evidence from India

The extant literature finds religion to be a major determinant of life satisfaction. However, in contexts characterized by religious tensions, the outcome may be very different. In particular, the literature shows that religious polarization has a major influence on some economic outcomes. The analysis presented in the paper tries to identify the impact of religious polarization on a major component of life satisfaction: financial satisfaction. The paper inquires how belonging to a minority religion and living in areas with different levels of religious polarization affect the individual satisfaction with the financial situation of the household. The results show that the members of minority religious groups are less satisfied than the members of the dominant group, and that the financial satisfaction decreases—for a given income—as the religious polarization increases.     

Land tenure and investment incentives: Evidence from West Africa

The existing literature on the relationship between property rights in land and agricultural investment in Africa has given results that are often confusing and contradictory. I make two clarifying contributions to this literature. First, I pull together existing studies and investigate whether the results they find have been affected by research methods or local contexts. Studies with small sample sizes, those that use binary investment measures, and those that control for household fixed effects are less likely to find a statistically significant link between land tenure and investment. Self-reported tenure security has been a poor predictor of investment outcomes. Second, I test for a relationship between land tenure and agricultural investment in nine data sets from West Africa. While the link between tenure and investment is significant for fallow and tree planting, it is less robust for labor use and other inputs, such as manure or chemical fertilizer.     

Environmental regulation and investment: Evidence from European industry data

This paper contributes to the empirical literature on the effects of environmental regulation on investment. In particular, we ask whether and how strongly an industry's investment responds to stringency in environmental regulation. Environmental regulation is measured as (i) an industry's total current expenditure on environmental protection, and (ii) a country-industry's revenue from environmental taxes. Focusing on European data of manufacturing industries between 1998 and 2007, we estimate the differential impact of environmental stringency on four types of investment: gross investment in tangible goods, in new buildings, in machinery, and in ‘productive’ investment (investment in tangible goods minus investment in abatement technologies). Both environmental variables enter positively, and their quadratic terms exhibit significantly negative parameter estimates. This, in turn, indicates a positive but diminishing impact of environmental regulation on investment.