The influence of financial and legal institutions on firm size

Theory does not predict an unambiguous relationship between a country’s financial and legal institutions and firm size. Using data on the largest industrial firms for 44 countries, we find that firm size is positively related to financial intermediary development, the efficiency of the legal system and property rights protection. We do not find any evidence that firms are larger in order to internalize the functions of the banking system or to compensate for the general inefficiency of the legal system.     

Capital markets,financial institutions,and corporate finance in China

This paper provides a modern overview of capital markets, financial institutions, and corporate finance in China. In our discussions, we highlight and describe what is unique to China. We also describe how papers in the Special Issue advance our understanding of financial markets, institutions, and corporate finance in China and in general.     

Microfinance institutions,financial intermediation and the role of deposits

Microfinance institutions (MFIs), widely regarded as bankers to the poor, have extended their financial functions beyond lending to managing deposits. We empirically examine the influence of MFI deposit-taking on MFI financial performance. Using data of 1,301 MFIs worldwide, we find that an MFI's deposit level is an important determinant of its financial viability. However, the relationship is influenced by MFIs’ institutional type (for-profit or nonprofit) and the legal environment (common law or civil law). The results suggest that the positive financial impact of deposits has not been fully realised, reflecting the need to further improve cost management and revenue generation.     

Financial development,institutions and banks

This paper presents a framework for understanding the interactions between political and legal institutions, property rights protection, and their implications for financial development. Whereas the literature has answered questions on why some countries lag behind in terms of financial and economic development, the current study suggests how to get around some institutional attributes to spearhead financial intermediation and economic growth through a set of institutional, information, and banking reforms. It finds little support that common law legal heritage is more suitable than French civil law for some key features of financial development. It concludes that types of institutional and market reforms are more relevant to financial intermediation than legal systems. It proposes some ways forward to increase financial intermediation; and expects, over the long run, the proposed approach to financial development to be beneficial for a number of developing countries.     

Customer service quality and financial performance among Australian retail financial institutions

This paper seeks to explore empirically the relationship between customer service quality and financial performance among a representative cross-section of Australian banks and credit unions by correlating customer service quality scores from a sample of retail customers with financial performance measures over a five-year period.Results show that all financial performance measures (interest margin, expense/income, return on assets and capital adequacy) are positively correlated with customer service quality scores. They also show that the credit unions strongly out-perform the banks in customer service quality and also for some measures of financial performance (interest margin and return on assets). The positive link between financial performance and customer service is thus supported in this study. Implications for the three groups of institutions are also discussed.     

Leverage and preemptive selling of financial institutions

In our model, financial firms’ leverage choices and asset sales impose negative externalities on other financial firms. This means that individual firms cannot determine their optimal capitalizations in isolation, but have to take the aggregate financial sector characteristics into account. In particular, they become more aggressive when their peers are more conservative. Furthermore, financial firms over-consume liquidity in equilibrium. For some parameter regions, small parameter changes can induce large differences in the equilibrium allocation of risk. Historical experience is not necessarily a good guide as to whether the prevailing equilibrium is fragile or not.     

Diversification at financial institutions and systemic crises

It is widely believed that diversification at financial institutions benefits the stability of the financial system. This paper shows that it also entails a cost: even though diversification reduces each institution’s individual probability of failure, it makes systemic crises more likely. When systemic crises induce additional costs (over and above individual failures), full diversification is no longer desirable as a result and the optimal degree of diversification may be arbitrarily low. We show that the analysis can be extended beyond diversification, such as to interbank insurance and financial integration.     

Optimal regulation,executive compensation and risk taking by financial institutions

We present an equilibrium model of financial institutions to examine the optimal regulation of risk taking. Shareholders provide incentives for management to increase risk to excessive levels. Regulators use caps on asset risk and compensation to achieve the socially optimal risk level. This level trades off costs of risk shifting and costs of bank default. Without regulation, equilibrium risk lies above the optimal level. If information and enforcement are perfect, either policy tool (caps on asset risk or compensation) achieves the optimal risk level. If there are frictions – if enforcement is limited, if there is uncertainty about the incentives facing management and costs of risk shifting, or if regulation cannot be bank specific – welfare can be improved by employing both policy tools.     

Internal governance,legal institutions and bank loan contracting around the world

Using a sample of non-U.S. firms from 22 countries during 2003–2007, we examine the effect of firm-level governance on various features of loan contracting in the international loan market. We find that banks charge lower loan rates, offer larger and longer-maturity loans, and impose fewer restrictive covenants to better-governed firms. We also find that the favorable effect of firm-level governance on some loan contracting terms is stronger in countries with strong legal institutions than in countries with weak legal institutions. Our results suggest that banks view a borrower's internal governance as a factor that mitigates agency and information risk, and that country-level legal institutions and firm-level governance mechanisms complement each other in influencing loan contracting terms.     

金融功能、金融发展与中国金融体制改革

金融功能是金融与经济关系的实质、核心与基础。金融功能性资源比其他层次的金融资源更难得,从而更稀缺。金融功能层次的复杂化与提升,功能层次与种类的扩展与强化过程即是金融功能的演进,金融功能的演进即是金融发展。在此基础上以金融发展的金融功能观视角来进行中国金融发展状况的功能判断,提出中国金融体制改革的若干思考。     

Monetary policy and institutions before,during, and after the global financial crisis

This paper describes the changes that occurred in the conduct and instruments of monetary policy used by major central banks when the crisis hit; discusses the new tradeoffs and controversies engendered by those policy reactions; and speculates about additional likely future changes in monetary policy and institutions. Following a brief account of the evolution of monetary policymaking principles and institutions in the past, the paper deals with the controversial question of how and when to exit a period of large-scale monetary expansion. The paper documents the fact that, in spite of huge monetary injections and historically low interest rates, inflation in the US and in the Eurozone remained subdued, and reports that since the onset of the subprime crisis, there has been a dramatic deceleration in the growth of banking credit in the US. The paper also discusses the tradeoff between the lender-of-last-resort function of the central bank and moral hazard; the consequences of bailout uncertainty for central bank policy; and the particular problems faced by the ECB in the face of a major financial crisis.     

新兴金融机构：新力量、新格局、新希望

世界经济的发展历程显示,历次全球或区域性经济格局的重大变迁,都将催生新兴的国际金融机构。同时,一国在国际金融制度领域的影响力及其货币的国际化程度直接影响其国际地位。在世界经济格局的变迁进程中,中国推动和倡议建立金砖国家开发银行（简称：金砖银行）和亚洲基础设施投资银行（简称：亚投行）等新兴金融机构,对改善现有国际金融秩序,促进世界经济持续、协调增长,以及提升中国的国际经济地位具有重要意义。     

The global financial crisis and the evolution of markets, institutions and regulation

This paper analyses the recent global financial crisis in the context of the dual processes of market development and regulation. It discusses how, in the absence of a globally integrated financial framework, past and present regulations and interventions in reaction to national and global financial crises did not resolve the cross border regulatory arbitrage. The paper discusses how crises often lead to the emergence of new national and international institutions. It also analyses the proposed “new global framework” that needs to be in place if the policy recommendations contained in the G20 communiqué are going to be effectively implemented. The paper argues that unless international agreements are ratified by all nations and become part of national rules and laws, the presence of regulatory arbitrage and the lack of adequate cross border information and data may prevent the global economy from addressing the underlying causes of the recent global financial crisis. The paper also discusses the evolution of central banks and their new role in contributing to global financial stability. The paper argues that the recent global financial crisis has provided a unique opportunity to go beyond economic data and attempt to capture cross border financial data and other information that could assist international and national institutions to measure and manage financial risk more effectively. Finally, the paper discusses “too big to fail” and argues that only an internationally integrated financial system will make large banks global, both when operational and in the event of insolvency.     

International financial institutions and the new global managerial order

This article is a contribution to the continuing debate within critical accounting and broader critical theory circles about the nature of capitalism in a globalized economic order. It argues that the contemporary economic environment cannot be adequately explained by traditional critical theories of imperialism. Through an analysis of the emergence of Mittal Steel Corporation as the world's largest steel producer, I document how international financial institutions encouraged the success of this new type of transnational corporation that is culturally grounded but not geographically bound to a hegemonic nation-state. The Mittal example suggests that globalization is fundamentally altering the relationship between international capital and the nation-state, and heralding the rise of international financial institutions (IFIs) as key actors in structuring a global, elite-driven order. The IFIs operate outside democratic control and scrutiny, and are able to impose their preferred economic solutions across the world.     

Measuring and testing for the systemically important financial institutions

This paper analyzes ΔCoVaR proposed by Adrian and Brunnermeier (2011) as a tool for identifying/ranking systemically important institutions. We develop a test of significance of ΔCoVaR that allows determining whether or not a financial institution can be classified as being systemically important on the basis of the estimated systemic risk contribution, as well as a test of dominance aimed at testing whether or not, according to ΔCoVaR, one financial institution is more systemically important than another. We provide an empirical application on a sample of 26 large European banks to show the importance of statistical testing when using ΔCoVaR, and more generally also other market-based systemic risk measures, in this context.     

Board composition and operational risk events of financial institutions

We investigate the relation between board composition and operational risk events of financial institutions in the period from 1996 to 2010. Drawing from corporate governance literature, we consider the impact of board characteristics on the likelihood of operational risk events. Overall, our findings suggest that board size is negatively and non-linearly associated with the possibility of operational risk events. For the event types of “Clients, Products, and Business Practices,” and “Internal Fraud and External Fraud,” firms with a higher proportion of independent directors are less likely to suffer from fraud or failure to comply with professional obligations to clients. Our results on age and tenure heterogeneity also indicate that having a more diverse board can have an adverse impact on the board monitoring function. These results can shed new light on board demographics and operational risk management in financial institutions.     

构建区域型农村金融机构体系

与农户和农村微小型企业信贷需求特点相适应的农村金融机构,更多的应该具有地方性、区域性、小型化、草根性、非正式性等特点。因此,构建与之相应的农村金融机构体系是最佳选择。调研结论从调研样本区域农村金融供求两个角度的分析中,可以得到基本结论:从县域层次考察,金融机构多元化状况基本形成,但从与农户金融服务的提供、从乡域层次角度考察,金融机构的多元化严重不足。中国农村领域不缺大型金融机构,但缺乏离农民较近、     

Privatization,financial development,property rights and growth

This study analyzes how prevailing institutional arrangements i.e., property rights, contracting rights, political institutions, and corporate governance practices affect privatized firms’ performance, capital markets development, and economic growth. Most of the studies surveyed show that privatization enhances privatized firms performance, efficiency, and profitability, which percolates to economic growth. Privatized firms performed better in countries with better regulatory and legal frameworks. Partial privatization may be beneficial in countries with weak institutions, namely, the French civil law countries. The stronger the economic and the governing institutions, the easier it is for privatized firms to thrive and contribute to economic growth. Overall, privatization allows firms to achieve improved efficiency while driving the development of the financial sector.