Capital Flows to Latin America (2003–17): A Critical Survey from Prebisch’s Business Cycle Theory

ABSTRACT

The economic literature on capital flows to developing countries has shared two important commonalities since the 1990s. Published works (whether they focus on the external situation or stress the domestic determinants of capital flows) tend to assume a beneficial effect of capital inflows, which leads to an improvement of peripheral institutions, whose deficiencies are ostensibly the main cause of economic turmoil and/or failure in attracting capital flows, in continuity with New Institutional Economics. In doing so, mainstream economists deliberately overlook the asymmetric characteristics of the international monetary system and the persisting hegemony of dollar. Raul Prebisch’s pioneering work on business cycles in Latin America provide an alternative view, one capable of amending the existing mainstream literature. On the one hand, Prebisch stressed the destabilizing role of capital inflows on Latin American economies, particularly short-term speculative capital. On the other hand, Prebisch designed a set of counter cyclical monetary policies in order to contrast capital volatility, particularly during downturns. An analysis of stylized facts shows that, when correctly updated, Prebisch’s theory has remarkable explanatory potential when applied to Latin America’s current economic and financial situation.     

The power of positivity? The influence of positive psychological capital language on crowdfunding performance

We extend the entrepreneurship literature to include positive psychological capital — an individual or organization's level of psychological resources consisting of hope, optimism, resilience, and confidence — as a salient signal in crowdfunding. We draw from the costless signaling literature to argue that positive psychological capital language usage enhances crowdfunding performance. We examine 1726 crowdfunding campaigns from Kickstarter, finding that entrepreneurs conveying positive psychological capital experience superior fundraising performance. Human capital moderates this relationship while social capital does not, suggesting that costly signals may, at times, enhance the influence of costless signals. Post hoc analyses suggest findings generalize across crowdfunding types, but not to IPOs.     

Inequality and entrepreneurial thresholds

We explore the relationship between inequality and entrepreneurial activity. Drawing on cross-sectional data from a largescale survey of the economic conditions of individuals across India, we develop a number of dimensions of inequality to explore empirically how inequality interacts with entrepreneurship, operationalized as self-employment or as employing other people. We find compelling evidence that there are thresholds to becoming self-employed, and even more so to assembling the combinations of resources and personal attributes required to become an employer. Greater inequality leaves more people unable to make the transition to self-employment, leaving casual laboring as the occupation of necessity. At the same time, inequality increases the number of employers in a society, by concentrating resources - particularly land and finance - enough for significant numbers of people to be able to cross this higher threshold. Lastly, greater differentiation into social or religious groups curtails the ability to cross either entrepreneurial threshold, presumably by limiting the extent and benefits of social networks of value for entrepreneurship.     

Mandatory disclosure,greenhouse gas emissions and the cost of equity capital: UK evidence of a U-shaped relationship

This paper examines the effects of disclosing greenhouse gas (GHG) information mandatorily on the cost of equity capital (COC) using a longitudinal unbalanced panel database of the United Kingdom's FTSE 350 firms for the period 2011–2016. We use a nonlinear panel quantile regression (PQR) model to examine the relationship between GHG disclosure (GHGD) and COC in the United Kingdom. This technique was supplemented by conducting a two-step generalised method of moment (GMM) estimation to address any concerns related to the potential existence of endogeneity problems. Our findings suggest that high-level GHGD appeared to be negatively associated with COC up to a certain level, which is known as the turning point; then, any increase in GHGD is likely to increase the COC. This means that the nonlinear association between GHGD and COC is evidenced in our study and takes a U shape. Likewise, our findings are associative of a moderating effect of the 2013 carbon disclosure regulation (CDR) on the GHGD–COC nexus. We argue that mandatory GHGD and GHG risk are linked so that those companies that are associated with higher GHG risk have a tendency to be better disclosers. Consequently, we urge regulators to design GHGD regulations in a way that mirrors corporate environmental risk and leads to a lower COC in order to align the interests of corporations with those of the society at large.     

Asymmetric information consolidation and price discovery: Inferring bad news from insider sales

Due to the paucity of sources of negative firm‐specific information, US capital markets have more difficulty identifying and incorporating bad news into stock prices than they do good news. Even though insider selling is a potentially important proxy for undisclosed bad news, researchers have difficulty ex ante identifying information‐based sales due to an inability to separate liquidity‐motivated from information‐based insider trades. We hypothesize that when insiders in multiple firms sell shares of one firm in which they are insiders and at the same time buy shares of other insider portfolio firms, the sale is more likely to be information‐based, since the proceeds are reinvested. Conversely, when an insider sells one firm without purchasing others or sells multiple insider firms the sale is likely liquidity‐motivated. We find that insider sales identified as information‐based using this algorithm are followed by significant negative abnormal returns. Information‐based sales are also more likely to be associated with delistings, earnings declines and earnings restatements. Analysts are also more likely to revise their earnings forecasts downwards for these firms. It is thus possible to ex ante identify insider sales with information content. Our results will be of interest to investors and also to regulators designing insider trading rules.     

Media coverage and investment efficiency

We examine the effect of media coverage on firm-level investment efficiency. We find that media coverage reduces under-investment but increases over-investment. The negative effect of media coverage on under-investment is more pronounced in firms affected by greater information asymmetry and poorer corporate governance. The positive effect of media coverage on over-investment is driven by media-induced CEO overconfidence. Additional results show that both investment- and non-investment-related news coverage decrease under-investment, while non-investment-related news coverage is more influential in increasing over-investment. In general, higher news optimism is associated with less under-investment but more over-investment. Moreover, media coverage affects investment efficiency through its information dissemination rather than information creation function. Collectively, our results suggest that firms’ media visibility promotes more over-investment than under-investment.     

Increasing linkages among European regions. The role of sectoral composition

This paper analyses changes in economic regional interlinkages in Europe over time and investigates the factors that could explain the dynamics of these changes. Our four main findings are the following: (i) we detect a significant surge in regional synchronisation after the Great Recession; (ii) we identify the regions most interrelated with the rest of Europe, namely, Ile de France, Inner London and Lombardia; (iii) we find that sectoral composition explains regional synchronisation in Europe, mainly after the Great Recession and (iv) we document that sectoral composition has important implications for aggregate economic fluctuations, in particular, that similarities in services-related sectors across regions explain a nonlinear relationship between sectoral composition and regional business cycle synchronisation. We also propose a new method to measure time-varying synchronisation in small samples that combines regime-switching models and dynamic model averaging.     

An explorative study of corporate travellers’ perception at a German airport

The modern working environment is changing at a fast pace due to factors such as globalisation, digitalisation, and demographic trends. Taking an exploratory approach, this study examines how prevailing factors shaping the working world may influence the perception of business air travellers. Relevant factors are identified through a literature review, which results are confirmed by expert interviews (N = 11). Business travellers are surveyed (N = 67) at Munich Airport regarding their personal experiences and their evaluations of these identified factors. Their perceptions concerning the psychological and physical experience, digitalisation, age, and gender are examined in detail.Findings provide insights into the development of business air travel, with a focus on German business travellers. Despite the influence of advanced information and communications technology, survey results reveal that air travel might stay an essential part of the working world, as face-to-face meetings are not fully replaceable. Increasing multi-partner project work and flexible work structures could even lead into an increase of air travel. The study also delineates recommendations and research potential, such as the extension of the study in the light of the global COVID-19 pandemic. The question of how trends within the working world influence the perception of business related air travel is rarely studied. This study contributes to this gap in the scientific community.     

Krazy Kimmy's: A Case in Fraud Examination

This two‐part case allows for maximum student engagement through preparation, in‐class discussion, and through a Part B case that is part of the Teaching Note. Through this case, students work to identify possible fraud schemes, plan an investigation, and perform horizontal analysis calculations. Students will learn about the concept of ethical hacking, red flag identification, internal control weaknesses, and investigation considerations for fraud schemes. Further, in‐class planning for next steps and investigation can occur, providing an opportunity for group work and in‐depth learning. This case offers flexibility for instructors in that it can be covered over one class or multiple classes, or can be assigned as an independent or group assignment. This teaching note provides an overview of the case along with guidance for teaching this case.