The integration of international financial markets: an attempt to quantify contagion in an input–output-type analysis

ABSTRACT

The increasing integration of international financial markets means that credit defaults in one country have to be covered by creditors in other countries. If the principle of creditor liability were applied systematically, the financial losses incurred by the financial institution that provided the credit and is thus directly affected by the default would be ‘passed on’ through its domestic and foreign shareholders and debt holders, as well as their creditors, to the original savers. In this paper, this contagion effect will be estimated by taking international capital linkages into account. Analogously to an input–output analysis of inter-industry linkages, savings used for investments in one country are traced back to the countries from which the funds originated. This also reveals the important role of international financial centers, which essentially serve as distributors of investment risks, while the financial losses are ultimately borne by larger countries with higher levels of savings.     

Conventional Monetary Policy Transmission During Financial Crises: An Empirical Analysis

This paper studies the effects of a conventional monetary policy shock in the USA during times of high financial stress. The analysis is carried out by introducing a smooth transition factor model where the transition between states (‘normal’ and high financial stress) depends on a financial conditions index. Employing a quarterly dataset over the period 1970:Q1 to 2008:Q4 containing 108 US macroeconomic and financial time series, I find that a monetary policy shock during periods of high financial stress has stronger and more persistent effects on macroeconomic variables such as output, consumption and investment than it has during ‘normal’ times. Differences in effects among the regimes seem to originate from nonlinearities in both components of the credit channel, i.e. the balance sheet channel and the bank‐lending channel. Copyright © 2016 John Wiley & Sons, Ltd.     

The Feldstein-Horioka puzzle and capital mobility: The role of the recent financial crisis

The Feldstein-Horioka (FH) puzzle has long been debated as it relates to the important topics of capital mobility and how to determine levels of investment. Adopting a recursive approach and panel techniques, this paper explores the impacts of the recent financial crisis on the validity of the puzzle. The OECD’s saving-investment correlation dropped to a record low just before the 2008 crisis began, reflecting the perceived ‘end’ of the FH puzzle in some studies. But since the onset of the crisis, our results indicate that this correlation has increased, suggesting the puzzle’s return. The puzzle for net capital-importing and net capital-exporting countries differs, with the relationship being more significant for the exporters compared to the importers, reflecting the asymmetry in terms of the degree of shocks across countries.     

True and fair in the Czech Republic: a note on local perceptions

With the collapse of communism in Czechoslovakia’, and the subsequent desire of Czechoslovakia to join the European Union, in common with other countries in Central Europe, Czechoslovakia utilized the Fourth Directive as a ‘toolkit’ in designing part of its new accounting legislation. In incorporating the Fourth Directive, it has also included the requirement for financial statements to show a ‘true and fair’ view. Given the confusion over the exact meaning of ‘true and fair’ it is interesting to study how ‘true and fair’ has been introduced into the Czech Republic, and what it seems to signify for those who implemented it and for those who are preparing and using financial statements. Our initial findings indicate that ‘true and fair’ varies in its significance for the groups of individuals involved in preparing and using financial statements and that it may have particular significance for some groups of accountants who wish to secure specific advantage within the Czech economy.With the collapse of communism in Czechoslovakia’, and the subsequent desire of Czechoslovakia to join the European Union, in common with other countries in Central Europe, Czechoslovakia utilized the Fourth Directive as a ‘toolkit’ in designing part of its new accounting legislation. In incorporating the Fourth Directive, it has also included the requirement for financial statements to show a ‘true and fair’ view. Given the confusion over the exact meaning of ‘true and fair’ it is interesting to study how ‘true and fair’ has been introduced into the Czech Republic, and what it seems to signify for those who implemented it and for those who are preparing and using financial statements. Our initial findings indicate that ‘true and fair’ varies in its significance for the groups of individuals involved in preparing and using financial statements and that it may have particular significance for some groups of accountants who wish to secure specific advantage within the Czech economy.With the collapse of communism in Czechoslovakia’, and the subsequent desire of Czechoslovakia to join the European Union, in common with other countries in Central Europe, Czechoslovakia utilized the Fourth Directive as a ‘toolkit’ in designing part of its new accounting legislation. In incorporating the Fourth Directive, it has also included the requirement for financial statements to show a ‘true and fair’ view. Given the confusion over the exact meaning of ‘true and fair’ it is interesting to study how ‘true and fair’ has been introduced into the Czech Republic, and what it seems to signify for those who implemented it and for those who are preparing and using financial statements. Our initial findings indicate that ‘true and fair’ varies in its significance for the groups of individuals involved in preparing and using financial statements and that it may have particular significance for some groups of accountants who wish to secure specific advantage within the Czech economy.With the collapse of communism in Czechoslovakia’, and the subsequent desire of Czechoslovakia to join the European Union, in common with other countries in Central Europe, Czechoslovakia utilized the Fourth Directive as a ‘toolkit’ in designing part of its new accounting legislation. In incorporating the Fourth Directive, it has also included the requirement for financial statements to show a ‘true and fair’ view. Given the confusion over the exact meaning of ‘true and fair’ it is interesting to study how ‘true and fair’ has been introduced into the Czech Republic, and what it seems to signify for those who implemented it and for those who are preparing and using financial statements. Our initial findings indicate that ‘true and fair’ varies in its significance for the groups of individuals involved in preparing and using financial statements and that it may have particular significance for some groups of accountants who wish to secure specific advantage within the Czech economy.     

‘I Like How You Think’: Similarity as an Interaction Bias in the Investor–Entrepreneur Dyad

Investigating the factors that influence venture capital decision‐making has a long tradition in the management and entrepreneurship literatures. However, few studies have considered the factors that might bias an investment decision in a way that is idiosyncratic to a given investor–entrepreneur dyad. We do so in this study. Specifically, we build from the literature on the ‘similarity effect’ to investigate the extent to which decision‐making process similarity (shared between the investor and the entrepreneur) might bias or otherwise impact the investor's evaluation of a new venture investment opportunity. Our findings suggest venture capitalists evaluate more favourably opportunities represented by entrepreneurs who ‘think’ in ways similar to their own. Moreover, in the presence of decision‐making process similarity, the impacts of other factors that inform the investment decision actually change in counter‐intuitive ways.     

Productivity and Growth in UK Industries: An Intangible Investment Approach*

This article calculates some facts for the ‘knowledge economy’. Using new data, first we document UK intangible investment and find that (i) this is greater than tangible investment by £37bn in 2008; (ii) R&D is 11% of total intangible investment, software 15%, and training and organizational capital 22% each; (iii) the most intangible‐intensive industries are manufacturing and financial services. Next, we measure the contribution of intangible capital to growth for 2000–08. We find that intangible capital accounts for 23% of labour productivity growth and treating intangibles as investment lowers total factor productivity growth in the 2000s by 24% (R&D lowers it by 3%).     

Financial Constraints on German Firms after the Crisis: Evidence from Threshold Panel Estimation

This article studies the existence and magnitude of financial investment constraints in Germany between 2006 and 2012 with a special emphasis on small and medium‐sized firms. The core contention is that the sensitivity of the investment rate to the cash flow rate is a function of a firm's financial position contributing to its access to external finance. The application of a nonlinear panel threshold model reveals that the marginal effect of the cash flow rate on the investment rate is almost twice as strong for ‘high debt’ firms compared to ‘low debt’ firms. This result holds for six out of seven balance sheet threshold variables. For a single specification, the results reveal a non‐monotonic relationship between the cash flow rate and investment rate. Firm size, however, does not explain differences in the cash‐flow‐investment nexus.     

Mutating Neoliberalism: The Promotion of Italian Investors in Slovakia before and after the Global Financial Crisis

In the context of the literature on ‘actually existing neoliberalisms’, this article analyzes the policies and services supporting Italian foreign direct investment (FDI) in Slovakia. It identifies a group of organizations, both Slovak and Italian, which shape and deliver neoliberal pro‐FDI policies. By studying such an ‘investment promotion community’ (IPC) before and after the global financial crisis of 2009, and during Italy's prolonged crisis, this article shows both the persistence and adaptability of neoliberal policies and institutions. In so doing, it highlights some of the transnational flows underpinning the ‘domestication’ of neoliberalism in Slovakia. These findings support recent literature arguing that post‐crisis neoliberalism can be interpreted as a stunted Polanyian double movement, in which the state has improved some of its regulatory functions but without questioning the overarching neoliberal principles. Specifically, it shows that FDI policies and the support of Italian investors rest upon a professional community that has not changed much since the 2009 crisis. This community played a crucial role in embedding neoliberal rationalities in Slovakia and supports the persistence of this ideology in the post‐crisis environment.     

Urban Fortunes and Skeleton Cityscapes: Real Estate and Late Urbanization in Kigali and Addis Ababa

In many parts of Africa, societies that remain primarily rural are experiencing accelerated urban growth and highly visible booms in property development. In the absence of significant industrialization, investment is pouring directly into what Lefebvre and Harvey characterized as the ‘secondary circuit’ of capital. Debates about the drivers of investment in real estate are longstanding in relation to the global North, but have given little consideration to low‐income and late‐urbanizing countries in Africa. Yet such contexts offer important opportunities to reflect on existing theory. Focusing on Kigali and Addis Ababa (both transformed virtually beyond recognition over the past two decades), this article explores the drivers and consequences of investment in urban real estate in countries striving to structurally transform their economies. It argues that a range of formal and informal incentives and constraints have led to high‐end real estate being viewed as the ‘safest bet’ for those with resources to invest, even where demand is limited and governments are promoting other kinds of investment. While some people are reaping urban fortunes in largely untaxed rents, much of the construction is purely speculative, creating landscapes of unused and underused high‐end properties in contexts where investment is desperately needed elsewhere.     

The Financialization of Housing Production in Brussels

This article focuses on the financialization of housing production in the Brussels‐Capital Region, examining the increased presence and use of financial capital in housing production. Information collected by local administrations when granting building permits is used to undertake a large‐scale examination of companies involved in housing provision in Brussels in the 2000s in order to identify the origins of capital invested in housing development projects and to assess to what extent it can be considered as ‘financialized’. The use of this data set allows me to estimate the ‘market share’ of financial capital in housing production and to analyse the geography of these investments in the built environment. This spatial analysis also provides some insights for a discussion about the possible social consequences of this influx of financial capital into the urban space. The task of empirically ‘measuring’ financialization raises numerous methodological questions. A choice has to be made between a wide range of definitions, both for financial activities and the financialization process. Moreover, for the purpose of quantifying the phenomenon, these concepts are made operational and turned into indicators. In addition to providing information about the investment of financial capital in housing production and the concrete forms it may take in a city such as Brussels, I venture to suggest that this article also contributes to the methodological ‘toolbox’ available to researchers in the field of financialization.     

Inclusive purchasing and supply chain resilience capabilities: Lessons for social sustainability

In the face of unexpected changes in their dynamic business environment, purchasing and supply chain (SC) managers have been challenged to boost SC resilience while maintaining their sustainability concerns. In this changing environment, this paper aims to explore: (1) how (social) sustainability affects SC resilience and (2) what the role of purchasing is for SC resilience. Through a dynamic capability view as the theoretical lens, we investigate whether and how an inclusive purchasing programme could enhance SC resilience capabilities to cope with the Covid-19 outbreak. We developed a Case study with various SC members of a multinational cosmetics company that, despite suffering from a sudden demand disruption during the outbreak, maintained its sustainability actions. The results show that four operational SC resilience capabilities were amplified: ‘visibility’, ‘adaptability’, ‘collaboration’ and ‘financial strength’. In addition, a new capability entitled ‘empowerment’ was mobilised during this period. These factors helped the inclusive purchasing maintenance and were essential to supporting social sustainability. In addition, our results show that sustainable PSM, which is overlooked in the literature, is key for SC resilience. This article contributes to theory and practice because it demonstrates the role and relevance of (inclusive) purchasing in a company's ability to cope with SC disruptions, such as those resulting from the outbreak.     

‘How would you measure something like that?’: Quality in a Retail Bank

In this paper we explore a case study of total quality management (TQM) within the financial services sector. We demonstrate that a ‘conformance to requirements’ approach towards TQM is concerned with increasing management’s physical and financial control over procedures, documentation, systems and people. Such an approach only partially addresses quality because (a) there can never be a precise ‘conformance’ and (b) this approach neglects customers and employees. We illustrate that often management do not understand the flaws/problematics and underlying philosophy behind TQM. Thus they continue to adopt ‘inconsistent’ approaches, such as attempting to control costs and employees while espousing the importance of the customer and the need for a trust-based culture. Yet, whether or not they understand the rationale behind TQM and attempt to widen their focus by considering people and customers more directly, we argue that management cannot easily adopt a ‘consistent’ approach because a preoccupation with controlling costs is bound up with career-based identities and hierarchical power relations. Ultimately we argue that management cannot control ‘quality’ in any simple top down way, essentially because of the ‘indeterminacy’ of labour, the ‘intangibility’ of customer satisfaction, and the complexity of organizational power and identity relations.     

Market Risk Disclosures and Investment Efficiency: International Evidence from the Gulf Cooperation Council Financial Firms

This study examines the association between market risk disclosures (MRDs) and the investment efficiency of financial firms from six emerging markets in the Gulf Cooperation Council (GCC) region. Based on a sample of 553 firm‐year observations over the 2007–2011 period, we find that MRDs are significantly and negatively associated with both under‐investment and over‐investment and that this association is more pronounced for larger firms. We also find that the association between MRDs and under‐investment is moderated during periods of economic distress such as the Global Financial Crisis of 2008 and that the association between MRDs and over‐investment is magnified during periods of reduced financial distress. Our results are consistent with the idea that MRDs reduce information asymmetry, which ultimately improves investment efficiency. We contribute to the literature in an emerging market context by providing empirical evidence on the association between MRDs and investment efficiency across six emerging GCC capital markets. This study also fills a gap in the literature by providing evidence on the factors affecting the investment efficiency of financial firms.     

How do institutional shareholders manipulate corporate environmental strategy to protect their equity value? A study of the adoption of ISO 14001 by Egyptian firms

Theoretical as well as empirical evidence regarding the influence of institutional ownership on corporate environmental strategy not only is inconclusive but also reflects experience from either the Anglo‐American context or other developed countries. The underlying assumption of most of this literature is that institutional shareholders are always ‘active’ or ‘passive’ in their actions towards corporate environmental strategy. However, this study argues that this relationship might be moderated by various motivations such as legitimizing existence and operations, conforming with industry norms or lessening managerial entrenchment. Econometric analysis, using a sample of Egyptian firms, as hypothesized, demonstrated that institutional ownership exerted positive and significant effects on a corporation's tendency to adopt environmental management standards only when financial resources are available and investment opportunities are limited. A possible explanation of this finding is that Egyptian institutional investors are more likely to use corporate environmental responsibility to offset their inability to confront managerial discretionary power. An implication of this finding is that not only will different types of stakeholder ask for different levels of social and environmental responsibility, but also the same type of stakeholder may ask for different levels of social and environmental responsibility in different contexts. Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment.     

Market servicing by multinational manufacturing firms: Exporting versus foreign production

The foreign market servicing behaviour of multinational manufacturing firms evolves over time as a result of the firms' reaction to internal and external pressures. The interplay of immobile ‘location factors’ with internal ‘ownership factors’ under the control of individual enterprises exercises a powerful influence on the choice between exporting and foreign investment. Plant economies of scale encourage exporting, whilst firm level economies of scale, such as the internalization of the fruits of research, may predispose the firm towards foreign investment. Socio-political and cultural elements arising particularly from the nationality of ownership of the firm also influence market servicing strategy.     

Are we there yet? On the convergence of financial reforms

Since the 1970s, there have been substantial financial reforms across the world, however little research has been devoted to studying the convergence path of these reforms. While Abiad and Mody (Am Econ Rev 95:66–88, 2005) find that there is movement towards a global ‘norm’ of financial reform, their findings are based upon a cross-sectional approach that has been widely criticized in the literature. In this paper we offer new time-series evidence on the convergence of financial reforms both across and within regions, which can also act as a metric to measure the degree of globalization among countries’ financial systems. We find that some regions of the world have fully converged, but the advanced economies and Sub-Saharan Africa are not converging. In addition, while most countries have fully converged within their own region, notable exceptions are also identified. These results suggest that while financial reforms have largely become homogenized, important distinctions still remain.     

Exogenous cash: testing financing constraints on inventory investment using dynamic panels with additional information from annual reports

In spite of the literature’s great interests in firms’ financing constraints on investment, the endogeneity problem between investment and cash flow have long plagued the empirical endeavor. To avoid the problem, we use firms’ nonoperating income, which is shown to be exogenous to profitability, both as a direct measure of liquidity and as an instrumental variable to control for the endogeneity problem of cash flow. Estimation results do not support the financing constraint hypothesis. We also conduct a narrative analysis on firms’ Annual Reports to identify factors causing inventory reduction. We find that accounting adjustments and decreases in market demand are two important factors in investment disinvestment, and financial difficulty does not play an important role in this regard.     

Accounting,economics and management in France: the slow emergence of an 'accounting science'

The relationship (or what might be better described as the absence of a relationship) between accounting, economics and management is an important feature of a French tradition built on a society in which accountants have been regarded as the ‘poor relations’ of the business community. This pattern is presented in the second part of the title of this article as ‘the slow emergence of an accounting science’. French business traditions have influenced accounting mainly through the property rights established by the French Revolution. The French bourgeoisie's concern with inheritance gave rise to a form of accounting which emphasized the balance sheet and inventory valuation, rather than cash flow analysis. Throughout the 19th century accounting in France was taught as a technical subject, secondary to the ‘noble’ disciplines such as engineering, law and later, economics. In the mid-20th century, the state, via the ‘Conseil National de la Comptabilité’ (the National Accounting Council) laid down accounting principles under the ‘Plan Comptable’. The separation between financial accounting and cost accounting reflected that between entrepreneurs or owners on the one hand and engineers or administrators on the other. Unlike the Anglo-Saxon countries, France did not recognize accountancy as a profession in its own right until recently. Recent years have seen a radical transformation of French accounting policies and conventions under the combined influence of the emerging requirements of financial markets, the globalization of business and the growing independence of the accountancy profession.     

Taking financial frictions to the data

We estimate a Dynamic Stochastic General Equilibrium (DSGE) model with various financial frictions and analyze how well the model explains the Great Recession. Predictive analysis shows that the model can only slightly better explain the large deviation from trend during the crisis relative to a model without financial frictions. Specifically, the risk premium shock, which is a shock to the external finance premium of the entrepreneurs׳ leverage, explains the largest part of the investment downfall during the crisis. However, the ‘balance sheet’ channel of financial frictions in the model, which structurally links balance sheet conditions of financial intermediaries and nonfinancial borrowers to their borrowing rates, is estimated to be weak. We examine alternative prior specifications for how the financial frictions enter the model and continue to find a limited role for these frictions. Rolling-window estimation provides evidence for substantial time variation in parameters governing financial frictions. We conclude that the well-known financial frictions studied in this paper are not able to explain the financial crisis in a linearized and estimated model.     

A model for total quality management in higher education

Total quality management (TQM) is widely recognised as a management philosophy for improving customer satisfaction and organisational performance. However, there is no consensus over the critical success factors of TQM, in particular, in higher education (HE) and developing countries. Literature shows mixed results on the success and applicability of TQM principles in education, thus, underlining the need to revisit the application of TQM principles in HE. This paper identifies the critical success factors of TQM in Pakistani universities. Data was collected from faculty members of universities through questionnaires. The findings reveal that ‘leadership’, ‘vision’, ‘measurement and analysis’, ‘process control and evaluation’, ‘programs design and resources allocation’ and ‘stakeholder focus’ emerge as the critical success factors of TQM in HE. The findings have implications at macro, meso, and micro levels of HE.