nep-ifn New Economics Papers
on International Finance
Issue of 2012‒06‒25
three papers chosen by
Vimal Balasubramaniam
National Institute of Public Finance and Policy

  1. The response of the external finance premium in Asian corporate bond markets to financial characteristics, financial constraints and two financial crises By Paul Mizen; Serafeim Tsoukas
  2. Characterising the financial cycle: don't lose sight of the medium term! By Mathias Drehmann; Claudio Borio; Kostas Tsatsaronis
  3. What happened to Foreign Outsourcing when Firms went Online? By Aoife Hanley, Ingrid Ott

  1. By: Paul Mizen; Serafeim Tsoukas
    Abstract: Empirical investigation of the external finance premium has been conducted on the margin between internal finance and bank borrowing or equities but little attention has been given to corporate bonds, especially for the emerging Asian market. In this paper, we hypothesize that balance sheet indicators of creditworthiness could affect the external finance premium for bonds as they do for premia in other markets. Using bond-specific and firm-specific data for China, Hong Kong, Indonesia, Korea, Philippines, Singapore and Thailand during 1995-2009 we find that firms with better financial health face lower external finance premia in all countries. When we introduce firm-level heterogeneity, we show that financial variables appear to be both statistically and quantitatively more important for financially constrained firms. Finally, when we examine the effects of the 1997-98 Asian crisis and the 2007-09 global financial crisis, we find that the sensitivity of the premium is greater for constrained firms during the Asian crisis compared to other times.
    Keywords: Financial constraints, External finance premium, Asian markets, Financial crises
    JEL: E22 F32 G32
    Date: 2012–05
  2. By: Mathias Drehmann; Claudio Borio; Kostas Tsatsaronis
    Abstract: We characterise empirically the financial cycle using two approaches: analysis of turning points and frequency-based filters. We identify the financial cycle with the medium-term component in the joint fluctuations of credit and property prices; equity prices do not fit this picture well. We show that financial cycle peaks are very closely associated with financial crises and that the length and amplitude of the financial cycle have increased markedly since the mid-1980s. We argue that this reflects, in particular, financial liberalisation and changes in monetary policy frameworks. So defined, the financial cycle is much longer than the traditional business cycle. Business cycle recessions are much deeper when they coincide with the contraction phase of the financial cycle. We also draw attention to the "unfinished recession" phenomenon: policy responses that fail to take into account the length of the financial cycle may help contain recessions in the short run but at the expense of larger recessions down the road.
    Keywords: financial cycle, business cycle, credit, asset prices, financial crises, medium-term
    Date: 2012–06
  3. By: Aoife Hanley, Ingrid Ott
    Abstract: The possibility to outsource over the internet should revolutionize foreign outsourcing, especially for services (UNCTAD, 2004). Our model describes materials and services input allocation from domestic vs. foreign suppliers. Allocations change when firms outsource online due to access and competition effects. Using data for 99 firms who started outsourcing online in 2003 together with a control group (never outsourcing online) of over 682 Irish firms, we apply OLS and Propensity Score Matching with Difference-in-Differences to find that 42-48 percent of foreign services inputs growth arises from online outsourcing
    Keywords: International Outsourcing, Propensity Score Matching, Input Price Uncertainty, Input Demand
    JEL: L23
    Date: 2012–06

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