Corporate Debt Issuance and the Historical Level of Interest Rates

Using a sample that comprises more than 14,000 new issues of corporate debt for the period 1970-2001, we examine the relation between debt issues and the level of interest rates relative to historical levels. Consistent with recent survey evidence, we find that companies issue more debt, more debt relative to investment spending, and more debt compared to equity when interest rates are low relative to historical rates. The effects continue to hold when we control for other variables that influence debt issuance and when we account for refinancing.     

Which Creditors’ Rights Drive Financial Deepening and Economic Development?

Since the 1990s financial economists have documented the essential role of creditors' rights in encouraging lenders to provide credit. This article demonstrates the central importance of creditors' ability to use movable assets such as inventories and accounts receivable (as distinct from immovable assets like real estate) as collateral when lending to business enterpriseses. Using a unique cross‐country, micro‐level loan data set that contains loan‐to‐value ratios for different assets, the authors found that the loan‐to‐values of loans that are collateralized with movable assets were lower in countries with weak collateral laws for movable assets, and that lending in such countries was biased toward the use of immovable assets. Using sector‐level data, the authors also found that weak movable collateral laws were associated with distortions in the allocation of resources that favored immovable‐based production and investment. The effects of resources that favored immovable‐based production and investment. The effects of the collateral law reform enacted in Slovakia in 2003 were held up as providing support for the authors' findings. The authors also investigated which aspects of movable assets collateralization regimes are most important for facilitating the use of movable assets as collateral. They concluded that the two critical features of such regimes are the registration of collateral interests—which facilitates monitoring of collateral and avoids double pledging—and the ability of creditors to avoid lengthy court proceedings when taking possession of collateral. These findings suggest that it would be relatively easy for many countries to increase their supply of credit because reforming these aspects of legal regimes is fairly straightforward with few political obstacles.     

IDENTIFYING THE EFFECTS OF SIMULTANEOUS MONETARY POLICY SHOCKS

Many central banks, particularly in the developing world, aim for exchange rate stability as a macroeconomic goal. However, most are reluctant to relinquish monetary policy autonomy, so they end up operating through both interest rate and foreign exchange interventions. But the use of multiple policy instruments does not necessarily equip monetary authorities with better tools to achieve their targets. On the contrary, their effects can potentially offset each other. Using daily data from the Central Bank of Colombia during the period of 1999–2012, I study the effects of simultaneous policies by first deriving new measures of monetary shocks and then determining their impact on economic activity. The main findings indicate that (a) while interest rate interventions have a significant impact on real and nominal variables, foreign exchange interventions tend to have limited effects; and (b) empirical anomalies, such as the positive relationship between output growth, inflation, and the policy rate are eliminated when properly accounting for the systematic responses of policy. (JEL E43, E52, E58, F31)     

Duplication without constraints: Álvarez‐Nogal and Chamley's analysis of debt policy under Philip II

Carlos Álvarez‐Nogal and Christophe Chamley recently published an article in the Economic History Review on ‘Debt policy under constraints: Philip II, the Cortes, and Genoese bankers’. In this note, we show that several claims in their article are very similar to earlier research results, published or circulated long before Álvarez‐Nogal and Chamley's original submission, by ourselves and other scholars (section I). These results are repeated without attribution or even mention of the earlier work. In addition, we show that what Álvarez‐Nogal and Chamley present as new quantitative insights are actually replications of earlier results of ours (section II). Finally, Álvarez‐Nogal and Chamley misrepresent our contributions, as well as those of several other scholars (section III).     

An empirical analysis of the <Emphasis Type="Italic">Wall Street Journal’s</Emphasis> SmartMoney fund screen

We examine mutual funds that appeared in the Wall Street Journal’s SmartMoney Fund Screen column from September 2004 through July 2009. We find that the majority of funds listed do not have Morningstar’s highest five star rating. Regardless of Morningstar rating, the average prepublication performance of the funds is significantly higher than the benchmarks used to measure performance. Post publication, fund performance declines, and the decline is statistically significant across our performance measures. However, additional tests indicate that the SmartMoney funds which have a three or four star rating from Morningstar are better investment values than corresponding five star Morningstar funds with the same prospectus objective and expense ratio.     

Government policy in the formal and informal sectors

The paper quantitatively investigates, in general equilibrium, the interaction between the firms' choice to operate in the formal or the informal sector and government policy on taxation and enforcement, given a level of regulation. A static version of Ghironi and Melitz's (2005) industry model is used to show that firms with lower productivity endogenously choose to operate in the informal sector. I use cross-country data on taxes, measures of informality, and measures of regulation (entry and compliance costs, red tape, etc.) to back out how high the enforcement levels must be country by country to make the theory match the data. The welfare gains from policy reforms are on average 1.2% (measured in terms of consumption) for OECD countries. I also find that the welfare gains from reducing regulation are on average 2.1%. Finally, performing a similar decomposition to that of Hall and Jones (1999), I find that distortions associated with informality account for a factor of 1.5 of the output per capita difference between the richest and the poorest countries.     

Why Do Resource-Abundant Economies Grow More Slowly?

This article suggests an alternative explanation for why resource-rich economies have lower growth rates: because they are likely to be living beyond their means. It is shown that overshooting the steady state's equilibrium consumption and investment can be optimal in a Ramsey growth model with natural resources. Therefore, the economy will converge to its steady state from above, displaying negative growth rates on the transition. A dynamic general equilibrium model is calibrated to the Venezuelan economy and shown to approximate the economy's performance over the oil boom years adequately.     

A comparison of corporate versus government bond funds

We examine four separate classifications (high quality corporate, general corporate, government Treasury, and general government) of investment grade bond funds over the 1994–2009 period. We verify that distinct differences exist in investment styles across the classifications. We also document significant differences in performance as corporate funds outperform government funds by a risk adjusted average of 8 to 53 basis points on an annual basis depending on the model used. The performance differences are not strictly a function of expenses and are robust to alternative evaluation metrics. An examination of cash flows to the funds indicates that investment dollars are driven by the differences in risk adjusted performance.     

Key success factors for strategy implementation in Latin America

Increasing competition among Latin American firms fosters more proactive processes aimed at reviewing business strategy. The research objective is to measure the impact of key variables on successful implementation of business strategy. Relying on the knowledge and experience of Latin American entrepreneurs and managers, the questions addressed include: How important is the role of the CEO and management actors? Do firms prioritize actions prior to implementing strategy? Are control and follow-up tools valued? How is a successful strategy implementation ensured? Research findings are expected to provide useful knowledge for management decision processes relating to successful implementation of business strategy.