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on Financial Development and Growth |
| By: | Ono, Shigeki; Iwasaki, Ichiro; 岩﨑, 一郎 |
| Abstract: | This paper performs a meta-analysis of the effect on economic growth of financial development and liberalization in European emerging markets and compares with that in European advanced economies. A meta-synthesis of 893 estimates extracted from 45 studies suggests that finance in emerging markets have a positive effect on growth. Furthermore, our findings indicate that the synthesized effect size in emerging markets was smaller than that in advanced economies. Results from meta-regression analysis and test for publication selection bias, however, show that some synthesis results cannot be reproduced when literature heterogeneity and publication selection bias are taken into consideration. |
| Keywords: | financial development and liberalization, economic growth, meta-analysis, publication selection bias, European emerging markets and advanced economies |
| JEL: | E44 O16 O52 P24 P33 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:hit:rrcwps:94&r= |
| By: | James Chapman; Ajit Desai |
| Abstract: | Predicting the economy’s short-term dynamics—a vital input to economic agents’ decision-making process—often uses lagged indicators in linear models. This is typically sufficient during normal times but could prove inadequate during crisis periods such as COVID-19. This paper demonstrates: (a) that payments systems data which capture a variety of economic transactions can assist in estimating the state of the economy in real time and (b) that machine learning can provide a set of econometric tools to effectively handle a wide variety in payments data and capture sudden and large effects from a crisis. Further, we mitigate the interpretability and overfitting challenges of machine learning models by using the Shapley value-based approach to quantify the marginal contribution of payments data and by devising a novel cross-validation strategy tailored to macroeconomic prediction models. |
| Keywords: | Business fluctuations and cycles; Econometric and statistical methods; Payment clearing and settlement systems |
| JEL: | C53 C55 E37 E42 E52 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-10&r= |
| By: | Santander Quino, Camila Miriam (IISEC, Universidad Católica Boliviana) |
| Abstract: | A partir de las crisis financieras de los últimos años y el creciente desarrollo del sistema financiero, ha surgido la necesidad de entender la relación entre el sector financiero y el sector real de la economía desde una visión integral. Muchos autores han abordado esta relación desde el campo empírico de los ciclos económicos y la reciente noción de los ciclos financieros. En este sentido, el presente trabajo de investigación busca determinar de manera empírica la relación entre el ciclo económico y financiero para el caso boliviano, en el periodo 1990-2019. Mediante el enfoque de filtros estadísticos y puntos de inflexión, se encuentra que la duración y la amplitud de las fases del ciclo financiero son mayores que las del ciclo económico. Además, se encuentra que el ciclo financiero tiene un comportamiento rezagado respecto al ciclo económico y que las fases de ambos están sincronizadas el 60% del tiempo. Posteriormente, mediante un modelo de vectores autoregresivos (VAR) se emplea la prueba de causalidad de Granger, así como las funciones impulso respuesta y la descomposición de la varianza. Se encuentra causalidad bidireccional entre los ciclos, siendo más fuerte y persistente del ciclo económico al financiero. Asimismo, se identifica que la bicausalidad puede deberse a la existencia de una tercera variable que explica a ambas, que podría ser del sector externo o una variable de política económica. |
| Keywords: | Ciclo económico; Ciclo financiero; Crédito; Descomposición de series |
| JEL: | C32 E32 E44 G01 |
| Date: | 2022–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:ris:iisecd:2022_001&r= |
| By: | Sergio A. Correia; Matthew P. Seay; Cindy M. Vojtech |
| Abstract: | This is an updated technical note describes the Forward-Looking Analysis of Risk Events (FLARE) model, which is a top-down model that helps assess how well the banking system is positioned to weather exogenous macroeconomic shocks. FLARE estimates banking system capital under varying macroeconomic scenarios, time horizons, and other systemic shocks. |
| Keywords: | Bank capital; Financial insitutions; Stress test |
| JEL: | G21 |
| Date: | 2022–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2022-09&r= |
| By: | Sebastián Fanelli (CEMFI, Centro de Estudios Monetarios y Financieros); Martín Gonzalez-Eiras (University of Copenhagen) |
| Abstract: | A financial crisis creates substantial wealth losses. How these losses are allocated determines the magnitude of the crisis and the path to recovery. We study how institutions and technological factors that shape default and debt restructuring decisions affect the amplification of aggregate shocks. For sufficiently large shocks, agents renegotiate. This limits the losses borne by borrowers, shutting the amplification mechanism via asset prices. The range of shocks that trigger renegotiation is decreasing in repossession costs and increasing in default costs, if the latter are public information. Private information may induce equilibrium default but, by allowing agents with high default costs to extract a larger haircut, facilitates the recovery. The model is consistent with evidence from real estate markets in the U.S. during the Great Recession; and rationalizes recent changes in U.S. Bankruptcy Code in the wake of the COVID-19 crisis. |
| Keywords: | Financial crises, balance sheet recessions, default, renegotiation |
| JEL: | E32 E44 G01 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2021_2113&r= |
| By: | Pierluigi Bologna (Bank of Italy); Maddalena Galardo (Bank of Italy) |
| Abstract: | While the setting of the countercyclical capital buffer (CCyB) is not an automatic decision, insights from indicators, such as the credit-to-GDP gap, are a starting point to inform the policy decision. This paper identifies an optimal rule to map the credit-to-GDP gap adjusted to the guide to set the CCyB. We follow two alternative procedures. First, we apply the criteria suggested by the Basel Committee on Banking Supervision, (BCBS), obtaining 3 percentage points of the adjusted gap as the activation threshold and 8 percentage points as the maximum. Then we depart from the BCBS approach by proposing a procedure based on the maximization of the area under the receiver operating characteristic curve (AUROC), which suggests 1 and 9 percentage points as the minimum and maximum thresholds, respectively. We also explore whether the CCyB, had it been in place, would have mitigated the repercussions of the Great Financial Crisis for the Italian banking system. Based on a stylized exercise, the full release of the CCyB at the outbreak of the crisis would have freed around 40 billion of capital, a value close to the total amount of banks' credit provisions during the three following years. |
| Keywords: | macroprudential policy, CCyB, buffer calibration, credit cycle |
| JEL: | E32 G21 G28 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_679_22&r= |
| By: | Cândida Ferreira |
| Abstract: | This paper analyses the evolution of the bank non-performance loans to total loans ratio using three categories of explaining variables: bank performance indicators (bank credit to bank deposits ration, bank cost to income ratio, bank net interest margin, bank noninterest income to total income, and bank return on assets), market conditions and financial structure indicators (bank concentration, Lerner index, bank Z-score, bank regulatory to risk-weighted assets, and bank crisis dummy), and economic growth indicator (natural logarithm of real GDP per capita). The paper applies panel fixed effects and dynamic Generalised Method of Moments (GMM) estimates to a panel of 80 countries spread by all Continents, over the period 1999-2017. The results obtained clearly demonstrate that bank performance, bank market conditions, and bank capital regulation are relevant to explain the evolution of non-performance loans, but the promotion of economic growth is always much more important to assure the decrease the levels of non-performing loans, preventing the losses of the banking system as well as potential financial crisis. |
| Keywords: | Bank risk, non-performing loans, bank performance, bank market conditions, panel estimates. |
| JEL: | G21 G15 G32 F39 C33 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp02162022&r= |
| By: | Davis, E Philip; Ali Abdilahi, Ridwa |
| Abstract: | Our panel econometric approach, using bank-level fixed effects, seeks to identify the bank-specific, banking-market and macroeconomic determinants of bank profitability in 240 banks across the three countries over 1990-2019. Across a range of estimates, we find that bank liquidity and the non-interest income to total income ratio had a significant positive effect on profitability while credit risk and the cost-to-income ratio had a significant negative effect. In most models, real GDP growth affected bank profitability positively. Small banks and large banks differ in terms of their determinants of profitability. There are important implications for both bank management and regulators, which in turn may affect both financial stability and scope for economic development. |
| Keywords: | Bank management, bank profitability, bank regulation, financial and economic development, financial stability, Sub-Saharan Africa, Sub-Saharan AfricanB Banks |
| JEL: | C01 C13 C23 C51 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:536&r= |
| By: | Guillermo Ordoñez (University of Pennsylvania and NBER); Facundo Piguillem (EIEF and CEPR) |
| Abstract: | The flow of savings as a fraction of disposable income (saving rate) and the stock of savings as a fraction of total wealth (savings ratio) are tightly connected. We use a standard dynamic model to show that they may move in opposite directions when financial and/or human capital change dramatically. Making this link theoretically explicit provides an internally consistent measure of savings ratios based on saving rates and other publicly available data. We implement this measure for the four largest economies: U.S., China, Germany and Japan, and identify periods in which saving rates and savings ratios have moved in opposite directions. We find that those departures are not explained by capital gains, but instead by changes in the value of human capital. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:2116&r= |
| By: | Scott R. Baker; Efraim Benmelech; Zhishu Yang; Qi Zhang |
| Abstract: | China’s high household savings rate has attracted great academic interest but remains a puzzle. Potential explanations include demographic, policy, and financial causes. Yet a lack of reliable microlevel data on household finances makes it difficult to assess the relative importance of each factor. This paper uses individual income and spending transactions linked to demographic characteristics and financial information on loan applications and credit availability from a large Chinese bank in Inner Mongolia. We match a large subset of bank customers to administrative records covering marriage and births and obtain a unique view into consumption and saving patterns around important life events. Our results point toward identifying income growth, financial instability, and credit access, rather than such directives as the one-child policy, as the primary causes of high levels of savings among Chinese households. |
| JEL: | D14 D31 E21 G51 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29856&r= |
| By: | Thereza Balliester Reis (Department of Economics, SOAS University of London) |
| Abstract: | Financial inclusion (FI) has become a key policy for poverty reduction in developing countries. However, there is no consensus on what FI comprises, who should be included and who will deliver this inclusion. The different interpretations of the concept may lead to implementations that do not correspond to the original intent. Moreover, by making certain assumptions implicit, FI may be a policy that merely replicates microfinance initiatives. In order to illustrate the inconsistencies in the existing literature, this article displays a literature review of 67 studies about the definition of FI. Built on the systematic review approach, studies are selected based on inclusion and exclusion criteria, as well as an explicit search strategy, thus providing a reliable and replicable outcome. After identifying the studies, we present a critical discussion about the underlying theoretical and empirical implications of the definitions of FI. This assessment enables a better understanding of FI and its framing. To conclude, a plain definition is suggested to ensure transparency and comparability of FI research. |
| Keywords: | Financial inclusion; financial development; systematic review; definition |
| JEL: | B50 G50 O12 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:soa:wpaper:246&r= |
| By: | Engelbert Stockhammer; Karsten Kohler |
| Abstract: | Since the Global Financial Crisis there has been growing interest in post-Keynesian macroeconomic theory by political economists. In particular the recent growth models approach in Comparative Political Economy (CPE) draws heavily on Kaleckian macroeconomics of demand regimes. This paper, firstly, traces the disintegration of 19th century political economy and highlights that many streams within heterodox economics are a continuation of the political economy project, as are the subfields of CPE and International Political Economy in the social sciences. Secondly, the paper gives an overview of the growth models approach and its relation to post-Keynesian economics (PKE). It clarifies different strategies of identifying growth models empirically, namely GDP growth decomposition versus analysing growth drivers, and it highlights changes in growth models since the Global Financial Crisis. Finally it identifies opportunities and challenges that emerge from a continued engagement of PKE with political economy and with CPE in particular. |
| Keywords: | Post-Keynesian Economics, Comparative Political Economy, growth models, varieties of capitalism |
| JEL: | B20 B50 E12 O43 P51 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2210&r= |
| By: | Ben Fine (Department of Economics, SOAS University of London); Seeraj Mohamed (Parliamentary Budget Office, South Africa) |
| Abstract: | What can we learn from structural change of countries that successfully industrialised in the 20th and 21st century? This paper explains that current attempts at economic transformation of the structure of countries’ economies, including industrial development, have to be analysed and understood within the shift to the new, financialised phase of capitalism and the imposition of neoliberal practices, interests and ideologies within countries and on their international economic and financial relations. Rather than reflecting an ideology of the reduction of the role of the state, neoliberalism has entailed the redirection and transformation of the control and role of the state in the provision of welfare, social security, industrial development and deregulation of trade, labour and finance as well as reorientation of both domestic macroeconomic policies and the global financial architecture. The lessons that can be learned from studying late industrialising countries, such as the Asian Tigers, that had achieved relatively high levels of industrial transformation, have to take into account this context, including the analytical reduction, even implosion, of concepts such as development and industrial policy. Further, one has to understand the limitation of current mainstream economics approaches in the context of the redefined and degraded notions of development and the roles of the state that neoliberalism deployed defensively in response to ideas that developmental states played key roles in economic transformations of the late industrialisers. First, we revisit the nature and role of industrial policy. Second, we situate these in relation to one another and what lessons we have learned from the developmental state paradigm and how we might take these lessons forward. And, third, we turn to the relationship between economic and social development. We are mindful, as already suggested, that neoliberalism, as the current stage of capitalism – now longer lasting than its “Keynesian†predecessor – is underpinned by financialisation, something that is increasingly acknowledged across the literature but which needs to be taken into account other than treating finance as one amongst many other factors. |
| Keywords: | Development; Developmental State; Economic Transformation; Financialisation; Industrial Policy; Neoliberalism |
| JEL: | G00 H11 O1 P10 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:soa:wpaper:247&r= |
| By: | Sam Ashman (School of Economics, University of Johannesburg); Ben Fine (Department of Economics, SOAS University of London); Ewa Karwowski (Department of International Development, King's College London) |
| Abstract: | While research has highlighted that financialization critically affects African economies and societies through its effect upon commodity prices, international value chain participation, and land, there are few accounts of the systemic and macroeconomic importance of financialization for African societies; the big exception being work on South Africa. The South African case, despite its historical peculiarities, has a broader relevance for African economies since the country combines many characteristics typical especially for the sub-Saharan region – including resource richness, a persistent trade deficit, and a volatile exchange rate – while its financialization trajectory is ahead of other African economies because financial liberalization was pioneered as early as the late 1970s. This article summarizes the effects of financialization on South Africa, holding a warning for other African countries which have increasingly engaged in financial liberalization since the 1990s. Furthermore, we detail how financialization has facilitated and furthered corruption in South Africa, in turn undermining democratic processes. Thus, we contribute to research on financialization on democracy, a field hardly considered in the context of developing countries. |
| Keywords: | financialization; neoliberalism; South Africa; State Capture |
| JEL: | G00 H11 O1 P10 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:soa:wpaper:245&r= |
| By: | Karsten Kohler |
| Abstract: | The paper offers a monetary perspective on the role of capital flows in the Eurozone's north-south divide. It argues that finance-centric narratives in Comparative Political Economy rightly emphasise financial instability in the periphery, but that the role of capital flows therein requires clarification. The paper draws on post-Keynesian monetary theory, coherent accounting, and balance-of-payments data to make three main points. First, the focus on the financial account as a driver of current accounts should be abandoned in favour of an analysis of gross capital flows. Gross flows need not stem from excess savings in core countries and can be independent from trade flows. Second, speculative portfolio flows into bond markets and foreign direct investment into real estate are causally more important than interbank flows in driving financial instability. Third, rising spreads in the periphery during the Eurozone crisis and the outbreak of the pandemic were not triggered by balance-of-payments problems but by a reversal of speculative flows in government bond markets. The argument suggests that Comparative Political Economy should dedicate more attention to institutions that render peripheral countries particularly susceptible to speculative capital flows into asset markets. |
| Keywords: | Gross capital flows, balance-of-payments, current account imbalances, Eurozone crisis, sudden stop, comparative political economy, post-Keynesian macroeconomics |
| JEL: | E12 F32 F36 F41 O57 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2211&r= |
| By: | Ambaw, Dessie (University of South Australia); Pundit, Madhavi (Asian Development Bank); Ramayandi, Arief (Asian Development Bank); Sim, Nicholas (Singapore University of Social Sciences) |
| Abstract: | Real exchange rate (RER) misalignment, which is the deviation between the actual real exchange rate from its equilibrium, occurs frequently among developing economies. Studies have shown that RER misalignment may have negative economic implications, such as a reduction in economic growth, exports and export diversification, and an increased risk of currency crises and political instability. Using quarterly data for 22 sample economies from 1990 to 2018, this paper investigates the impact of RER misalignment on business cycles in Asia and the Pacific by employing a panel vector autoregression involving consumer price index (CPI) inflation, output gap, short-term interest rate, and RER misalignment. We find that RER overvaluation may lead to a reduction in CPI inflation and short-term interest rate. We also find that Asia and the Pacific is highly heterogeneous wherein the output gaps of some economies, particularly those in Southeast Asia, are more susceptible to RER misalignment shocks. |
| Keywords: | real exchange rate misalignment; business cycle fluctuations |
| JEL: | D74 E32 F31 F41 O11 |
| Date: | 2022–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0651&r= |
| By: | Stefan Avdjiev; Tsvetana Spasova |
| Abstract: | We conduct a comprehensive empirical investigation of the link between inequality and financial openness. We document that the relationship varies considerably not only over time, but also across the main components of total external liabilities, which have been largely overlooked by the existing literature. In emerging market economies (EMEs), an increase in a country's external liabilities is associated with an initial rise and a subsequent fall in inequality. This appears to be driven by the fact that the channels through which financial openness increases inequality tend to be active immediately, while the inequality-decreasing channels tend to operate with a lag. The link between financial openness and inequality tends to be substantially weaker in advanced economies than in EMEs. |
| Keywords: | financial openness, gini-based inequality measures, foreign direct investments, external liabilities. |
| JEL: | F30 F40 O11 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1010&r= |
| By: | Lourenço S. Paz |
| Abstract: | Illicit financial flows have recently attracted the attention of academia, practitioners, and multilateral organizations who consider them harmful to economic development. Some observers suggest that many of these flows occur via the misinvoicing of international trade transactions. This study develops a novel methodology based on the gravity model of international trade to estimate illicit financial flows using publicly available product-level international trade data. |
| Keywords: | Gravity model, Illicit financial flows, International trade, Misinvoicing, Transportation cost |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2022-24&r= |
| By: | Puonti, Päivi |
| Abstract: | Abstract Economics literature suggests that, even in the absence of fiscal costs, a persistently high and increasing public debt ratio may have a detrimental effect on long run economic growth in an economy that is not over-accumulating capital like Finland today. High public debt creates expectations about future tax increases and a climate of uncertainty, reducing incentives to save and invest. By being informative about its fiscal plans the government can anchor expectations and create a stable investment climate. The relationship between debt and growth is complex and depends on country-specific factors likely to change over time, providing support for country-specific debt-limits or rates of debt reduction. By reducing debt today, the government prepares for unanticipated events requiring significant public borrowing in the future and contains the distortionary effect of taxation required to service the debt. Reducing debt in an economic upturn, when private demand is strong and when monetary policy is accommodative, results in fiscal policy that is optimal both in the short and long run, minimizing the potentially harmful effect of fiscal consolidation on economic growth. Policies and structural reforms boosting economic growth allow the debt ratio to decline through economic growth, reducing the need for fiscal consolidation. |
| Keywords: | Public debt, Economic growth, Literature review |
| JEL: | O40 H60 H30 |
| Date: | 2022–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:rif:report:127&r= |
| By: | Loren Brandt; Ruochen Dai; Gueorgui Kambourov; Kjetil Storesletten; Xiaobo Zhang |
| Abstract: | This paper studies entrepreneurship and the creation of new firms in China through the lens of serial entrepreneurs, i.e. entrepreneurs who establish more than one firm, and their differences with non-serial entrepreneurs. Drawing on data on the universe of all firms in China, we document key facts about serial entrepreneurship in China since the early 1990s and develop a theoretical framework to rationalize the role of endowments, ability, and capital market frictions in their behavior. We also examine the key determinants of the sectoral choice for serial entrepreneurs' second firms. Quantitatively, serial entrepreneurs are more productive, raise more capital, and operate larger firms than non-serial entrepreneurs. Moreover, serial entrepreneurs with greater liquidity and whose firms have relatively similar productivity are more likely to operate these firms concurrently rather than sequentially. We also find that less productive serial entrepreneurs are more likely to switch sectors when establishing new firms, with the choice of sector influenced by considerations of risk diversification, upstream and downstream linkages, and sectoral complementarities. |
| Keywords: | Serial Entrepreneurship; Entrepreneurship; Capital Distortions; Sector Choice |
| JEL: | D22 D24 E22 E44 L25 L26 O11 O14 O16 O40 O53 P25 R12 D21 |
| Date: | 2022–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-721&r= |
| By: | Kirill Shakhnov (University of Surrey); Luana Zaccaria (EIEF) |
| Abstract: | We propose a model of entrepreneurial finance where start-ups raise capital via Initial Coin Offering (ICO) or traditional funding methods such as Venture Capital (VC). While token sales allow startups to leverage network effects, VC's value-adding services enhance product quality. We show that, even when projects have large potential network effects, ICOs may not be optimal if entrepreneurial ability is low. Moreover, despite the potential complementarity between network effects and value-adding services, entrepreneurs combine VC and ICO funding only in highly efficient VC markets and for projects with high network effects. Using data on funding rounds of blockchain startups, we empirically validate the main results of the model. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:2202&r= |
| By: | Remo Nyffenegger |
| Abstract: | This paper analyses the effects of an introduction of a retail central bank digital currency (CBDC) on bank intermediation in a general equilibrium model with heterogeneous bank deposits and an imperfectly competitive loan market. I find that the impacts of a CBDC strongly differ depending on whether it is used as a medium of exchange or as a saving vehicle. A calibration of the model to the US economy from 1987-2006 shows that if a CBDC is only used as a medium of exchange, a 10% increase in the fraction of people who hold central bank money as a medium of exchange decreases bank lending only by 0.2%. The effect is four times stronger if CBDC is only used as a saving vehicle. |
| Keywords: | Central bank digital currency, bank lending, new monetarism, overlapping generations |
| JEL: | E42 E50 E58 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:409&r= |
| By: | Rivera Moreno, Pablo Nebbi; Triana Montaño, Karol Lorena |
| Abstract: | Central Bank Digital Currency (CBDC) has been in the center of discussion of many monetary policy research agendas. We explore how the business cycle behavior of a developing economy is affected by the introduction of this type of money as a second monetary policy tool. We emphasize on the characteristic dual formal and informal labor markets that are present in most developing economies, given its relevance on explaining the business cycle dynamics. Our main contribution is the building of a model that encompasses such characteristics and features the relevance of monetary balances to macroeconomic fluctuations. We find that CBDC has the ability to improve the monetary policy effectiveness, and the response of relevant variables may be amplified or dampened, depending on the nature of the shock. Also the magnitude of the new dynamics introduced by CBDC are also profoundly dependant on its structural parameters. The main transmission mechanisms that are affected by CBDC are the dynamics of distortions generated by transaction costs. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:074&r= |
| By: | David Newton (University of Bath - School of Management); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Ru Xie (University of Bath, School of management); Binru Zhao (University of Bath - School of Management) |
| Abstract: | Is bank- versus market-based financing different in its attitudes towards Environmental, Social, and Governance (ESG) risk? Using a novel sample covering 3,783 U.S. public firms from 2007 to 2020, we study how firm-level ESG risk affects its financing outcomes. We find that companies with higher ESG risk borrow less from banks than from markets, potentially to avoid bank monitoring and scrutiny. The Social and Governance components, in particular, matter. Furthermore, firms suffering higher numbers of negative ESG reputation shocks are less likely to continue to rely on bank credit in response to lenders' threats to end the lending arrangements. Finally, our results indicate that firms' ESG risk reduces after borrowing from banks but increases after bond issuance, suggesting that banks are more effective than public bond markets in shaping borrowers' ESG performance. |
| Keywords: | ESG Risk, Debt Structure, Capital Structure; Debt Choices, Bank Monitoring |
| JEL: | G20 G21 G30 G32 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2222&r= |
| By: | Emanuela Benincasa (Swiss Finance Institute; University of Zurich - Department of Banking and Finance); Gazi Kabas (University of Zurich); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | We document that lenders react to domestic climate policy stringency by increasing cross-border lending. We use granular fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with regulatory arbitrage, the positive effect decreases in borrowers’ climate policy stringency and is absent if the borrower country has a higher stringency. Furthermore, climate policy stringency decreases loan supply to domestic borrowers with high carbon risk while increasing loan supply if such borrowers are abroad. Our results suggest that crossborder lending can enable lenders to exploit the lack of global coordination in climate policies. |
| Keywords: | Cross-Border Lending, Climate Policy, Regulatory Arbitrage, Syndicated Loans |
| JEL: | G21 H73 Q58 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2228&r= |