Who Borrows from the Lender of Last Resort?

We analyze lender of last resort (LOLR) lending during the European sovereign debt crisis. Using a novel data set on all central bank lending and collateral, we show that weakly capitalized banks took out more LOLR loans and used riskier collateral than strongly capitalized banks. We also find that weakly capitalized banks used LOLR loans to buy risky assets such as distressed sovereign debt. This resulted in a reallocation of risky assets from strongly to weakly capitalized banks. Our findings cannot be explained by classical LOLR theory. Rather, they point to risk taking by banks, both independently and with the encouragement of governments, and highlight the benefit of unifying LOLR lending and bank supervision.     

Stocks for the long run? Evidence from emerging markets

We estimate the myopic (single-period) and intertemporal hedging (long-run) demand for stocks in 20 growth-leading emerging market economies during the 1999–2012 period. We consider two types of investors: a domestic investor who invests in emerging-market assets only (with returns in local currency) and an international investor who invests in both US and emerging-market assets (with returns in US dollars). We establish economically relevant short-run and long-run demand for stocks in several emerging market economies, for both domestic and international investors. From a welfare perspective, however, the myopic demand for emerging-market stocks is much more important than the hedging demand. Further international diversification and foreign currency hedging by the international investor do not alter this conclusion. Hence, for both domestic and international investors emerging-market stocks are mainly assets for the short run.     

“Grand” corruption and the ethics of global business

The paper explores the ethical obligations of global business to refrain from corruption. Corruption is harmful for the growth prospects of host countries and can introduce inefficiencies and inequities. I argue that business corporations have an obligation to refrain from illegal payoffs as part of the quid pro quo implied by the laws that permit corporations to exist and to operate. The paper goes on to consider how firms might respond, and isolates situations where anti-corruption policies can be profitable for firms. It concludes with an analysis of international efforts to deter transnational bribery and with suggestions for additional international initiatives.     

Are you picking the right leaders?

When it comes time to hire or promote, top executives routinely overvalue certain skills and traits while overlooking others. Intuitively, for example, they might seek out team players, people who shine operationally, dynamic public speakers, or those who are demonstrably hungry for greater responsibility. But some attributes that seem like good indicators of leadership potential are, paradoxically, just the reverse. Team players and those who excel operationally often make better seconds in command. Many a great public speaker lacks the subtle one-on-one persuasive powers that a top leader needs. And shows of raw ambition may be more an indicator of ego than of leadership talent. Unfortunately, few organizations have the right procedures in place to produce complete and accurate pictures of their top prospects. Assessments are often based on hearsay, gossip, and casual observation. Many companies spend too much effort trying to develop leaders and not enough effort trying to identify them. A new evaluation process will help you avoid that trap. Candidates are assessed by a group of people who have observed their behavior directly over time and in different circumstances. Using a carefully crafted series of questions, the group can probe a wide range of leadership criteria, including such "soft" attributes as personal integrity, that are difficult to assess. Without such information, senior management will remain vulnerable to misidentifying leadership talent, and the wrong people will continue to make their way up the corporate ladder.     

Who benefited from the disclosure mandates of the 1964 Securities Acts Amendments?

The 1964 Securities Acts Amendments extended disclosures mandated of NYSE firms to most firms trading in the Over-the-Counter (OTC) market. Although some prior evidence suggests substantial value increases for OTC firms due to the “value enhancing” mandated disclosures, we find no statistical difference in announcement returns for OTC firms moving to the NYSE before and after the legislation. One purported advantage to investors from the 1964 legislation was increased financial reporting. Yet, we document that the bulk of OTC firms analyzed in prior studies was already providing investors financial information before the legislation. Apparently, investors did not value the mandated disclosures. We do find evidence that the NYSE benefited from the legislation by increasing the number of OTC firms switching to their exchange around its passage.     

Who are the vectors of contagion? Evidence from emerging markets

We test whether foreign investors are the vectors of contagion to emerging markets, as various theoretical models imply. We also explore the role of local institutions and individuals during and after contagion days. To do this, we propose a novel measure of contagion and estimate its dynamic relationship with the net purchases of each of the three groups of investors, from 2007 to 2016, in seven emerging markets. We find that foreign investors bring contagion by actively selling and impacting local prices on days of large declines in the US stock market and the days following. Local institutions are also net sellers on the day of contagion, while individuals act as the main liquidity providers, but institutions become net buyers soon after.     

Does stable ownership create value? Evidence from the global financial crisis

We investigate the value of stable ownership for a sample of European firms using the global financial crisis as an exogenous shock and pre-and post-crisis years as benchmark periods. Consistent with the argument that stable ownership allows managers to focus on the creation of long-term value, we find that stable ownership resulted in higher stock returns and a higher market-to-book ratio during the crisis. This positive effect of stable ownership was not reversed after the crisis. Stable institutional blockholdings were more valuable in countries with weaker investor protection. However, the positive effect does not apply to firms in which a family is the largest blockholder. Finally, we also find that ownership stability was associated with a higher level of investments, illustrating that stable ownership affects real corporate decisions.

     

Why do forecasters disagree? Lessons from the term structure of cross-sectional dispersion

Key sources of disagreement among economic forecasters are identified by using data on cross-sectional dispersion in forecasters’ long- and short-run predictions of macroeconomic variables. Dispersion among forecasters is highest at long horizons where private information is of limited value and lower at short forecast horizons. Moreover, differences in views persist through time. Such differences in opinion cannot be explained by differences in information sets; our results indicate they stem from heterogeneity in priors or models. Differences in opinion move countercyclically, with heterogeneity being strongest during recessions where forecasters appear to place greater weight on their prior beliefs.     

Financial institutions’ business models and the global transmission of monetary policy

Global financial institutions play an important role in channeling funds across countries and, therefore, transmitting monetary policy from one country to another. In this paper, we study whether such international transmission depends on financial institutions’ business models. In particular, we use Dutch, Spanish, and U.S. confidential supervisory data to test whether the transmission operates differently through banks, insurance companies, and pension funds. We find marked heterogeneity in the transmission of monetary policy across the three types of institutions, across the three banking systems, and across banks within each banking system. While insurance companies and pension funds do not transmit home-country monetary policy internationally, banks do, with the direction and strength of the transmission determined by their business models and balance sheet characteristics.     

What's the matter with business ethics?

The more business ethics secures its status in campuses across the country, the more bewildering it appears to actual managers. It's not that managers dislike the idea of doing the right thing. As University of Toronto Assistant Professor Andrew Stark argues, far too many business ethicists just haven't offered them the practical advice they need. Before business ethics became a formal discipline, advocates of corporate social responsibility claimed that the market would ultimately reward ethical behavior. But ethics and interests did not always intersect so fruitfully in the real world. And when they did not, managers were left in the dark to grope for the right ethical course. In the 1970s, the brand-new field of business ethics came onto the scene to address this issue. Critical of the "ethics pays" approach, academics held that ethics and interests can and do conflict. Still, scholars took an equally unrealistic line. To them, a manager's motivation could be either altruistic or self-interested, but never both. In short, ethicists still weren't addressing the difficult moral dilemmas that managers face on a day-to-day basis, and only recently have they begun to do so. After some initial stumbles, ethicists are getting their hands dirty and seriously considering the costs of doing the right thing. Finally, a new business ethics is emerging that acknowledges and accepts the messy world of mixed motives. As a result, novel concepts are springing up: moderation, pragmatism, minimalism, among others.(ABSTRACT TRUNCATED AT 250 WORDS)     

Are overconfident CEOs better leaders? Evidence from stakeholder commitments

We find evidence that the leadership of overconfident chief executive officers (CEOs) induces stakeholders to take actions that contribute to the leader's vision. By being intentionally overexposed to the idiosyncratic risk of their firms, overconfident CEOs exhibit a strong belief in their firms’ prospects. This belief attracts suppliers beyond the firm's observable expansionary corporate activities. Overconfident CEOs induce more supplier commitments including greater relationship-specific investment and longer relationship duration. Overconfident CEOs also induce stronger labor commitments as employees exhibit lower turnover rates and greater ownership of company stock in benefit plans.     

Does debtor protection really protect debtors? Evidence from the small business credit market

This paper analyzes how different levels of debtor protection across US states affect small firms’ access to credit, as well as the price and non-price terms of their loans. We use an individual-specific measure of debtor protection that has its maximum value when the borrower’s home equity is lower than the state homestead exemption (the debtor’s home equity is fully protected), and is decreasing in the difference between the home equity and the homestead exemption (the amount that the creditor can seize). We find that unlimited liability small businesses have lower access to credit in states with more debtor-friendly bankruptcy laws. In addition, these businesses face tighter loan terms - they are more likely to pledge business collateral, have shorter maturities, and borrow smaller amounts. For limited liability small businesses, we also find a reduction in credit availability, but of smaller magnitude, together with an increase in the loan rate.     

Are short sellers positive feedback traders? Evidence from the global financial crisis

Short sellers are routinely blamed for destabilizing stock markets by exacerbating deviations from fundamental values. In response, regulators periodically impose short sale constraints aimed at preventing excessive stock market declines. One explanation is that policy makers regard short sellers as behaving like positive feedback traders. Relying on the theoretical model put forward by Sentana and Wadhwani (1992), which stresses the conditional nature of returns’ persistence, bans on selected financial stocks in six countries during the 2008/2009 global financial crisis are examined. These provide us with a setting to analyze the impact of short sale restrictions on feedback trading. Our findings suggest that, in the majority of markets examined, restrictions of this kind amplify positive feedback trading during periods of high volatility and, hence, contribute to stock market downturns. On balance then, short selling bans do not contribute to enhancing financial stability.     

Can science be a business? Lessons from biotech

In 1976, Genentech, the first biotechnology company, was founded by a young venture capitalist and a university professor to exploit recombinant DNA technology. Thirty years and more than 300 billion dollars in investments later, only a handful of biotech firms have matched Genentech's success or even shown a profit. No avalanche of new drugs has hit the market, and the long-awaited breakthrough in R&D productivity has yet to materialize. This disappointing performance raises a question: Can organizations motivated by the need to make profits and please shareholders successfully conduct basic scientific research as a core activity? The question has largely been ignored, despite intense debate over whether business's invasion of basic science-long the domain of universities and nonprofit research institutions- is limiting access to discoveries, thereby slowing advances in science. Biotech has not lived up to its promise, says the author, because its anatomy, which has worked well in other high-tech sectors, can't handle the fundamental challenges facing drug R&D: profound, persistent uncertainty and high risks rooted in the limited knowledge of human biology; the need for the diverse disciplines involved in drug discovery to work together in an integrated fashion; and barriers to learning, including tacit knowledge and murky intellectual property rights, which can slow the pace of scientific advance. A more suitable anatomy would include increased vertical integration; a smaller number of closer, longer collaborations; an emphasis by universities on sharing rather than patenting scientific discoveries; more cross-disciplinary academic research; and more federal and private funding for translational research, which bridges basic and applied science. With such modifications, science can be a business.     

Is American business working for the poor?

At first glance, poverty seems to have little to do with business. When most people--managers included--think about poverty, they assume that people are poor because they are isolated from the mainstream economy, not productive participants in it. But according to Harvard University professors Mary Jo Bane and David Ellwood, this is a misleading image of the true face of poverty in the United States today. Most poor adults--and a full 90% of poor children--live in families where work is the norm, not the exception. Poor people often work or want to work. But at the low-wage end of the American economy, having a job is no guarantee of avoiding poverty. Poverty is a business issue, then, because the American poor are part of the American work force. And this poses a problem for managers. In a more competitive and fast-changing economic environment, the performance of companies increasingly depends on the capabilities of their employees. In response to this human-resource challenge, more and more managers are embracing the language of "empowerment". And yet how can low-wage employees believe empowerment when their experience of work is, quite literally, impoverishment? It is unlikely that American companies can create the work force of the future with the poverty policies of the past. Fortunately, there are some simple policy mechanisms that can assist the working poor without putting an undue burden on business. Enacting them, however, requires managers to see poverty policy as one part of a national human-resource strategy that links the strategic concerns of companies to a broad social agenda.     

Who says they are satisfied with their job? Evidence from the BHPS Introduction

<正>Nowadays,many people are not satisfied with their work and the dissatisfaction may bring employees the sense of insecurity and instability.In the current modern society,people are suffering fierce competition and fast changing,so job satisfaction becomes a common problem for employees.     

Who Gambles in the Stock Market?

This study shows that the propensity to gamble and investment decisions are correlated. At the aggregate level, individual investors prefer stocks with lottery features, and like lottery demand, the demand for lottery-type stocks increases during economic downturns. In the cross-section, socioeconomic factors that induce greater expenditure in lotteries are associated with greater investment in lottery-type stocks. Further, lottery investment levels are higher in regions with favorable lottery environments. Because lottery-type stocks underperform, gambling-related underperformance is greater among low-income investors who excessively overweight lottery-type stocks. These results indicate that state lotteries and lottery-type stocks attract very similar socioeconomic clienteles.     

Is there a bright side to government banks? Evidence from the global financial crisis

Using a sample of banks from 56 countries, this paper investigates the lending behavior of government banks during the crisis of 2008, and its association with bank performance and the economy. Contrary to the traditional wisdom, we find that government banks can play a beneficial role under certain circumstances. Government banks have higher loan growth rates than private banks during the crisis. In countries with low corruption, the increased lending by government banks is associated with better bank performance and more favorable GDP and employment growth in the crisis period. In contrast, the results for countries with high corruption are more consistent with the political view: the increased lending by government banks is associated with underperformance relative to private banks, and creates no beneficial effects on either GDP growth or employment.     

Do financial variables help predict the state of the business cycle in small open economies? Evidence from Switzerland

We analyze the forecasting ability of financial variables to predict the state of the Swiss business cycle up to eight quarters ahead. Overall, our results suggest that financial variables convey leading information for the prediction of business cycles, even when applied to a small open economy. However, we clearly find that model specifications need to be extended to include variables accounting for external shocks, such as exchange rates or international commodity prices. It also appears that the forecasting contribution of individual variables changes over time. Specifically, in the last two decades, stock market liquidity has replaced the term spread as the best single predictor.     

What business are you in? Classic advice from Theodore Levitt

For all the talk about management as a science, experienced executives know that strategic decisions and tactics depend heavily on context. No one understood this better than Theodore Levitt (1925-2006). A Harvard Business School professor renowned as a founder of modern marketing, he sought above all to use his knowledge to serve the needs of businesspeople. In a series of powerfully insightful--and delightfully written--essays in Harvard Business Review, he provoked readers to reexamine their settled thinking about vital issues so that they could better meet the needs of customers. Levitt had the gifts of provocation and generalization, offering ideas that startled readers but compelled them to think creatively and intelligently about their companies. Writing in a period when business was held in far less esteem than it is today, he rejected the easy contempt that many intellectuals had for managers and consumers. Levitt carried that practical approach to his tenure at Harvard Business Review from 1985 to 1989. As one of HBR's most intellectual and most populist chief editors, he understood that the magazine's main purpose was to serve as a kind of sophisticated translation, clarifying authors' raw-and sometimes rough-ideas for impatient, time-pressed readers. This tribute, a look into one of business's great minds, offers excerpts from six of Levitt's most influential HBR articles: "Marketing Myopia" (July-August 1960) "After the Sale Is Over..."(SeptemberOctober1983) "Marketing Success Through Differentiation-of Anything" (January-February 1980) "Production-Line Approach to Service" (September-October 1972) "The Globalization of Markets" (May-June 1983) "Creativity Is Not Enough" (May-June 1963).