|
on Financial Markets |
|
Issue of 2005‒12‒14
fifty papers chosen by |
| By: | Aart Kraay (The World Bank); Jaume Ventura (CREI and Universitat Pompeu Fabra) |
| Abstract: | Over the past decade the United States has experienced widening current account deficits and a steady deterioration of its net foreign asset position. During the second half of the 1990s, this deterioration was fueled by foreign investment in a booming U.S. stock market. During the first half of the 2000s, this deterioration has been fuelled by foreign purchases of rapidly increasing U.S. government debt. A somewhat surprising aspect of the current debate is that stock market movements and fiscal policy choices have been largely treated as unrelated events. Stock market movements are usually interpreted as reflecting exogenous changes in perceived or real productivity, while budget deficits are usually understood as a mainly political decision. The authors challenge this view here and develop two alternative interpretations. Both are based on the notion that a bubble (the "dot-com" bubble) has been driving the stock market, but differ in their assumptions about the interactions between this bubble and fiscal policy (the "Bush" deficits). The "benevolent" view holds that a change in investor sentiment led to the collapse of the dot-com bubble and the Bush deficits were a welfare-improving policy response to this event. The "cynical" view holds instead that the Bush deficits led to the collapse of the dot-com bubble as the new administration tried to appropriate rents from foreign investors. The authors discuss the implications of each of these views for the future evolution of the U.S. economy and, in particular, its net foreign asset position. |
| Keywords: | International economics, Macroeconomics and growth |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3672&r=fmk |
| By: | Marc-André Gosselin; Nicolas Parent |
| Abstract: | Over the past few years, the ability of the United States to finance its current account deficit has been facilitated by massive purchases of U.S. Treasury bonds and agency securities by Asian central banks. In this process, Asian central banks have accumulated large stockpiles of U.S.-dollar foreign exchange reserves. How far is the current level of reserves from that predicted by the standard macroeconomic determinants? The authors answer this question by using Pedroni's (1999) panel cointegration tests as the basis for the estimation of a long-run reserve-demand function in a panel of eight Asian emerging-market economies. This is a key innovation relative to the existing research on international reserves modelling: although the data are typically I(1), the literature ignores this fact and makes statistical inference based on unadjusted standard errors. While the authors find evidence of a positive structural break in the demand for international reserves by Asian central banks in the aftermath of the financial crisis of 1997-98, their results indicate that the actual level of reserves accumulated in 2003-04 was still in excess relative to that predicted by the model. Therefore, as long as historical relationships hold, a slowdown in the rate of accumulation of reserves is likely. This poses negative risks for the U.S. dollar. However, both the substantial capital losses that Asian central banks would incur if they were to drastically change their holding policy and the evidence that the currency composition of reserves evolves only gradually mitigate the risks of a rapid depreciation of the U.S. dollar triggered by Asian central banks. |
| Keywords: | Econometric and statistical methods; International topics; Financial stability |
| JEL: | C23 F31 G15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:05-38&r=fmk |
| By: | Inessa Love (The World Bank); Lorenzo A. Preve (IAE Universidad Austral); Virginia Sarria-Allende (IAE Universidad Austral) |
| Abstract: | The authors study the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. They find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. The authors observe that firms with weaker financial position (for example, high pre-crisis level of short-term debt and low cash stocks and cash flows) are more likely to reduce trade credit provided to their customers. This suggests that the decline in aggregate credit provision is driven by the reduction in the supply of trade credit, which follows the bank credit crunch. The results are consistent with the "redistribution view" of trade credit provision, in which bank credit is redistributed by way of trade credit by the firms with stronger financial position to the firms with weaker financial stand. |
| Keywords: | Domestic finance, Private sector development |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3716&r=fmk |
| By: | Asli Demirgüç-Kunt (The World Bank); Enrica Detragiache (International Monetary Fund) |
| Abstract: | A rapidly growing empirical literature is studying the causes and consequences of bank fragility in contemporary economies. The authors reviews the two basic methodologies adopted in cross-country empirical studies-the signals approach and the multivariate probability model-and their application to study the determinants of banking crises. The use of these models to provide early warnings for crises is also reviewed, as are studies of the economic effects of banking crises and of the policies to forestall them. The paper concludes by identifying directions for future research. |
| Keywords: | Domestic finance |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3719&r=fmk |
| By: | Mansoor Dailami (The World Bank); Paul R. Masson (University of Toronto); Jean Jose Padou (University of Toronto) |
| Abstract: | The authors offer evidence that U.S. interest rate policy has an important influence in the determination of credit spreads on emerging market bonds over U.S. benchmark treasuries and therefore on their cost of capital. Their analysis improves on the existing literature and understanding by addressing the dynamics of market expectations in shaping views on interest rate and monetary policy changes and by recognizing nonlinearities in the link between U.S. interest rates and emerging market bond spreads, as the level of interest rates affect the market's perceived probability of default and the solvency of emerging market borrowers. For a country with a moderate level of debt, repayment prospects would remain good in the face of an increase in U.S. interest rates, so there would be little increase in spreads. A country close to the borderline of solvency would face a steeper increase in spreads. Simulations of a 200 basis points (bps) increase in U.S. interest rates show an increase in emerging market spreads ranging from 6 bps to 65 bps, depending on debt/GDP ratios. This would be in addition to the increase in the benchmark U.S. 10 year Treasury rate. |
| Keywords: | Infrastructure, International economics, Macroeconomics and growth, Public sector management |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3626&r=fmk |
| By: | Constantinos Stephanou (The World Bank) |
| Abstract: | The author describes the presence of financial conglomerates and assesses the extent to which the risks they introduce to the Chilean financial system are mitigated by existing oversight arrangements (and at what cost). In particular, he questions whether the current silo-based supervisory framework, which has served the system fairly well until now, can continue unchanged given growing inter-linkages in the financial system. The author proposes a high-level short- and medium-term supervisory reform agenda that addresses identified vulnerabilities relating to financial conglomerates and continues the migration from a rules-oriented to a risk-based supervisory approach that has gradually been taking place in Chile in recent years. |
| Keywords: | Domestic finance |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3553&r=fmk |
| By: | Swinkels, L.; Vejina, D.; Vilans, R. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | Latvian employees have to choose a pension fund for the second-pillar of the Latvian pension system. These pension funds invest about 85% in domestic assets. In this paper, we address the question why this strong home bias might exist. Firstly, we conclude that the Latvian pension law is strict on international diversification. However, not to the extent that it can fully explain the home bias. Secondly, our empirical analysis suggests that international diversification lowers investment risks for Latvian (pension) investors. Thus, it seems hard to explain the home bias of Latvian pension funds by lack of diversification benefits. Thirdly, Latvian pension fund managers might have more (private) information about Latvian companies than international companies. Therefore, they might prefer to invest more domestically to add more value for their clients. Finally, Latvian employees might have a strong preference to invest in companies they are familiar with. Since we are not aware of any research on the latter two topics, we can only speculate that currently many investment policies are suboptimal for Latvian employees saving for retirement. We expect the Latvian pension industry to develop new products that reduce risk by allowing for more diversification. In addition, we recommend Latvian employees to pay attention to the investment policy of their pension fund and think carefully about the rewards, risks, and costs that are involved. |
| Keywords: | Emerging Markets;Home Bias;International Investing;Pension Funds; |
| Date: | 2005–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:30007807&r=fmk |
| By: | Greg Caldwell |
| Abstract: | The author documents the use by Canadian banks of subordinated debt (SD) as a capital instrument. He reviews the economic benefits of this asset as a mechanism for market discipline and highlights academic and policy research over the past 20 years. The author provides both qualitative and quantitative summaries of the current regulatory and market environment in Canada, and conducts a Tobit analysis of factors that affect a bank's decision to issue SD. He also constructs a cross-section time-series sample of banks, into which controls for fixed effects, along with other non-default risk factors, are incorporated. Results for domestic banks show that, whenever there exists a high degree of gross impaired non-mortgage loans and mortgage writeoffs relative to assets, banks are less likely to issue SD. In contrast, increases in past-due (but still unimpaired) non-mortgage loans have a positive effect on SD issuance. This suggests that domestic banks 'time' their issuance decisions to avoid market discipline. |
| Keywords: | Financial institutions |
| JEL: | G21 G28 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:05-40&r=fmk |
| By: | David Schröder |
| Abstract: | A new approach of estimating a forward-looking equity risk premium (ERP) is to calculate the implied risk premium using present value (PV) formulas. This paper compares implied risk premia obtained from dierent PV models and evaluates them by analyzing their underlying firmspecific cost-of-capital estimates. It is shown that specific versions of dividend discount models (DDM) and residual income models (RIM) lead to similar ERP estimates. However, the results of cross-sectional regression tests of individual firm risk suggest that there are qualitative dierences between both approaches. Expected firm risk obtained from the DDM is more in line with standard asset pricing models and performs better in predicting future stock returns than estimates from the RIM. |
| Keywords: | equity risk premium, cost of capital, expected stock returns |
| JEL: | G12 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse13_2005&r=fmk |
| By: | Constantinos Stephanou (The World Bank); Juan Carlos Mendoza (The World Bank) |
| Abstract: | The objective of this paper is to provide an overview of the changes in the calculation of minimum regulatory capital requirements for credit risk that have been drafted by the Basel Committee on Banking Supervision (Basel II). Even though the revised credit capital rules represent a dramatic change compared to Basel I, it is shown that Basel II merely seeks to codify (albeit incompletely) existing good practices in bank risk measurement. However, its effective implementation in many developing countries is hindered by fundamental weaknesses in financial infrastructure that will need to be addressed as a priority. |
| Keywords: | Domestic finance, International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3556&r=fmk |
| By: | Albert Lee Chun (Stanford University) |
| Abstract: | Through explicitly incorporating analysts' forecasts as observable factors in a dynamic arbitrage- free model of the yield curve, this paper proposes a framework for studying the impact of shifts in market sentiment on interest rates of all maturities. An empirical examination reveals that survey expectations about in°ation, output growth and the anticipated path of monetary policy actions contain important information for explaining movements in bond yields. Although perceptions about in°ation are largely responsible for movements in long-term interest rates, an explicit slope factor is necessary to adequately capture the dynamics of the yield curve. Macroeconomic forecasts play an important role in explaining time-variation in the market prices of risk, with forecasted GDP growth playing a dominant role. The estimated coe±cients from a forward-looking monetary policy rule support the assertion that the central bank preemptively reacts to in°ationary expectations while suggesting patience in accommodating real output growth expectations. Models of this type may provide traders and policymakers with a new set of tools for formally assessing the reaction of bond yields to shifts in market expectations due to the arrival of news or central bank statements and announcements. |
| Keywords: | term structure, interest rates, affine model, forward-looking policy rule, macro-finance, no-arbitrage, blue-chip forecasts, survey data |
| JEL: | E40 E43 E44 G12 D84 E52 E58 |
| Date: | 2005–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512006&r=fmk |
| By: | Yoichiro Ishihara (The World Bank) |
| Abstract: | Studies use different conceptual and operational definitions of crises. The different crisis identifications can lead to inconsistent conclusions and policy formulation even if the same analytical framework is applied. Also, most studies focus on only a few types of crises. This narrow focus on crises may not capture the multidimensionality of crises. Seven crisis types are analyzed, namely (1) liquidity type banking crises, (2) solvency type banking crises, (3) balance of payments crises, (4) currency crises, (5) debt crises, (6) growth rate crises, and (7) financial crises. Crisis data were collected from 15 emerging economies in 1980-2002 on a quarterly basis. The crisis identification exercise finds that multidimensionality in which different crisis types occur in short periods is one of the most important characteristics of recent crises. Further, the Granger causality tests in five Asian economies (Indonesia, the Republic of Korea, Malaysia, the Philippines, and Thailand) find that currency crises tend to trigger other types of crises, and therefore exchange rate management is essential. |
| Keywords: | International economics, Macroeconomics and growth |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3598&r=fmk |
| By: | Luis de la Plaza (The World Bank); Sophie Sirtaine (The World Bank) |
| Abstract: | The authors review the series of events that led to the 2002 Uruguayan banking crisis, assess the current status of the Uruguayan banking sector, and analyze the policy responses undertaken by the Uruguayan authorities to counteract the crisis. The main conclusion from their analysis is that although the immediate trigger for the crisis was caused by contagion resulting from Argentina's financial crisis, the spread and magnification of the crisis that engulfed the Uruguayan economy was amplified by certain weaknesses of the Uruguayan economy in general, and the domestic banking sector in particular. The authors also believe that the policy responses adopted by the Uruguayan authorities were mostly adequate, allowing Uruguay to successfully counteract simultaneous banking and public debt crises. Most important, the Uruguayan authorities were able to overcome a severe crisis while preserving the necessary trust in banking contracts, achieving a high level of social stability and political cohesion, and maintaining a fluid dialogue with multilateral financial institutions and all affected parties. The cooperative and consensual approach taken by the authorities created the necessary conditions to overcome some of the important obstacles to the recovery of the domestic banking sector. |
| Keywords: | ??? |
| Date: | 2005–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3780&r=fmk |
| By: | Alicia García Herrero (Bank of Spain); Maria Soledad Martínez Pería (The World Bank) |
| Abstract: | The authors analyze the determinants and implications for financial stability of the mix of international banks' claims countries receive. In particular, they distinguish between local claims, extended by international banks through their affiliates in a host (or claim recipient) country, and cross-border claims, booked from outside the host country, typically from banks' headquarters in their home countries. Using data on U.S., Spanish, and Italian banks' foreign claims across countries, the authors find that the share of local foreign claims is primarily driven by the degree of "freedom" in the host banking sector and by business opportunities in the local market. Entry requirements, startup and informational costs associated with international banking also play a role, but their influence is less robust. Finally, they find that the mix of international bank claims has implications for financial stability, since foreign claim volatility is lower in countries that receive a larger share of local claims. |
| Keywords: | Domestic finance |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3755&r=fmk |
| By: | Hippolyte Fofack (The World Bank) |
| Abstract: | This paper investigates the leading causes of nonperforming loans during the economic and banking crises that affected a large number of countries in Sub-Saharan Africa in the 1990s. Empirical analysis shows a dramatic increase in these loans and extremely high credit risk, with significant differences between the CFA and non-CFA countries, and substantially higher financial costs for the latter sub-panel of countries. The results also highlight a strong causality between these loans and economic growth, real exchange rate appreciation, the real interest rate, net interest margins, and interbank loans consistent with the causality and econometric analysis, which reveal the significance of macroeconomic and microeconomic factors. The dramatic increase in these loans is largely driven by macroeconomic volatility and reflects the vulnerability of undiversified African economies, which remain heavily exposed to external shocks. Simulated results show that macroeconomic stability and economic growth are associated with a declining level of nonperforming loans; whereas adverse macroeconomic shocks coupled with higher cost of capital and lower interest margins are associated with a rising scope of nonperforming loans. These results are supported by long-term estimates of nonperforming loans derived from pseudo panel-based prediction models. |
| Keywords: | Domestic finance, Macroeconomics and growth |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3769&r=fmk |
| By: | Thorsten Beck (The World Bank); Asli Demirguc-Kunt (The World Bank); Maria Soledad Martínez Pería (The World Bank) |
| Abstract: | The authors (1) present new indicators of banking sector penetration across 99 countries based on a survey of bank regulatory authorities, (2) show that these indicators predict household and firm use of banking services, (3) explore the association between the outreach indicators and measures of financial, institutional, and infrastructure development across countries, and (4) relate these banking outreach indicators to measures of firms' financing constraints. In particular, they find that greater outreach is correlated with standard measures of financial development, as well as with economic activity. Controlling for these factors, the authors find that better communication and transport infrastructure and better governance are also associated with greater outreach. Government ownership of financial institutions translates into lower access, while more concentrated banking systems are associated with greater outreach. Finally, firms in countries with higher branch and ATM penetration and higher use of loan services report lower financing obstacles, thus linking banking sector outreach to the alleviation of firms' financing constraints. |
| Keywords: | Domestic finance |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3754&r=fmk |
| By: | Stijn Claessens (University of Amsterdam and The World Bank) |
| Abstract: | The author reviews the current state of affairs and thinking on external risk management for developing countries. He tries to identify the reasons behind the limited risk management by sovereigns. Perverse incentives arising from a too generous international safety net, limited access to international financial markets by developing countries arising from low creditworthiness, a limited supply of financial risk management tools suited to developing countries, and a poor supply of skills have inhibited risk management. Another constraint has been the limited attention given to the strategic objectives for risk management. Going forward, the author identifies actions by international financial markets, countries, and international financial institutions that can help improve risk management. These actions include GDP-indexed loans and efforts to develop price and weather indexes. |
| Keywords: | Domestic finance, International economics, Macroeconomics and growth |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3570&r=fmk |
| By: | Patrick Honohan (The World Bank) |
| Abstract: | An apparent temporary narrowing of income inequality has been observed during several recent banking crises. But it would be a mistake to conclude that such crises don't matter for the poor. For one thing, the correlation is not strong, and the opposite pattern has also been present. Besides, the poor are much less able to absorb a cut in income: safety-net policies are crucial during a downturn even if the gap between rich and poor has temporarily narrowed. More fundamentally, distributional shifts during the crisis may be less important than the fact that underlying financial policy and infrastructures conducive to crisis can also be associated with more unequal societies. |
| Keywords: | Domestic finance, Poverty |
| Date: | 2005–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3659&r=fmk |
| By: | Anna Zalewska |
| Abstract: | Pension reform has become a major policy issue for both developed and developing countries in recent years. In developing countries the impact of these reforms on the development of their financial markets is critical. However, the initial expectations that pension reforms in developing countries would bring broad benefits and result in faster market development have not materialised. A particular problem has been that governments have imposed restrictions on the freedom of pension funds’ investment decisions. In particular, they have a tendency to enforce home bias in investment behaviour. This paper provides a non-technical introduction to home bias and its role in stock market development, and uses the Polish experience as a case study. It discusses the main arguments for portfolio diversification, the primary side effects that emerge from locking funds into underdeveloped equity markets, and highlights the problems the Polish pension funds face as a result of the “enforced” home bias policy of the Polish authorities. The findings support the view that enforced home bias has a negative impact on the local stock market development, on the performance of pension reform. |
| Keywords: | pension reforms, home bias, stock market development, emerging markets |
| JEL: | G23 G28 G11 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bri:cmpowp:05/136&r=fmk |
| By: | Eugenio Cerutti (Johns Hopkins University); Giovanni Dell'Ariccia (International Monetary Fund); Maria Soledad Martínez Pería (The World Bank) |
| Abstract: | The authors examine the factors that influence banks' type of organizational form when operating in foreign markets using an original database of the branches and subsidiaries in Latin America and Eastern Europe of the top 100 international banks. They find that regulation, taxation, the degree of desired penetration in the local market, and host-country economic and political risks matter. Banks are more likely to operate as branches in countries that have higher corporate taxes and when they face lower regulatory restrictions on bank entry, in general, and on foreign branches, in particular. Subsidiaries are the preferred organizational form by banks that seek to penetrate the local market establishing large and mostly retail operations. Finally, there is evidence that economic and political risks have opposite effects on the type of organizational form, suggesting that legal differences in the degree of parent bank responsibility vis-à-vis branches and subsidiaries under different risk scenarios play an important role in the kind of operations international banks maintain overseas. |
| Keywords: | Domestic finance |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3753&r=fmk |
| By: | Marcio I. Nakane (Central Bank of Brazil and University of Sao Paulo, Brazil); Daniela B. Weintraub (University of Sao Paulo, Brazil) |
| Abstract: | Over the past decade, the Brazilian banking industry has undergone major and deep transformations with several privatizations of state-owned banks, mergers and acquisitions, closing down of troubled banks, entry by foreign banks, and so on. The purpose of this paper is to evaluate the impacts of these changes in banking on total factor productivity. The authors first obtain measures of bank level productivity by employing the techniques due to Levinsohn and Petrin (2003). They then relate such measures to a set of bank characteristics. Their main results indicate that state-owned banks are less productive than their private peers, and that privatization has increased productivity. |
| Keywords: | Domestic finance |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3666&r=fmk |
| By: | Junjian Miao (Department of Economics, Boston University) |
| Abstract: | This paper presents a search model of centralized and decentralized trade. In a centralized market, trades are intermediated by market makers at publicly posted bid–ask prices. In a decentralized market, traders search counterparties. Prices are negotiated and transactions are conducted in private meetings among traders. Traders can choose which market to enter. The determinants of bid–ask spreads and liquidity are analyzed. The welfare consequence of the market fragmentation is also analyzed. It is shown that compared to the competitive market-making, monopolistic market-making may improve social welfare. ? 2005 Elsevier Inc. All rights reserved. |
| Keywords: | Search; Matching and bargaining; Bid–ask spread; Liquidity; Welfare; Walrasian equilibriummarkets |
| JEL: | D4 D83 G12 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:bos:macppr:wp2005-012&r=fmk |
| By: | Bruining, H.; Verwaal, E. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | The paper explores the impact of entrepreneurial management dimensions on post-MBO financial performance. We use Stevenson?s conceptualization of entrepreneurship (1983), empirically validated by Brown, Davidsson and Wiklund (2001), positing that entrepreneurial companies will be involved in recognizing and exploiting opportunity, regardless of the resources controlled. From the literature we hypothesize positive effects of entrepreneurial management dimensions on post-MBO financial performance. We find that successful buyout managers cannot be classified as entrepreneurs on all entrepreneurial dimensions. Instead they ambidextrously combine the pursuit of valuable opportunities with the exploitation and control of their resources. Implications for theory and managerial practice are discussed. |
| Keywords: | Management Buyouts;Entrepreneurial Management;Financial Performance; |
| Date: | 2005–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:30007805&r=fmk |
| By: | Dirk Hackbarth (Finance Department, Olin School of Business, Washington University in St. Louis); Junjian Miao (Department of Economics, Boston University); Erwan Morellec (University of Lausanne, FAME, and CEPR) |
| Abstract: | This paper develops a framework for analyzing the impact of macroeconomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of empirical implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for debt contracts with very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity. |
| Keywords: | Dynamic capital structure; Credit spreads; Macroeconomic conditions |
| JEL: | G12 G32 G33 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bos:macppr:wp2005-005&r=fmk |
| By: | Robert Cull (The World Bank); Laurie Effron (The World Bank) |
| Abstract: | Using a new database of World Bank loans to support financial sector development, the authors investigate whether countries that received such loans experienced more rapid growth on standard indicators of financial development than countries that did not. They account for self-selection with treatment effects regressions, and also use propensity score matching techniques. The authors' results indicate that borrowing countries had significantly more rapid growth in M2/GDP than non-borrowers, and swifter reductions in interest rate spreads and cash holdings (as a share of M2). Borrowers also had higher private credit growth rates than non-borrowers in treatment effects regressions, but not in standard panel regressions with fixed country effects. On the whole, however, the results indicate significant advantages for borrowers over non-borrowers in terms of financial development. |
| Keywords: | Domestic finance |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3656&r=fmk |
| By: | Yaprak Gulcan (Department of Economics, Faculty of Business, Dokuz Eylül University); Mustafa Erhan Bilman (Department of Economics, Faculty of Business, Dokuz Eylül University) |
| Abstract: | This study investigates the effect of budget deficit reduction on exchange rate between US dollar and Turkish lira (TL). Our article aims to illustrate that the evidence on the relationship between budget deficits and exchange rates is not clear-cut and to explain why the theoretical approaches that underlie the relationship are ambiguous while there is general agreement that cutting budget deficits and debt will lower interest rates. The relationship between deficit reduction and exchange rates has caused a debate among the most famous monetary policy makers and researchers. [Melvin (1989), Mishkin (1992), Greenspan (1995), Thiessen (1995), Krugman (1995), Feldstein (1995)] In addition, budget deficit can be counted as one of the most common and major problem that influences the macroeconomic stability in developing economies. In this sense, cointegration method and causality tests were used in order to find out the possible effects of budget deficit reduction on exchange rates during the period of 1960-2003 in Turkey. |
| Keywords: | Budget deficits, exchange rates, cointegration analysis |
| JEL: | H62 F31 |
| Date: | 2005–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:deu:dpaper:0705&r=fmk |
| By: | Marcel Boyer; Éric Gravel |
| Abstract: | We clarify the foundations of project evaluation under multiple risk sources and we show that the way the NPV method is typically applied in most firms and organizations violates some fundamental principles of value creation such as the additivity and absence of arbitrage principles. Project evaluation must be done through (i) decomposing the project cash flows into components corresponding to the different sources of risk and (ii) obtaining the present value of each component with a specific risk-adjusted discount rate. The value of the project is obtained as the sum of the present values so obtained. Alternatively, the different components can be corrected for their respective risk to obtain their certainty equivalents. The value of the project is then obtained as the sum of those certainty equivalents discounted at the unique, observable, identical, risk free rate. <P>Nous clarifions les fondements de l’évaluation de projet en présence de multiples sources de risque et nous concluons que la méthode VAN telle qu’appliquée dans la plupart des entreprises et organisations viole certains principes fondamentaux de la création de valeur tels l’additivité et l’absence d’arbitrage. L’évaluation d’un projet doit se faire en (i) décomposant les flux monétaires en composantes correspondant aux diverses sources de risque et (ii) actualisant chaque composante à l’aide d’un taux spécifique à cette composante. La valeur du projet est obtenue en sommant les valeurs présentes des diverses composantes. Alternativement, les différentes composantes peuvent être corrigées pour leur risque respectif afin d’obtenir leurs équivalents certains. La valeur du projet est alors obtenue en prenant la somme des équivalents certains actualisée au taux sans risque, identique, unique et observable. |
| Keywords: | project evaluation, multiple risks, évaluation de projet, risques multiples |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-37&r=fmk |
| By: | Nathan M Jensen (Washington University) |
| Abstract: | There is a renewed interest in political science on how political risk affects multinational corporations operating in emerging markets. Most existing studies suffer from data problems where researchers can only offer indirect evidence of the relationship between political institutions and political risk. In this paper I utilize a new data resource to explore how domestic institutions affect political risks for multinationals. Utilizing price data from political risk insurance agencies I test how domestic political institutions affect the premiums multinationals pay for coverage against 1) expropriations and contract disputes and 2) government restrictions on capital transactions. I find that constraints on politicians lead to marginally lower expropriation and transfer risks. Democracy, on the other hand, greatly reduces expropriation risk but has no impact on transfer risk. |
| Keywords: | FDI, political risk, expropriation, insurance |
| JEL: | F3 F4 |
| Date: | 2005–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0512002&r=fmk |
| By: | Tarun Sabarwal (Department of Economics, Washington University in St. Louis) |
| Abstract: | In recent years, one area of growing concern in corporate governance is the accounting and transfer of risk using special purpose entities (or trusts). Such entities are used widely in issuing asset-backed securities. This paper provides an overview of the asset-backed securities market, and discusses the common structures used in this market to transform the risks associated with the underlying collateral into risks associated with the issued securities. Understanding these structures is essential to understanding the allocation and transfer of risk among the different parties in an asset-backed transaction – the originator, the special-purpose entity, investors, and related parties such as insurance guarantors. Understanding these structures is also essential in proposing potential solutions to regulatory and accounting concerns about the transfer of risks in asset-backed securities. |
| Keywords: | Asset-backed Securities, Structured Finance, Special Purpose Entity, Seller Recourse, Corporate Governance |
| JEL: | G30 G20 G10 |
| Date: | 2005–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512012&r=fmk |
| By: | Junjian Miao (Department of Economics, Boston University); Neng Wang (Columbia Business School) |
| Abstract: | Empirical evidence shows that entrepreneurs on average do not earn more than paid em- ployees in terms of present value. One may ask why individuals what to stay in business and take entrepreneurial activities. To address this question, we propose a continuous time real options model in which entrepreneurs do not know their investment quality and learn about it over time. We show that due to the option value of learning, an entrepreneur may stay in business even though the net present value (NPV) is negative. We also show that risk aversion erodes option value and lowers private ¯rm value so that a highly risk averse entrepreneur may exit even when the NPV is positive. We also show that a more risk averse or a more pessimistic entrepreneur exits earlier. Finally, the model can generate the positive relation between wealth and survival duration without liquidity constraints. |
| Keywords: | real options, learning, private firm value, survival, precautionary savings |
| JEL: | D80 D91 G11 E21 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:bos:macppr:wp2005-015&r=fmk |
| By: | Louis Kuijs (The World Bank) |
| Abstract: | The author analyzes sectoral patterns of investment and saving in China-over time and compared with other countries-to shed light on the factors driving high investment and on how saving is channeled into investment. The findings inform several policy debates. Key findings include: (1) investment by enterprises distinguishes China from other countries and explains most of the variation over time; (2) high household saving explains only a part of the large difference in national saving between China and other countries-the majority is explained by high saving of the government and enterprises (through retained earnings); and (3) only about one-third of enterprise investment is financed via the financial sector, a lower share than in the early 1990s. The author also explores explanations behind high saving of the government and enterprises. His findings have three sets of policy implications. First, the identified financing patterns put in perspective the exposure of the financial sector to investment-related risks but, against a background of concerns about suboptimal allocation of capital, bring to the fore corporate governance, dividend policy, and transparency and accountability of public funds. Second, the findings suggest policy adjustments that would help in achieving the government's goals of improving the quality of growth and increasing the role of consumption. Third, long term saving prospects and the impact of financial sector and pension policies are discussed. |
| Keywords: | Domestic finance, Governance, Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3633&r=fmk |
| By: | Nava Ashraf (Harvard University); Dean Karlan (Economic Growth Center, Yale University); Wesley Yin (University of Chicago) |
| Abstract: | Informal lending and savings institutions exist around the world, and often include regular door-to-door deposit collection of cash. Some banks have adopted similar services in order to expand access to banking services in areas that lack physical branches. Using a randomized control trial, we investigate determinants of participation in a deposit collection service and evaluate the impact of offering the service for micro-savers of a rural bank in the Philippines. Of 137 individuals offered the service in the treatment group, 38 agreed to sign-up, and 20 regularly used the service. Take-up is predicted by distance to the bank (a measure of transaction costs of depositing without the service) as well as being married (a suggestion that household bargaining issues are important). Those offered the service saved 188 pesos more (which equates to about a 25% increase in savings stock) and were slightly less likely to borrow from the bank. |
| Keywords: | Savings Behavior, Microfinance, Field Experiment, Savings Mobilization, Deposit Collector |
| JEL: | D1 D9 G1 G2 O1 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:930&r=fmk |
| By: | Magnus Lindelow (The World Bank); Adam Wagstaff (The World Bank) |
| Abstract: | The most basic argument for insurance is that it reduces financial risk. But since insurance opens up new opportunities for consuming expensive high-technology care which permits health improvements that are valued by the insured, and because in many settings the provider is able and has an incentive to exploit the informational advantage he has over the patient, it is not immediately obvious that insurance will in practice reduce financial risk. The authors analyze the effect of insurance on the probability of an individual incurring "high" annual health expenses using data from three household surveys-one a cross-section survey, the other two panel surveys. All come from China, a country where providers have until recently largely been paid fee-for-service (often according to a schedule that encourages the overprovision of high-technology care and the underprovision of basic care) and who are only lightly regulated. The authors define annual spending as "high" if it exceeds 5 percent of average income in the sample and as "catastrophic" if it exceeds 10 percent of the household's own per capita income. The estimates of the effect of insurance on financial risk allow for the possible endogeneity of health insurance in the panel datasets by allowing for a time-invariant fixed effect capturing unobserved risk that may be correlated with insurance status, and in the cross-section dataset by using instrumental variables, where availability of and eligibility for health insurance are used as instruments. The results suggest that during the 1990s China's government and labor insurance schemes increased financial risk associated with household health care spending, but that the rural cooperative medical scheme significantly reduced financial risk in some areas but increased it in others (though not significantly). From the results, it appears that China's new health insurance schemes (private schemes, including coverage of schoolchildren) have also increased the risk of high levels of out-of-pocket spending on health. Where the authors find evidence of health insurance increasing the risk of "high" out-of-pocket expenses, the marginal effect is of the order of 15-20 percent; in the case of "catastrophic" expenses, it is even larger. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3741&r=fmk |
| By: | Stijn Claessens (The World Bank and University of Amsterdam) |
| Abstract: | This paper reviews the evidence on the importance of finance for economic well-being, provides data on the degree of use of basic financial services by households and firms across a sample of countries, assesses the desirability of more universal access, and overviews the macroeconomic, legal, and regulatory obstacles to access using general evidence and case studies. Although access to finance can be very beneficial, the data show that universal use is far from prevalent in many countries, especially developing countries. At the same time, universal access has generally not been a public policy objective and is surely not easily achievable in most countries. Countries can, however, undertake many actions to facilitate access to financial services, including through strengthening their institutional infrastructures, liberalizing and opening up their markets and facilitating greater competition, and encouraging innovative use of know-how and technology. Government attempts and interventions to directly broaden the provision of access to finance, however, are fraught with risks and costs, among others, the risk of missing the targeted groups. The author concludes with possible global actions aimed at improving data on access and use, and areas for further analysis to help identify the constraints to broadening access. |
| Keywords: | Domestic finance, Poverty |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3589&r=fmk |
| By: | Deepak Shah (Gokhale Institute of Politics & Economics, B.M.C.C. Road, Deccan Gymkhana, Pune 411004, Maharashtra, India) |
| Abstract: | An analysis encompassing two case studies conducted in forward and backward regions of Maharashtra (India) has shown deterioration in the financial health of central level credit cooperatives (Sangli District Central Cooperative Bank (SDCCB)) in forward region and gross inefficiency in their functioning (Buldana District Central Cooperative Bank (BDCCB)) in the backward region of the state, due mainly to their mounting NPAs or overdues’. Because of substantially high NPAs, the fixed expenses of these institutions have been adversely affected, which in turn have grossly affected the break-even levels of loan advances and deposits of these credit institutions, so much so that there has been huge gap between the break-even levels of loan advances and deposits and the actual loan advances and deposits. In the case of BDCCB, the deficit between actual and the break-even levels are so high (about 60 per cent) that it will be well-nigh impossible for it to overcome this situation. High transaction costs, poor repayment performance, and mounting NPAs are the root causes of the moribund state of rural credit delivery through these cooperatives. Further, it is to be noted that the estimated trend over the past two decades in Maharashtra shows a slower growth in institutional finances through credit cooperatives and also in their membership during the decade of economic reforms (1991-2000) as against the decade preceding it (1980-1990). On the other hand, the outstanding loans of these cooperatives have grown at much faster rate as compared to their loan advances during both pre- and post economic reform periods. The slower growth in institutional finance through credit cooperatives during the decade of 1991-2000 is mainly due to adverse environment created by the financial sector reforms. Due to unfavourable policy framework, much of the deposits of the credit cooperatives are going into investments, instead of advancing loans to the farming sector. As a result, the C-D ratios of these credit cooperatives have been adversely affected. With a view to revive agricultural credit delivery through cooperatives, the need of the hour is to adopt innovative approaches like linking of SHGs and NGOs with mainstream financial institutions, including cooperatives. Such linkages are reported to have not only reduced transaction costs but also ensured better repayment performance. In brief, in order to rejuvenate rural credit delivery system through cooperatives, the root problems facing the system, viz., high transaction cost, poor recovery performance, and NPAs, need to be tackled with more fiscal jurisprudence reserving exemplary punishment for willful defaults, especially by large farmers, and the individual cases who have borrowed credit from these institutions. In fact, insofar as rural credit delivery through credit cooperatives is concerned, the focus should be on strategies that are required for tackling issues such as sustainability and viability, operational efficiency, recovery performance, small farmer coverage and balanced sectoral development. |
| Keywords: | Financial Health of Credit Cooperatives in India |
| JEL: | G |
| Date: | 2005–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512007&r=fmk |
| By: | Tom Kellermann (The World Bank); Valerie McNevin (The World Bank) |
| Abstract: | The technological dependency of securities exchanges on internet-based (IP) platforms has dramatically increased the industry's exposure to reputation, market, and operational risks. In addition, the convergence of several innovations in the market are adding stress to these systems. These innovations affect everything from software to system design and architecture. These include the use of XML (extensible markup language) as the industry IP language, STP or straight through processing of data, pervasive or diffuse computing and grid computing, as well as the increased use of Internet and wireless. The fraud is not new, rather, the magnitude and speed by which fraud can be committed has grown exponentially due to the convergence of once private networks on-line. It is imperative that senior management of securities markets and brokerage houses be properly informed of the negative externalities associated with e-brokerage and the possible critical points of failure that exist in today's digitized financial sector as they grow into tomorrow's exchanges. The overwhelming issue regarding e-finance is to determine the true level of understanding that senior management has about on-line platforms, including the inherent risks and the depth of the need to use it wisely. Kellermann and McNevin attempt to highlight the various risks that have been magnified by the increasing digitalization of processes within the brokerage arena and explain the need for concerted research and analysis of these as well as the profound consequences that may entail without proper planning. An effective legal, regulatory, and enforcement framework is essential for creating the right incentive structure for market participants. The legal and regulatory framework should focus on the improvement of internal monitoring of risks and vulnerabilities, greater information sharing about these risks and vulnerabilities, education and training on the care and use of these technologies, and better reporting of risks and responses. Public/private partnerships and collaborations also are needed to create an electronic commerce (e-commerce) environment that is safe and sound. |
| Keywords: | Domestic finance |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3586&r=fmk |
| By: | Dimitris Kenourgios (Athens University of Economics & Business); Nikolaos Pavlidis (Brunel University) |
| Abstract: | This paper presents an analysis of two forms of overreaction (generalized overreaction and overreaction to prior earnings changes) in analysts’ earnings forecasts for the UK stock market, using a sample of individual forecasts of earning per share from a British investment bank over the period 1989-2002. Given that previous UK empirical research over 1980s and mid ‘90s has provided limited and contradictory findings, we investigate whether and how overreaction of analysts forecasts varies across forecast horizons, firm size (small and large) and growth opportunities (high and low P/E ratio) in order to provide further and comparable evidence. Overall, our findings support the generalized overreaction hypothesis but reject the firm size effect, the overreaction for high P/E ratio companies and the higher overreaction regarding the forecasting horizon. |
| Keywords: | Overreaction, Underreaction, Analysts forecasts, forecast horizons, size effect, price/earnings ratio. |
| JEL: | G10 G14 |
| Date: | 2005–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512011&r=fmk |
| By: | Thorsten Beck (The World Bank); Juan Miguel Crivelli (The World Bank); William Summerhill (University of California at Los Angeles) |
| Abstract: | The authors analyze the different options-liquidation, federalization, privatization, and restructuring-that the Brazilian state government had for the transformation of state banks under the Programa de Incentivo á Redução do Setor Público Estadual na Atividade Bancária (PROES) in the late 1990s. Specifically, they explore the factors behind the states' choices and the effects of the transformation process on bank performance and efficiency. The authors find that states that were more dependent on federal transfers, whose banks were already under federal intervention and that established development agencies were more likely to relinquish control over their banks and transformation processes. They also find that privatized banks had improved performance, while restructured banks did not. |
| Keywords: | Domestic finance |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3619&r=fmk |
| By: | Leora Klapper (The World Bank) |
| Abstract: | Around the world, factoring is a growing source of external financing for corporations and small and medium-size enterprises (SMEs). What is unique about factoring is that the credit provided by a lender is explicitly linked to the value of a supplier's accounts receivable and not the supplier's overall creditworthiness. Therefore, factoring allows high-risk suppliers to transfer their credit risk to their high-quality buyers. Factoring may be particularly useful in countries with weak judicial enforcement and imperfect records of upholding seniority claims because receivables are sold, rather than collateralized, and factored receivables are not part of the estate of a bankrupt SME. Empirical tests find that factoring is larger in countries with greater economic development and growth and developed credit information bureaus. In addition, the author finds that creditor rights are not related to factoring. The author also discusses reverse factoring, which is a technology that can mitigate the problem of borrowers' informational opacity in business environments with weak information infrastructures if only receivables from high-quality buyers are factored. She illustrates the case of the Nafin reverse factoring program in Mexico and highlights how the use of electronic channels and a supportive legal and regulatory environment can cut costs and provide greater SME services in emerging markets. |
| Keywords: | Domestic finance |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3593&r=fmk |
| By: | Junjian Miao (Department of Economics, Boston University); Neng Wang (Columbia Business School) |
| Abstract: | Entrepreneurs often face undiversi¯able idiosyncratic risks from their business invest- ments. Motivated by this observation, we extend the standard real options approach to investment to an incomplete markets environment and analyze the joint decisions of busi- ness investments, consumption-saving and portfolio selection. Our analysis depends cru- cially on whether the investment payo®s are in lump-sum or in °ows. Precautionary saving e®ect plays a key role. In the lump-sum payo® case, risk aversion accelerates investment. Moreover, when the agent's precautionary motive is strong enough, an increase in volatility accelerates investment. These results may be reversed for the °ow payo® case. Finally, hedging a®ects investment decisions by changing the expected growth of wealth and reduc- ing the agent's exposure to idiosyncratic risk. The agent's hedging demand is higher when he is closer to exercising the investment option. |
| Keywords: | real options, idiosyncratic risk, hedging, risk aversion, precautionary saving,incomplete markets |
| JEL: | G11 G31 E2 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:bos:macppr:wp2005-011&r=fmk |
| By: | Cuong Le Van (CNRS, CERMSEM, University of Paris 1); Frank H. Page, Jr. (Department of Finance, University of Alabama); Myrna Wooders (Department of Economics, Vanderbilt University) |
| Abstract: | We introduce a no-risky-arbitrage price (NRAP) condition for asset market models allowing both unbounded short sales and externalities such as trading volume. We then demonstrate that the NRAP condition is sufficient for the existence of competitive equilibrium in the presence of externalities. Moreover, we show that if all risky arbitrages are utility increasing, then the NRAP condition characterizes competitive equilibrium in the presence of externalities. |
| Keywords: | Risky arbitrage, competitive equilibria, viable asset prices |
| JEL: | C62 D50 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0524&r=fmk |
| By: | Norbert Fiess (The World Bank); Rashmi Shankar (Brandeis University) |
| Abstract: | The authors apply regime-switching methods to a monetarist model of exchange rates and identify well-defined intervention policy cycles. The policy response indices include a standard exchange market pressure-based index and a model-based volatility ratio that is endogenized relative to Japan, assumed to be a "benchmark" floater. The authors find strong evidence that balance sheet effects, proxied by the stock ratio of external liabilities to assets, and economic performance, as measured by GDP and stock market indices, determine the cost of the regime shift. They use a panel of quarterly data from 1985 to 2004 for a sample of 15 countries, mostly in East Asia and Latin America. |
| Keywords: | International economics |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3653&r=fmk |
| By: | Joselito Gallardo (The World Bank); Korotoumou Ouattara (The World Bank); Bikki Randhawa (The World Bank); William F. Steel (The World Bank) |
| Abstract: | The authors investigate the microfinance regulatory regimes in Benin, Ghana, and Tanzania, with a view to identifying key issues and lessons on how the overall regulatory framework affects integration of microfinance institutions into the financial system. The authors find that recognizing different tiers of both regulated and unregulated institutions in a financial structure facilitates financial deepening and outreach to otherwise underserved groups in urban and rural areas. That environment promotes sustainable microfinance under shared performance standards and encourages regulatory authorities to develop appropriate prudential regulations and staff capacity. Case studies of the three countries raise important issues on promoting microfinance development vis-à-vis regulating them. Laws to regulate activities other than intermediation of public deposits into loans can result in disproportionately restrictive and unmanageable standards, even as dynamic microfinance sectors have emerged without conducive regulatory regimes. The authors use the three countries' regulatory experiences to highlight the importance of differentiating when prudential supervision is warranted and when regulatory oversight suffices, and to identify the agencies to carry out regulation. They address an important issue that has received scant attention, measuring and paying for the costs of regulating microfinance, and the need to build technical capacity of supervisory and regulatory staff. |
| Keywords: | Domestic finance, Private sector development |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3585&r=fmk |
| By: | Inessa Love (The World Bank) |
| Abstract: | The author presents an analysis of the finances of Egyptian listed companies evaluating recent trends in growth and profitability during the 1995-2001 period. The data from financial statements reveal the effect of the economic slowing of the past few years, especially in the construction and real estate sectors and especially in smaller companies. She finds that smaller firms appear to be less profitable and experience lower growth, likely because of being particularly adversely affected by many of the sources of the high costs of doing business in Egypt. While the Egyptian firms are not very highly leveraged on average, she finds that smaller firms have significantly less access to bank finance than larger firms do. This confirms the widely held view that there is a need to improve the availability of credit for small enterprises. |
| Keywords: | Domestic finance |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3639&r=fmk |
| By: | Fadil GOVORI (INSTITUTE FOR FINANCE AND MANAGEMENT) |
| Abstract: | Edhe pse burimet e financimit ekstern, procesi i emetimit të letrave me vlerë, dhe disa pjesë të ambientit rregullativ kanë mbetur thuaj të njëjta, tregjet e kapitalit kanë ndryshuar në mënyrë dramatike kudo në botë në dy dekadat e fundit, dhe do të vazhdojnë të ndryshojnë edhe në të ardhmën. Ndonëse është e pamundur të parashikohet e ardhshmja, ne duhet të përmendim disa nga tendencat në zhvillimin e tregjeve të kapitalit. |
| Keywords: | Financimi i aktivitetit |
| JEL: | G |
| Date: | 2005–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512009&r=fmk |
| By: | Gavin Cameron (Dept of Economics, University of Oxford); John Muellbauer (Nuffield College, Oxford); Anthony Murphy (Nuffield College, Oxford) |
| Abstract: | We present and discuss an annual econometric model of regional house prices in Britain estimated over the period 1972 to 2003. The model, which consists of a system of inverted housing demand equations, is data consistent, incorporates spatial lags and errors, has some spatial coefficient heterogeneity, has a plausible long run solution and includes a full range of explanatory variables. We use our results to explain the periods of boom and bust and the ripple effect from London house prices to house prices elsewhere. We also address the issue of whether there has been a bubble in the British housing market |
| Keywords: | House Prices; Ripple Effect; Bubble |
| JEL: | C51 E39 |
| Date: | 2005–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0512003&r=fmk |
| By: | Fadil GOVORI (INSTITUTE FOR FINANCE AND MANAGEMENT) |
| Abstract: | Efikasiteti i përdorimit të instrumenteve të politikës monetare dhe të politikës valutore, varet nga shkalla e pavarsisë së bankës qendrore. Sa më e pavarur të jetë ajo në kryerjen e funksioneve dhe veprimtarisë së vet, aq më vital dhe efikas do të jetë sistemi financiar dhe ekonomik i vendit. Kjo sot po shprehet veçmas në vendet e zhvilluara. Sot nuk ekziston një mendim i pranuar përgjithsishtë sa i përket pavarsisë së bankës qendrore. Megjithkëtë, në literaturën më të re dominojnë kryesisht dy qasje në definimin e pavarsisë së bankës qendrore: qasja legale dhe jolegale. |
| Keywords: | Banka Qendrore |
| JEL: | G |
| Date: | 2005–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512008&r=fmk |
| By: | Allen N. Berger (Wharton Financial Institutions Center); George R.G. Clarke (The World Bank); Robert Cull (The World Bank); Leora Klapper (The World Bank); Gregory F. Udell (Indiana University) |
| Abstract: | The authors jointly analyze the static, selection, and dynamic effects of domestic, foreign, and state ownership on bank performance. They argue that it is important to include indicators of all the relevant governance effects in the same model. "Nonrobustness" checks (which purposely exclude some indicators) support this argument. Using data from Argentina in the 1990s, their strongest and most robust results concern state ownership. State-owned banks have poor long-term performance (static effect), those undergoing privatization had particularly poor performance beforehand (selection effect), and these banks dramatically improved following privatization (dynamic effect. However, much of the measured improvement is likely due to placing nonperforming loans into residual entities, leaving "good" privatized banks. |
| Keywords: | Domestic finance |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3632&r=fmk |
| By: | Dimitris Kenourgios (Athens University of economics & Business); Aristeidis Samitas (University of Aegean) |
| Abstract: | This paper investigates the joint hypothesis of market efficiency and unbiasedness of futures prices for the copper futures contract traded on the London Metal Exchange. This contract is of particular importance given the usage and properties of the underlying commodity and its highest share of trading during the last decade, in an exchange which is the centre of the world’s trading in copper. The data contain prices from two different copper futures contracts (three and fifteen months maturity) covering the decade of 1990s, a very volatile and turbulent period for the copper market worldwide. Unlike previous studies, it tests for both long-run and short-run efficiency using cointegration and error correction model. Our results show that the market is not efficient and do not provide unbiased estimates of future copper spot prices, which has important implications for the users of this market. |
| Keywords: | Copper Futures Market; Market Efficiency; Unbiasedness Hypothesis; London Metal Exchange |
| JEL: | C12 C32 |
| Date: | 2005–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512010&r=fmk |
| By: | Xavier Gine (The World Bank); Stefan Klonner (Cornell University) |
| Abstract: | It is generally recognized that the adoption of a new technology plays a fundamental role in the development process. However, the benefits from the introduction of the technology may be unevenly distributed among the population, especially if the markets do not function properly. While the microeconomic literature on technology adopted and diffusion focuses on "who" and "when," the macroeconomic literature has focused on the overall impact of globalization on inequality. In this paper the authors bring these two strands of the literature together by studying the diffusion of plastic reinforced fiber boats in a fishing village in Tamil Nadu and by analyzing the dynamics of income inequality during this process. |
| Keywords: | Private sector development, Rural development |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3665&r=fmk |