nep-ifn New Economics Papers
on International Finance
Issue of 2013‒05‒24
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Do Financially Constrained Firms Suffer from More Intense Competition by the Informal Sector? Firm-Level Evidence from the World Bank Enterprise Surveys By Julia Friesen; Konstantin Wacker
  2. Institutions, Corporate Governance and Capital Flows By Rahul Mukherjee

  1. By: Julia Friesen (Georg-August-University Göttingen); Konstantin Wacker (Vienna University of Economics and Business)
    Abstract: This paper investigates which firms suffer from informal competition and highlights the role of access to finance in this context. We use cross-sectional data from the World Bank Enterprise Surveys covering 42,000 firms in 114 developing and transition countries for the period 2006 to 2011 and take discrete responses on the perceived severity of financial constraints and informal competition for our empirical analysis. We find that financially constrained firms face significantly more intense competition by the informal sector and that this effect is economically large. In fact, financial constraints are the most important reason why firms suffer from informal competition. Other influential variables are ill-designed labor market regulations, corruption, and firm size. A wide range of robustness checks substantiates this finding.
    Keywords: Firm finance; informal competition; enterprise survey data; ordered logit model
    JEL: C25 D21 O17
    Date: 2013–05–21
  2. By: Rahul Mukherjee (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: Countries with weaker domestic institutions hold fewer foreign assets and exhibit concentrated corporate ownership. An equilibrium business cycle model of international capital ows with corporate governance frictions between outside investors and insiders explains both phenomena. Investment dynamics under insider control leads relative dividend and labor income for outsiders to be more negatively correlated in countries with weaker institutions. Consequently, outsiders hold more domestic assets to hedge labor income risk. I provide empirical evidence on this hedging demand. Concentrated ownership arises because international diversication through the sale of domestic assets by insiders is penalized by lower stock market valuation.
    Keywords: Home bias, institutional quality, corporate governance
    JEL: F21 F41 G15
    Date: 2013–05–21

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