Transformation of China's sovereign wealth fund since the 2008‐2009 global crisis

China Investment Corporation (CIC) transformed its initial investment strategy of focusing mainly on the US financial sector during 2007‐2008 into a new strategy of diversified investments across geography and sectors since 2009. Massive financial losses and domestic political backlash during the global financial crisis of 2008 gave impetus to CIC's rethinking of strategy. In the midst of the crisis, CIC engineered a capacity‐building and reorganization exercise to reposition itself for a new strategy that has since allowed for more diversification of investments. A more receptive global investment climate for sovereign wealth funds has also aided CIC's efforts to present itself as a responsible global investor and facilitated its investments. Postcrisis, CIC's new strategy of diversification is characterized by continued investments in the financial sector, but with new investments increasingly directed to real sectors of energy, natural resources, and real estate in both developed and emerging economies. Notwithstanding a global recovery that is fraught with uncertainties, CIC's judicious timing in making diversified investments, and its attention to reducing risks and enhancing returns, have been rewarded by an impressive turnaround in performance since 2009. Going forward, the success and sustainability of the new strategy will be contingent on how well CIC can navigate domestic bureaucratic rivalry and the shifting climate of the international investment environment in the medium to long term. Ultimately, CIC's shareholder, the government of the People's Republic of China (PRC), holds the key to its future direction and goals. © 2012 Wiley Periodicals, Inc.     

Escaping financial crises? Macro evidence from sovereign wealth funds' investment behaviour

This paper investigates the determinants of the investment activity of Sovereign Wealth Funds (SWFs) at a macro level, with special emphasis on the possible reaction to a financial crisis in a potential target economy. The analysis relies upon a specially built proprietary database, which encompasses 1,903 acquisition deals spanning the period 1995–2010 and involving 29 out of the 79 existing SWFs. According to a three-step modelling approach, we find that this class of investors prefers to invest in countries with a higher degree of economic development, larger and more liquid financial markets, institutions that offer better protection of legal rights, and a more stable macroeconomic environment. Most importantly, and in stark contrast with the existing empirical literature on other major institutional investors, SWFs seem to engage in ‘contrarian’ investment behaviour, i.e. increasing their acquisitions in countries where crises hit. The results are shown to be valid if we consider both the likelihood of a country being the target of SWFs' investments and the amount SWFs choose to invest in each country. Capital flows stemming from SWFs' acquisition activity worldwide may therefore have a stabilizing effect on local markets during periods of financial turmoil, protecting the targeted countries from foreign shocks instead of propagating them globally.     

Bond Fund Performance During Recessions and Expansions: Empirical Evidence from a Small Market

This paper provides the first investigation about bond mutual fund performance during recession and expansion periods separately. Based on multi‐factor performance evaluation models, results show that bond funds significantly underperform the market during both phases of the business cycle. Nevertheless, unlike equity funds, bond funds exhibit considerably higher alphas during good economic states than during market downturns. These results, however, seem entirely driven by the global financial crisis sub‐period. In contrast, during the recession associated to the Euro sovereign debt crisis, bond funds are able to accomplish neutral performance. This improved performance throughout the debt crisis seems to be related to more conservative investment strategies, which reflect an increase in managers' risk aversion.     

Did Investors Herd during the Financial Crisis? Evidence from the US Financial Industry

We examine the herding behavior of investors in the US financial industry, especially commercial banks, S&Ls, investment and insurance firms during global financial crisis of 2008 towards own sub‐sector and market consensus using augmented cross sectional absolute deviation of returns (CSAD) model. After distinguishing between fundamental and non‐fundamental information, we find a greater influence of global financial crisis on spurious herding for commercial and investment banks, and such herding increases in the down market and with conditional volatility of returns, but adverse herding is prevalent among investors during normal period in response to fundamental information. We also find that herding intensity on fundamental information is relatively high with market consensus for all financial institutions except insurance firms in high volatility regime, and intentional herding is only significant and limited to S&Ls and investment banks in high volatility regime. Our findings suggest limited spillover effects of herding when investors face non‐fundamental information.     

An analysis of the evolution of global financial network of the coordinated portfolio investment survey

In this study, we construct a directional global financial network using portfolio investment data from more than 200 countries during the first two decades of the 21st century and analyze the properties of the network. Through macroscopic analysis, we show that the network became denser and could be divided into central and peripheral groups. Microscopic analysis shows that, in addition to well-known financial-central countries, relatively less well-known countries played important roles in the global financial network. Further, each country's per capita GDP is positively correlated with its centrality in the network, and the correlation is stronger when measured with inbound investments than when measured with outbound investments.     

Long-term debt maturity and financing constraints of SMEs during the Global Financial Crisis

We use the recent financial crisis to investigate financing constraints of private small and medium-sized enterprises (SMEs) in Belgium. We hypothesize that SMEs with a large proportion of long-term debt maturing at the start of the crisis had difficulties to renew their loans due to the negative credit supply shock, and hence could invest less. We find a substantial variation in the maturity structure of long-term debt. Firms which at the start of the crisis had a larger part of their long-term debt maturing within the next year experienced a significantly larger drop in investments in 2009. This effect is driven by firms which are ex ante more likely to be financially constrained. Consistent with a causal effect of a credit supply shock to corporate investments, we find no effect in “placebo” periods without a negative credit supply shock.     

Small shop survival – The financial response to a global financial crisis

Small and medium-sized enterprises (SMEs), many of which are small retail shops, remain the largest employer in the western world. Yet the financing of their fixed and working capital investments remains under-researched. This study focuses on this topic by examining Eurozone wholesale and retail SMEs enterprises at the peak of the 2008 financial credit crisis. In order to do this, an innovative analysis of existing theories in retail finance and policy research using generalised multilevel structural equation modelling is performed to establish how retail SMEs sourced capital during this period. This analysis, a first of its kind in wholesale and retail SME research, finds that pecking order theory, the independence of investment and financing, as well as the contest for financial resources between fixed and working capital do not hold for wholesale and retail SMEs. Moreover, it is found that government grants and subsidised loans were not used by SMEs in this sector of the Eurozone as primary sources of finance during the aftermath of the 2008 global credit crisis. Crucially, it is posited that a business environment characterized by stronger legal rights and deeper credit information did not improve SMEs’ access to external finance. The authors recommend that further research should be pursued in this field in order to improve current understanding of the resilience of retail SMEs for future global financial crises.     

中国金融体系的脆弱性与道德风险

道德风险行为就是当签约一方不完全承担风险后果时所采取的自身效用最大化的自私行为.中国金融体系存在严重的脆弱性,根本原因也在于道德风险.政府不仅对银行提供了担保,也认为证券市场"太大而不能失败".证券市场危机往往是金融危机的先行指标,随之而来的银行危机和货币危机将决定金融危机的深度和广度.中国金融体系的道德风险已经深入到最基层的代理人,其代价将是非常惨重的.     

Impact investments,evil investments,and something in between: Comparing social banks' investment criteria and strategies with depositors' investment preferences

Since the global financial crisis in 2007, social banks have been flooded with deposits. Previous studies have indicated that customers hold deposits with social banks due to social banks' special placement of assets. However, to date it has been far from clear how social banks select their investments, and consequently to what extent the placement of assets meets depositors' preferences. The purpose of this paper is, therefore, to investigate whether the characteristics of social banks’ placement of assets are relevant to depositors’ choice of social banks. A two-stage study is conducted, using data collected via a document analysis of social banks' investment criteria, a survey of social banks, and an online survey of 609 depositors. The results imply that the characteristics of social banks' placement of assets are indeed relevant to depositors' choice of social banks, but do not explain customer behaviour entirely. Furthermore, the findings indicate that a relevant proportion of customers hold deposits with social banks to avoid “evil” rather than necessarily creating “good.” Based on the findings, a theoretical framework of depositors' choice of social banks is presented that goes far beyond previous explanations by considering various types of social depositors, banks, and borrowers.     

Weak-Form Market Efficiency of the Nigerian Stock Market in the Context of Financial Reforms and Global Financial Crises

The weak-form efficient market hypothesis for the Nigerian Stock Market (NSM) is explored using different statistical tests. The analyses use overall stock market returns collected over the period 2000–2010. It is shown that the NSM is not weak-form efficient which questions the benefits of the 2004 financial reforms. It is also shown that the degree of market inefficiency varies across the periods corresponding to the financial reforms and 2007 global financial crisis, for daily and monthly returns. The results are important to security analysts, investors, and security exchange regulatory agencies in their investment, stock market development, and policy-making decisions.     

The quantile dependence of commodity futures markets on news sentiment

Focusing on energy commodities, industrial metals, and gold, this paper examines the degree to which commodity futures returns depend on news sentiment under various market conditions, and the structure of that dependence. We observe an asymmetric market reaction to positive and negative news sentiment, which changes in periods of financial turmoil. The quantile regression analysis shows that news sentiment's influence on the futures returns follows an upward trend at higher percentiles. This structure flattens for positive news during the global financial crisis, while the slope for the negative component steepens in backwardation periods.     

Does socially responsible investment equity indexes in emerging markets pay off? Evidence from Brazil

This paper explores the financial performance of a mainstream socially responsible investment equity index in emerging markets: the Brazilian Corporate Sustainability Index. The results indicate that investors in emerging markets could accommodate their ethical values while at the same time not scarifying their overall portfolio performance in bullish market periods. However, the financial crisis led ethical investors to take a riskier and less profitable portfolio. These results seem to be due to socially responsible investment in Brazil that, as with other emerging markets, is highly influenced by social and institutional factors.     

Social ties between SME managers and bank employees: Financial consequences vs. SME managers' perceptions

We investigate whether social ties between SME managers and bank employees affect SME access to lending, investment, growth and profitability. On the one hand, we examine the influence of social ties on financial indicators based on SME financial statements; on the other hand, we study the impact of social ties on SME managers' perceptions of their firms' main banks. Using a dataset from Poland, we find that social ties improve SMEs' access to bank financing and stimulate their investments. However, this positive impact occurs only when social ties involve bank decision-makers. In contrast, SME managers perceive all types of social ties with bank workers as valuable.     

Export Commitment and the Global Financial Crisis: Perspectives from the New Zealand Wine Industry

The study investigates how firms adjusted their export commitment in response to the recent global financial crisis. Findings based on New Zealand wine companies suggest that firms' commitment to exporting is influenced by both their export performance achieved before the crisis and the negative effect that the crisis exerted on their subsequent export performance. These two performance‐induced influences can be further moderated by managerial attitude toward exporting and managers' perceptions of export market uncertainty. Theoretically, the study builds on the behavioral theory of the firm and extends the past performance–strategy relationship to the situation of exporting in a financial crisis.     

后金融危机时代铁路投资对我国经济的影响

1997年亚洲金融危机时,我国采取了以公路基建建设为主拉动内需的策略,成功闯过险滩。2008年全球金融危机,铁路投资成为我国拉动内需、应对风险的重要战略。如今在后金融危机时代,铁路投资能否依旧成为拉动中国经济的新引擎,铁路建设对国民经济的拉动到底有多大成为了关键问题。通过分析铁路建设所带来的铁路投资乘数效应,探讨其对GDP的拉动能力。     

Reason, Rationality, and Fiduciary Duty

This paper argues that since the last decades of the twentieth century the discipline of modern finance has directed fiduciaries to act "rationally"—that is, in the sole financial interest of their funds--downplaying the effects of their investments on others. This approach has deemphasized a previous, more "reasonable" interpretation of fiduciary duty that drew on a conception of prudence characterized by wisdom, discretion and intelligence—one that accounts to a greater degree for the relationship between one's investments and their effects on others in the world. The reasonable approach allows fiduciaries to a greater degree to assess the objective well-being of beneficiaries, to recognize fundamental sources of investment reward in the economy, and to fulfill their obligations to allocate benefits impartially between current and future generations. Reason and rationality can work in a complementary fashion to make investment long-term in its perspective and beneficial to society and the economy as well as to specific funds or portfolios. Determining how to accomplish this challenging task is part of the obligation of fiduciaries as they seek to realize the full potential of the investment assets entrusted to their care.     

Is the Global Economy Headed for a Lost Decade? A European Perspective

In the 15 years leading up to the recent crisis, the world economy's exceptional performance was driven by globalisation, rapid, export-driven growth in emerging markets, debt-fuelled consumption in major advanced economies, and a benign financial and macroeconomic environment. These, however, sowed the seeds for the financial crisis by creating unsustainable imbalances and distortions. Obstacles to future growth are likely to be retrenchment in consumption, dampened investment, and unsustainable fiscal balances. Going forward, there must be a renewed commitment to medium-term, rule-based, policies for maintaining fiscal sustainability, price stability, and financial stability. The international imbalances between savings and consumption must also be addressed through a global reform agenda discussed in the paper. Even with reform, the challenges to growth will be daunting. Without reform, however, it is likely that the global economy will suffer a lost decade.     

Changing corporate culture over time in South Korea

Corporate culture change is an interesting topic, not least since cultures are often seen as deeply ingrained and slow moving. Here we look at the example of the large, diversified conglomerates in South Korea – the chaebol. This is partly because of their strong corporate cultures, importance in the country's economic development and growth and growing public and political backlash against what are seen as overly powerful institutions. We find that over the decade from one crisis, the 1997 Asian financial crisis, to the next, the 2008 global financial crisis, there has indeed been change between and within chaebol corporate cultures. However, this is not as straightforward as it seems and the situation in and after 2011 has become even more complex, mainly due to changes in the global environment.     

The Global Financial Crisis and Its Impact on Australian Bank Risk

This paper examines the global financial crisis (GFC) and its impact on Australian banking risk. An augmented market model is developed to identify changes in listed Australian bank systematic risk in relation to three key events: the GFC's start in August 2007, the market downturn in Australian and global share markets in January 2008, and the announcement of Australia's Deposit and Wholesale Funding Guarantee (DWFG) scheme on 12 October 2008. The study also examines changes in bank systemic risk during these event periods. The Australian market offers a unique opportunity to observe the impact of the introduction of the DWFG in that it lacked any explicit deposit insurance prior to the crisis. Initially, the crisis period had little impact on bank systematic risk while bank systemic risk increased considerably. The share market downturn caused a marked increase in both systematic and systemic risks for Australia's major internationally connected banks followed by a reduction in both systematic and systemic risks with the introduction of the guarantee scheme for all Australian banks.     

Strategically Surviving Bankruptcy during a Global Financial Crisis: The Importance of Understanding Chapter 15

Chapter 15 of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act allows foreign courts more power in cases that include foreign multinational firms. U.S. businesses unexpectedly have to file a claim in another country with bankruptcy rules that are sometimes drastically different from those in U.S. courts. This paper outlines the different bankruptcy laws in selected countries and exemplifies how some countries place U.S. creditors at a disadvantage relative to employees and stockholders. This knowledge should be incorporated into management's strategic contingency plans in the case of supplier or business customer default. During periods of global financial instability such as the 2008 financial crisis, an understanding of Chapter 15 is essential.