deposit guarantee evaluation and incentives analysis in a mutual guarantee system abstract this paper analyzes how the deposit guarantee value affects the risk incentives in a mutual guarantee system we liken the guarantee s value to that of a european style contingent claims portfolio the main feature emerging from our model is that a mutual guarantee system would give banks an adverse incentive to increase riskiness to mitigate this incentive we introduce a regulatory provision modelled using a path dependent contingent claim by comparing the mutual guarantee system with a non mutual one we show that the former is less expensive but implies higher adverse incentives for the banks especially for undercapitalized institutions

banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

innovation in monetary policy challenge and response abstract this paper presents some relatively non technical thoughts on the changing role of money under the pressure of declining transactions costs and the innovations in monetary policy making it induces or requires in the first part recent british experience is interpreted as a serious warning about the special role of money among financial assets under present day circumstances and the high cost of disregarding it while this may please the monetarists the remainder of the paper argues as a counterpoint that this may not remain so forever in particular as argued in the second part the evolution of the eurodollar market suggests that the role of bank money and the significance of the money multiplier are declining the third part visualizes the outlines of an economy in which the decline in transactions costs has made money stocks generally obsolete

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

information acquisition coordination and fundamentals in a financial crisis abstract this paper reconciles the two explanations of a financial crisis the self fulfilling prophecy and the fundamental causes in an empirically relevant framework by explicitly modeling the costly voluntary acquisition of information about fundamentals in a variant of diamond and dybvig diamond d dybvig p 1983 bank runs deposit insurance and liquidity journal of political economy 91 401 419 the model exhibits strategic complementarity in information acquisition in the partial run equilibrium investors engage in costly evaluation of projects so that banks with lower return projects fail there also exist the classic full run and no run equilibria in which there is no project evaluation investors coordination on a specific equilibrium is triggered by a self fulfilling prophecy so financial crises are seen as both fundamentals based and self fulfilling prophecies based phenomena

pension regulation and the market value of pension liabilities a contingent claims analysis using parisian options abstract we analyze the market consistent valuation of pension liabilities in a contingent claim framework whereby a knock out barrier feature is applied to capture early regulatory closure of a pension plan we investigate two cases which we call immediate closure procedure and delayed closure procedure in an immediate closure procedure when the assets value hits the regulatory boundary the pension plan is terminated immediately whereas in a delayed closure procedure a grace period is given to the pension fund for reorganization and recovery before premature closure is executed the framework is then used to construct fair pension deals furthermore we provide rules for deriving the optimal recovery period in pension regulation using utility analysis and interconnect the recovery period to the regulatory liquidation probability

insuring banks against liquidity shocks the role of deposit insurance and lending of last resort it has long been recognized that banks simultaneous provision of monitoring and liquidity services is advantageous but leaves them susceptible to liquidity shocks that may culminate in a system failure because a system failure is costly this provides a rationale for adopting arrangements including a lender of last resort and deposit insurance di to insure banks against liquidity shocks these arrangements have proven themselves very successful but they have also been the source of problems researchers have identified some of the main sources of these problems and have suggested ways to improve the design of these arrangements but there are still many issues that remain unaddressed this paper reviews the literature on the two arrangements that most countries have adopted to insure banks against liquidity shocks a lender of last resort and di and compares the design of these arrangements across countries the paper ends with a brief summary of the key lessons learned about the design of these arrangements and the issues related to them that remain unaddressed copyright blackwell publishers ltd 2006

courting the multinational subnational institutional capacity and foreign market insidership significant contemporary challenges face an internationalizing firm including the non ergodic nature of investment and the liability of outsidership recent revisions to the uppsala internationalization process model reflect these challenges whereby insidership is represented as realized successful foreign market entry drawing upon socio spatial concepts from international business and economic geography this paper demonstrates the endogeneity of subnational institutions in shaping foreign market insidership within an advanced economy employing a multi method research design with almost 60 subnational actors the role and interaction of subnational institutions within the internationalization process are explored our findings illustrate how customized coalitions of subnational institutions effectively initiate negotiate and accelerate insidership of inward investment within the foreign market both prior to and during formal entry key aspects of this dynamic include communicating tangible and intangible locational resources initiating functional and relevant business relationships and facilitating access to codified and tacit knowledge this paper embellishes the uppsala internationalization process model by demonstrating the capacity of subnational institutions to participate actively with foreign market insidership and in so doing advances understanding of how the risk and uncertainty associated with foreign market entry are currently navigated

are bank shareholders enemies of regulators or a potential source of market discipline abstract in moral hazard models bank shareholders have incentives to transfer wealth from the deposit insurer that is maximize put option value by pursuing riskier strategies for safe banks with large charter value however the risk taking incentive is outweighed by the possibility of losing charter value focusing on the relationship between tobin s q and an ex ante measure of the failure probability this paper develops a semi parametric model for estimating the critical level of bank risk at which put option value starts outweighing charter value from these estimates we infer the prevalence of moral hazard examining publicly held bank holding companies bhc during the tumultuous 1986 1992 period we find that shareholders risk taking incentives were confined to a small fraction of highly risky institutions furthermore our analysis shows that the inflection point at which banks begin to tilt in favor of moral hazard increased substantially in 1993 2005 these findings are encouraging to bank regulators and legislators because they indicate that tighter capital rules and more rigorous supervision introduced by several legislative initiatives in the 1990s have helped squeeze a lot of the moral hazard incentives out of the banking system

a ranked voting system using a dea ar exclusion model a note abstract this paper addresses ranked voting systems to determine an ordering of candidates in terms of the aggregate vote by rank for each candidate it is shown that specifying nothing arbitrary we can obtain a total ordering of candidates by using a dea ar data envelopment analysis assurance region exclusion model explaining the evaluation criterion used to rank candidates it is concluded that we may consider the system proposed at least as an alternative to determine an ordering of candidates

banking deregulation allocational consequences of relaxing entry barriers abstract we present an equilibrium analysis to predict the long run allocational consequences and risk implications of banking deregulation loan demand and deposit supply functions are derived from primitive assumptions about the preferences of individuals and banks are viewed as differentiated competitors in a spatial context we find that a relaxation of entry barriers into banking improves the welfare of borrowers and savers at the expense of bank stockholders equilibrium loan interest rates fall and equilibrium deposit interest rates rise as banking becomes more competitive despite this the equilibrium debt equity ratios of banks increase as entry barriers are relaxed we also examine the implications of capital standards and find that an increase in the minimum capital requirement benefits borrowers but hurts depositors

place space and geographical exposure foreign subsidiary survival in conflict zones this study focuses on the role of geography in foreign subsidiary survival in host countries afflicted by political conflict we argue that survival is a function of exposure to conflicts and depends on the characteristics of place the conflict zone and space geographic concentration and dispersion of other home country firms the roles of place and space are explored using street level analysis of geographic information systems data for 670 japanese multinational enterprises mne subsidiaries in 25 conflict afflicted host countries over 1987 2006 through dynamic modeling of conflict zones as stretchable and shrinkable places relative to subsidiary locations we develop a means of characterizing a foreign subsidiary s exposure to multiple threats in its geographic domain our results show that greater exposure to geographically defined threats in both a static and a dynamic sense reduces the likelihood of mne survival the findings indicate moreover that both concentration and dispersion with other firms affect survival however the effects depend on where the firm is spatially located whether the firm is in a conflict zone and with whom home country peers or sister subsidiaries

risk shifting incentives of depository institutions a new perspective on federal deposit insurance reform abstract we characterize the risk shifting incentives of a depository institution as arising fundamentally from the existence of limited liability and the associated convex payoff to equity holders this risk incentive feature is unchanged by deposits being insured and hence excessive risk taking by depository institutions is not solely attributable to the flat rate insurance premium consequently the incentive problem cannot be resolved through a risk based insurance premium contrary to the prevailing view we propose a solution that eliminates risk shifting through an optimal tax structure and specify a corresponding insurance premium that is revenue neutral from the social planner s regulator s standpoint the solution is derived in the context of a social objective function that trades off the benefits of liquidity services by banks and the unique informational role of bank loans with the costs of investment distortions engendered by risk shifting

size and performance of banking firms testing the predictions of theory abstract in recent years two important literatures on the theory of banking firms have developed one examines the economic functions of banks in environments in which agents are asymmetrically informed another considers the incentive effects moral hazard resulting from deposit insurance both theories make predictions about the relation between banking firm size and performance an empirical analysis of large bank holding companies investigates measures of market valuation and risk of failure limited support is provided for either set of theoretical predictions

risk based capital requirements and bank portfolio risk abstract we construct a linear programming model and analyze the effectiveness of r b capital adequacy standards when bank deposits are fully insured we derive a set of optimal asset risk weights given a constraint in raising equity and using these weights the r b capital plan is an effective regulation mechanism without a constraint on equity maximum leverage restrictions and r b capital plans are mutually exclusive alternatives as we deviate from the optimal risk weights a combination of a leverage restriction and a r b equity ratio seems to be the more appropriate approach to controlling bank portfolio risk

analyzing foreign market entry strategies extending the internalization approach a new fully integrated analysis of the foreign market entry decision is presented encompassing the choice between exporting licensing joint venturing and wholly owned foreign investment the choice between acquisition and greenfield investment is examined and so too are options based on subcontracting and franchising the model extends the insights of internalization theory and draws on concepts from the economics of industrial organization a special feature of the model is the distinction between investment in production facilities and investment in distribution facilities an important practical distinction that has been overlooked in much of the international business literature the strength of competition from indigenous rivals is emphasized as a determinant of entry strategy into both production and distribution

market discipline and deposit insurance reform in japan abstract on april 1 2002 the japanese government lifted a blanket guarantee of all deposits and began limiting the coverage of time deposits this paper uses this deposit insurance reform as a natural experiment to investigate the relationship between deposit insurance coverage and market discipline i find that the reform raised the sensitivity of interest rates on deposits and that of deposit quantity to default risk in addition the interest rate differentials between partially insured large time deposits and fully insured ordinary deposits increased for risky banks these results suggest that the deposit insurance reform enhanced market discipline in japan i also find however that too big to fail tbtf policy became a more important determinant of interest rates and deposit allocation after the reform thereby partially offsetting the positive effects of the deposit insurance reform on overall market discipline

an incentive approach to banking regulation we examine the optimal design of a risk adjusted deposit insurance scheme when the regulator has less information than the bank about the inherent risk of the bank s assets adverse selection and when the regulator is unable to monitor the extent to which bank resources are being directed away from normal operations toward activities that lower asset quality moral hazard under a socially optimal insurance scheme 1 asset quality is below the first best level 2 higher quality banks have larger asset bases and face lower capital adequacy requirements than lower quality banks and 3 the probability of failure is equated across banks perihaps t he most troubling aspect of the current deposit insurance system is the distortions caused by the pervasive use of an insurance premium that is independent of risk the undesirable incentives that result when such a system is employed in a world with imperfect information have long been recognized in the literature of particular concern is the incentive banks have to increase the risk of their portfolio in order to maximize the value of the deposit insurance provided in some respects this problem is similar to the incentives generated by corporate debt however the solution to this problem may be different in a banking context because the creditors include the deposit insurer who has the power to regulate the banks conceivably regulation may be able to mitigate the informational problem at hand in this paper we examine some of the tradeoffs that arise in the design of a regulatory system for banks

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

deregulation market power and risk behaviour in spanish banks abstract this paper provides empirical evidence on the effects of regulatory changes in the market power of spanish banks it also analyses the response of banks in terms of risk taking behaviour as a result of a reduction in economic profits we find that liberalisation measures have increased competition and eroded banks market power we observe that banks with lower charter values tend to have lower equity assets ratios lower solvency and to experience higher credit risk the last evidence is new in the literature and calls for strengthening regulatory concerns about credit risk management by banks in situations of increased competition

deposit insurance and lender of last resort functions we consider issues concerning the design of a banking system safety net when both a deposit insurer and a lender of last resort are present in our model both entities have a role to play moreover issues related to deposit insurance pricing are relatively unimportant in this context whereas issues related to discount window access and pricing are not we discuss when and why or why not a lender of last resort should lend liberally but charge high rates of interest and we raise the possibility that discount window policy may enhance or reduce the scope for multiplicity of equilibria

forbearance deposit insurance pricing and incentive compatible bank regulation abstract this paper examines the incentive compatible role of regulatory forbearance policy in the context of optimal bank regulation under moral hazard we show that when a bank s asset portfolio returns have market risk the regulator can influence the bank s choice of ex ante risk by delaying the closure of an insolvent bank the optimal closure policy involves co ordinating the closure decision with market wide performance such a policy may significantly alleviate the bank s ex ante risk shifting problem furthermore even fixed rate deposit insurance can be optimal when combined with a sound forbearance policy and a minimum capital standard

the eclectic paradigm of international production a restatement and some possible extensions this article reviews some of the criticisms directed towards the eclectic paradigm of international production over the past decade and restates its main tenets the second part of the article considers a number of possible extensions of the paradigm and concludes by asserting that it remains a robust general framework for explaining and analysing not only the economic rationale of economic production but many organisational and impact issues in relation to mne activity as well

deposit insurance and the discount window pricing under asymmetric information the risk sensitive pricing of deposit insurance and the discount window is determined in an environment where banks have private information concerning their financial conditions the two facilities are managed jointly an incentive compatible policy is designed such that banks choice of terms at which they can obtain insurance and access to discount window credit will reveal their asset quality the function of the discount window is to be a risk neutral lender of last resort to banks in a market dominated by risk averse depositors the need to regulate banks is commonly linked to the risk independent pricing of deposit insurance in that it provides banks with an incentive to increase their risk taking activities 1 critics of the present system have long advocated risk sensitive deposit insurance premiums and a literature is emerging that examines the variety of such pricing schemes 2 this literature typically assumes that the public insuring agency has the same information as the bank concerning the quality of the bank s assets this is both implausible and potentially misleading the bank normally has superior information concerning its assets a pricing policy that ignores this informational asymmetry is likely to provide banks with similar risk taking incentives that is associated with the current riskinsensitive pricing arrangement kane 6 p 275 for example appreciates this aspect of the problem i t is necessary not only to reprice but also to redesign the existing system the fdic and fslic must develop incentive compatible my emphasis insurance contracts and price them fairly contractual incentives must be established that would allow a low risk institution to lower its premiums by communicating to the insurance agency what its own managers know about the institution s own exposure therefore as kane argues a redesigned insurance system is needed that would provide incentives to the banks to truthfully reveal the necessary information and thereby facilitate the efficient pricing of the risk shifted to the public insurer a variety of pricing policies that involve a bank s choice of capital or asset liability composition

an alternative approach to monetary aggregation in dea this paper proposes a set of alternative dea based money indices that are proved to be both theoretically and empirically competing monetary aggregates since they perform as good as the divisia aggregates based on all the results concerning causality forecasting and money demand we conclude that dea money aggregates prove to be at least competing alternatives to the divisia aggregates and hence suggest that these new aggregates may be considered along with the existing weighted monetary aggregates like the divisia ones given the inherent benefit of the doubt weighting mechanism underlying the dea models where the optimal weight assigned by dea to each monetary asset reflects the ongoing financial innovation and the reserve bank of india s policy priority in the distribution of total liquidity we feel that the dea money indices can truly capture the liquidity better with ongoing financial innovations in the economy

prioritization models for frontier decision making units in dea abstract data envelopment analysis dea has received significant attention in recent years as a tool for measuring the relative efficiency of each member of a set of decision making units dmus typically a relatively large proportion of the dmus will be credited with an efficiency score of 1 with no clear means of discriminating among such units in a number of applications however it may be necessary to select a winning dmu from this set of frontier units this paper examines various conditions that are imposed on the multipliers in a dea analysis in each case an approach is suggested for breaking ties on the frontier

location and the multinational enterprise a neglected factor this article first traces the changing world economic scenario for international business over the past two decades and then goes on to examine its implications for the location of foreign direct investment and multinational enterprise activity it suggests that many of the explanations of the 1970s and early 1980s need to be modified as firm specific assets have become mobile across natural boundaries a final section of the article examines the dynamic interface between the value added activities of multinational enterprises in different locations

the uppsala internationalization process model revisited from liability of foreignness to liability of outsidership the uppsala internationalization process model is revisited in the light of changes in business practices and theoretical advances that have been made since 1977 now the business environment is viewed as a web of relationships a network rather than as a neoclassical market with many independent suppliers and customers outsidership in relation to the relevant network more than psychic distance is the root of uncertainty the change mechanisms in the revised model are essentially the same as those in the original version although we add trust building and knowledge creation the latter to recognize the fact that new knowledge is developed in relationships

state contingent regulatory mechanisms and fairly priced deposit insurance abstract this paper presents a model of incentive compatible bank regulation under moral hazard and adverse selection we derive a wide range of simple and conceptually implementable mechanisms that can solve each type of incentive problem separately and also achieve the first best outcome but only when regulatory instruments involve ex post pricing that is contingent on the bank s performance relative to the market an important feature of these mechanisms is that they do not involve a subsidy to the bank when the regulator faces both moral hazard and adverse selection simultaneously we identify the conditions under which the same mechanism can achieve the first best solution

capital requirements monetary policy and aggregate bank lending theory and empirical evidence capital requirements linked solely to credit risk are shown to increase equilibrium credit rationing and lower aggregate lending the model predicts that the bank s decision to lend will cause an abnormal runup in the borrower s stock price and that this reaction will be greater the more capital constrained the bank i provide empirical support for this prediction the model explains the recent inability of the federal reserve to stimulate bank lending by increasing the money supply i show that increasing the money supply can either raise or lower lending when capital requirements are linked only to credit risk the motivation of this article is first to examine the impact of risk based capital requirements namely those that link mandatory capital to asset ratios for banks to their loans on aggregate bank lending these requirements called the basle capital rules or bis guidelines went into effect in march 1989 for banks in the leading industrialized nations these rules initially required banks to maintain capital equal to 7 25 percent of business and most consumer loans with the requirement increasing to 8 percent by the end of 1992 secondly i wish to understand the link between monetary policy and aggregate bank credit in the presence of risk based capital requirements my curiosity is sparked in part by two recent phenomena one is the experience of the u s economy which displayed sluggish growth during 1989 93 despite a monetary policy that attempted to spur bank lending and economic activity and the other is the striking decline in loans relative to security holdings mostly government bonds in the asset portfolios of u s

risk taking behavior of banks under regulation abstract this paper analyzes the value maximization of regulated banks within a moral hazard framework in the model regulators monitor both the capital ratio and the asset portfolio and banks simultaneously select the optimum capital ratio and asset portfolio a key assumption is that a bank cannot expect a positive put option value once it is classified as risky by regulators the optimum values of the two variables depend on investment opportunities and charter values as well as regulatory parameters the model that explicitly incorporates regulation can explain various phenomena that are seemingly inconsistent with the predictions of moral hazard models for example a positive relationship between the capital ratio and the riskiness of the asset portfolio a particularly interesting result is that a larger charter value results in a higher risk interior solution

an evolutionary approach to understanding international business activity the co evolution of mnes and the institutional environment this paper examines the co evolution of mne activities and institutions external and internal to the firm we develop a theoretical framework for this analysis that draws on the more recent writings of douglass north on institutions as a response to complex forms of uncertainty associated with the rise in global economic interconnectedness and of richard nelson on the co evolution of technology and institutions we link historical changes in the character of mne activities to changes in the institutional environment and highlight the scope for firm level creativity and institutional entrepreneurship that may lead to co evolution with the environment we argue that the main drivers for institutional entrepreneurship are now found in the increasing autonomy of mne subsidiaries thus mne agency derives from more decentralized forms of experimentation in international corporate networks which competence creating nodes of new initiatives can co evolve with local institutions unlike most other streams of related literature our approach connects patterns of institutional change in wider business systems with more micro processes of variety generation and experimentation within and across individual firms this form of co evolutionary analysis is increasingly important to understanding the interrelationships between mne activities and public policy

deposit insurance bank exit and spillover effects abstract this study resolves a puzzle in the banking literature why do an increasing number of countries adopt a deposit insurance scheme dis while prior studies have shown that it increases the likelihood of banking crises using a dataset of 64 countries over the period 1970 2009 our study shows that the adoption of a dis is associated with a 2 0 4 7 percentage points higher likelihood of banking crises the direct effect while it is associated with a 10 1 11 1 percentage points lower likelihood of non banking financial crises the spillover effect since the spillover effect is larger than the direct effect a dis actually increases overall financial stability additionally we analyze the mechanisms through which a dis affects financial crises first we highlight the existence of the implicit guarantee and examine its interaction with an explicit dis second we investigate the substitution effect between banking crises and non banking crises

credit market competition and capital regulation market discipline for financial institutions can be imposed not only from the liability side as has often been stressed in the literature on the use of subordinated debt but also from the asset side this will be particularly true if good lending opportunities are in short supply so that banks have to compete for projects in such a setting borrowers may demand that banks commit to monitoring by requiring that they use some of their own capital in lending thus creating an asset market based incentive for banks to hold capital borrowers can also provide banks with incentives to monitor by allowing them to reap some of the benefits from the loans which accrue only if the loans are in fact paid off since borrowers do not fully internalize the cost of raising capital to the banks the level of capital demanded by market participants may be above the one chosen by a regulator even when capital is a relatively costly source of funds this implies that capital requirements may not be binding as recent evidence seems to indicate

three paradigms for the role of capitalization requirements in insured financial institutions standard models for deposit insurance strike analogies to more familiar financial contracts and conceive of risk as exogenous the oldest model of deposit insurance likens it to passively underwriting casualty insurance a more sophisticated but still bilateral model likens deposit insurance to writing a passive put option on the enterprise whose funding is insured delays in acknowledging the wreck of the s l industry and its federal insurer fslic discredit these models as guides to managing a deposit insurance fund deposit insurance is better interpreted as a trilateral performance bond that enhances the credit of an insured institution this interpretation endogenizes risk emphasizes incentive conflict and underscores the need to optimize loss control activity the bonding model clarifies that a subset of the monitoring and disciplinary activities traditionally undertaken by government officials can usefully be privatized

market power and banking failures abstract we investigate whether more competition in the banking industry necessarily results in a higher probability of banking failures as it is often suggested in our model borrowers face a moral hazard problem which induces banks to choose between costly monitoring and credit rationing we show that investment decreases with the lending rate and increases with monitoring effort since incentives to monitor are enhanced by market power the relationship between market structure and investment is ambiguous in the presence of non diversifiable risk and decreasing returns to scale more investment implies higher failure rates as a result the relationship between market power and banking failures is ambiguous

federal deposit insurance regulatory policy and optimal bank capital this paper seeks to explain the combination of explicit and implicit pricing for deposit insurance employed by the fdic essentially the fdic sells two products insurance and regulation to span the product space it must and does set two prices we argue that the need to establish regulatory disincentives to bank risk taking is the heart of the controversy over the adequacy of bank capital and that the ability to close risky banks before exhausting their charter value i e the value of their right to continue in business stands at the center of these disincentives and in front of the fdic s insurance reserves just as a book shouldn t be judged by its cover a government agency shouldn t be judged by the words behind its initials with the fdic federal deposit insurance corporation the agency s name describes only part of its formal operations the fdic is quasi governmental has a regional structure and sells deposit insurance however the initials fail to convey the fdic s critical place in the governmental regulatory structure as the sole federal overseer of the approximately 8900 state chartered commercial banks that have chosen not to belong the federal reserve system reflecting the federal reserve s membership problem the number of these banks is growing year by year besides selling deposit insurance at bargain explicit rates the fdic performs four regulatory functions 1 entry regulation it passes on new banks applications for deposit insurance and on branch and merger proposals as well thereby protecting the value of existing bank charters 2 examination two thirds of fdic employees are concerned with inspecting bank records and supervising managerial activity 3 regulation of deposit rates and conditions for withdrawal by tradition fdic policies on these matters conform entirely with regulations applicable to federal reserve member banks and 4 disposition of failed banks when an insured bank fails the fdic usually chooses not to liquidate it 2

bank capital and equity investment regulations abstract this paper uses an intermediation model to study the efficiency and welfare implications of both banks minimum required capital asset ratio and the regulation that limits and in some countries forbids banks investments in the equity of nonfinancial firms there are two sources of moral hazard in the model one between the bank and the provider of deposit insurance and the other between the bank and an entrepreneur who demands funds to finance an investment project among other things the paper shows that capital regulation improves the bank s stability and can also be pareto improving equity regulation is never pareto improving and does not increase the bank s stability

multinational enterprises repeat investment and the role of aftercare services in wales and ireland fuller c and phelps n a 2004 multinational enterprises repeat investment and the role of aftercare services in wales and ireland regional studies38 783 801 repeat investment by multinational enterprises mnes at foreign owned establishments has become an important form of investment in recent years and as such can be considered a significant aspect of the nexus between corporate processes and host territorial economies in terms of the latter socio institutional factors operating within regional contexts have increasingly been cited as underpinning prosperous economic spaces the paper examines the role of regional aftercare assistance in the case of wales defined as services provided directly to mnes such as local sourcing initiatives in comparison with central government aftercare services in the case of ireland and general supply side conditions by examining mnes in the electronics related sector in wales and ireland it is found that while regional aftercare has a relative

uninsured deposits as a monitoring device their impact on bond yields of banks abstract we empirically analyze the impact of uninsured deposits on a bank s cost of public debt uninsured depositors can exert market discipline over a bank and potentially reduce its agency cost of debt through informed monitoring we use a sample of public bond issues by u s bank holding companies from 1994 to 2013 and find statistically strong evidence that banks with more uninsured deposits relative to their assets issue bonds with a lower interest rate findings suggest a one standard deviation increase in uninsured deposits is associated with a 46 64 basis point decrease in bond yield in addition we find that bonds issued by banks with higher default risk or lower reputation benefit more from uninsured savers our paper contributes to the literature that explores market discipline and provides evidence that banks can benefit from it through a lower borrowing cost

deposit insurance around the world in the past two decades in a series of banking crises around the world banks have become systematically insolvent these crises have occurred in developed and developing economies alike to make such financial system breakdowns less likely and to limit their costs if they occur policymakers feel the need for financial safety nets these include such policies as implicit or explicit deposit insurance a lender of last resort function of the central bank bank insolvency resolution procedures and bank regulation and supervision of these policies explicit deposit insurance has been gaining popularity in recent years since the 1980s the number of countries with explicit deposit insurance schemes almost tripled with most oecd countries and an increasing number of developing economies adopting some form of explicit depositor protection in 1994 deposit insurance became the standard for the newly created single banking market of the european union establishing an explicit deposit insurance scheme became part of the generally accepted best practice advice given to developing economies

deposit insurance and risk taking we review the theory of deposit insurance highlighting the underlying assumptions that were not satisfied during the recent financial crisis and that may have led to serious policy mistakes in theoretical models deposit insurance is mostly seen as an equilibrium selection device to avoid panic based runs in such a context it is not drawn on and is thus costless and fully credible however if bank runs are linked to a fall in asset values providing deposit insurance can be very costly and as the case of ireland has shown can even threaten sovereign solvency this perspective indicates a need for new research on the relation between bank failures deposit insurance schemes sovereign default and currency depreciation and for reforms of deposit insurance schemes copyright 2011 oxford university press

deposit insurance and financial development the authors examine the effect of different design features of deposit insurance on long run financial development defined to include the level of financial activity the stability of the banking sector and the quality of resource allocation their empirical analysis is guided by recent theories of banking regulation that employ an agency framework the authors examine the effect of deposit insurance on the size and volatility of the financial sector in a sample of fifty eight countries they find that generous deposit insurance leads to financial instability in lax regulatory environments but in sound regulatory environments deposit insurance does have the desired impact on financial development and growth thus countries introducing a deposit insurance scheme need to ensure that it is accompanied by a sound regulatory framework otherwise the scheme will likely lead to instability and deter financial development in weak regulatory environments policymakers should at least limit deposit insurance coverage

the valuation of fdic deposit insurance using option pricing estimates when congress set the premium rate for fdic deposit insurance in the banking act of 1935 which authorized a permanent federal insurance system neither experience nor theory could offer much guidance regarding an appropriate fee structure although rates have since been periodically revised the fdic has yet to attempt to set the insurance rate at a ifair level that is a level equal to administrative costs plus the ex ante value of the insurance such a premium is the rate that would be charged by competitive private insurers however7 the garn st germain act of 1982 directed the fdic to consider the feasibility of a risk based premium structure in response the fdic has suggested a trial system in which each insured bank will be placed in one of three risk classes based on credit and interest rate risk relative to capital and a premium rate will be assigned to each group those rates will be determined in part by the loss experience of the entire banking system fdic 1983 another approach to the determination of the appropriate insurance premium has been offered by merton 1977 who suggested using the analogous relationship between deposit guarantees and put options to value fdic insurance in this paper we follow merton s suggestion and calculate bank specific estimates of the proper premium for deposit insurance for the banks in our sample we find that fdic rates greatly exceed estimates of the fair value of the insurance derived from the blackscholes 1972 option pricing model

aspects of monetary and banking theory and moral hazard we consider two problems in monetary and banking theory in this paper the first of these deals with differences between monetary and tax transfer resolutions of risk sharing problems in overlapping generations 12 15 models of fiat money under uncertainty our second contribution the scenario for which is also motivated in part by interventions needed for risk sharing reasons is an attempt to provide a rationale for interest rate controls on the liabilities of intermediaries that invest in risky assets both models consider environments in which uncertainty exists private markets are incomplete and most importantly some material payoff relevant actions are not perfectly observable the goal of this research is to provide further momentum to theoretical developments that serve to integrate information based models of investment and intermediation with theories of unbacked fiat money and the control of monetary institutions in recent years there has been a great deal of research interest in explicating the micro economic foundations of fiat money i e valued government created assets which are unbacked by payoffs from productive investments or taxes and the uniqueness and criteria for regulation of depository intermediary firms important contributions have been among others the works of bryant 3 the papers in kareken and wallace 7 fama 6 merton 10 and diamond and dybvig 5 asymmetric information based foundations of intermediary functioning have been provided by the papers of leland and pyle 9 followed by diamond 4 in most of this work there has usually been a dichotomy between models that focus on providing and analyzing a role for fiat money and those which analyze the rationale regulation and pricing of capital market intermediaries and their contracts regrettably we persist in having this dichotomy in our work some recent work like fama 6 does merge these two aspects however by emphasizing perfect information complete market environments in which the financial structure irrelevance theorems of modigliani and miller 10 apply models of unbacked fiat money many different types of which are to be found in kareken and wallace 7 can be usefully dichotomized as being of two types in the first fiat money serves the function of opening up or expanding trading opportunities among contemporaneously living agents who have endowment

depositors welfare deposit insurance and deregulation we develop an analytical model to address the question of optimal deposit insurance policy and to examine the impact of deregulation on depositors welfare and the soundness of the insurance system we find that the optimal level of regulation depends critically on the functional relationship between risk and return we show that in general deregulation of bank activities and or of deposit rate ceilings will involve tradeoff between depositors welfare and the soundness of the insurance system our analysis also indicates that risk sensitive premium and capital requirement schedules may not be efficient in managing the risk of banks the reform of the deposit insurance system and the deregulation of the banking industry have recently received considerable attention from the finance and economics professions prompted by the imminent deregulation of deposit rate ceilings and the prospective relaxation of banking restrictions discussions have been focused on the needed reforms of the deposit insurance system in particular how banks should if at all be regulated the purpose of this paper is to add to these discussions by formally analyzing the connections between depositors welfare deregulation and the soundness of the insurance system according to conventional wisdom the prevailing fixed insurance premium structure necessitates bank regulation without regulation banks will take excessive risk and may thereby bankrupt the insurance system see e g kareken and wallace 12 and edwards and scott 6 therefore restrictions on bank activities were imposed to reduce risk taking one wonders then about the real reasons for the current clamor for deregulation is it because the existing insurance system with its rather rigid policy is inherently inefficient is it because the welfare of

mnes as border crossing multi location enterprises the role of discontinuities in geographic space spurred by the classic work of dunning mne location has become the focus of a growing body of research in the field in this paper we argue that international business ib research examining the spatial dimension has serious weaknesses stemming from its traditional assumption of the country as the location unit of analysis while border crossing remains the key research context of ib placing it within a general spatial framework that recognizes both international and subnational spatial heterogeneity opens up vast new vistas for research analyzing mnes as border crossing multi location enterprises allows the researcher to distinguish between discrete border effects and continuous distance effects and undertake a more fine grained analysis of location within such analysis national borders may appear as qualitative discontinuities in space that is points at which spatial heterogeneity changes abruptly however subnational spatial heterogeneity is often the characteristic that drives firm strategy as mnes decide to locate in particular agglomerations and not at random locations within a country the complex firms that ib scholars study typically include multiple units within the same country so that a complete analysis requires considering both subnational distance effects as well as international border effects

a framework for assessing credit risk in depository institutions toward regulatory reform abstract this paper develops and illustrates a new method for evaluating the credit risk borne by depository institutions that may prove to be an important element in a regulatory mechanism sensitive to risk in our framework depository institutions are forced to bear the costs of their risk exposure and hence to internalize this cost when extending loans using various loan portfolios and alternative macroeconomic scenarios we present numerical calculations demonstrating the ability of our framework to capture variations in risk exposure and highlighting the significance of portfolio concentrations these calculations are based on an important new source of information that permits an econometric analysis of loan losses by industry

correlated default risks and bank regulations bank regulatory design relies critically on bank risk modeling traditionally the bank s aggregate value is assumed to obey an exogenously specified process e g a lognormal diffusion we demonstrate that this assumption is generally invalid given the truncated and correlated payoff structure of individual bank loans instead the bank s aggregate terminal payoff is significantly left fat tailed this skewness remains even when the bank holds an infinitely large number of loans in its portfolio unless they are uncorrelated by ignoring skewness in bank payoffs deposit insurance premia and capital requirements have traditionally been significantly mis calculated

collateral and rationing sorting equilibria in monopolistic and competitive credit markets the authors examine how market structure affects credit allocation under universal risk neutrality and asymmetric information about borrowers they consider both monopolistic and perf ectly competitive banks and examine the role of collateral in each ca se when a bank is a monopolist on the loan side they find collatera l is never used and asymmetric information results in reduced bank le nding under perfect competition collateral has a useful sorting rol e moreover rationing is possible even with collateral availability and perfectly elastic deposit supply in this setting the authors sh ow co signers are valuable social welfare properties of the monopoly and competitive equilibria are also compared copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

allocating bank regulatory powers lender of last resort deposit insurance and supervision abstract we examine the optimal institutional allocation of bank regulation we find that centralizing the lending of last resort and deposit insurance functions in a regulator leads to excessive forbearance it also leads the bank to invest suboptimally in loans giving this regulator supervision improves on both problems but it still does not lead to the efficient outcome in the multi regulator arrangement we find that it is beneficial to give supervision to the deposit insurer the choice between the unified regulator arrangement and the multi regulator arrangement involves a trade off the multi regulator arrangement reduces the forbearance problem at high levels of liquidity shortage but may exacerbate it at low levels these results assume the absence of information frictions when banks are better informed than regulators we show that regulators may have an incentive not to share private information suggesting it is important to consider regulators informational advantages when deciding on the allocation of regulation

information reusability competition and bank asset quality this paper explains the recent decline in bank asset quality using the notion of information reusability banks are viewed as information processors they exist because of their advantage in extracting the surplus associated with the reusability of borrower specific information it is shown that a bank s incentive to screen loan applicants and hence maintain the quality of its assets depends on the surplus this screening can produce which in turn depends on information reusability two recent changes in banks operating environment are increased competitition and greater temporal volatility in borrower credit risks the former has directly reduced banks informational surplus while the latter has impaired information reusability hence screening expenditures have been reduced and the diminution of screening has lowered the quality of bank assets it is also shown that an increase in deposit insurance premia has an effect similar to that of narrowing interest spreads and therefore will result in reduced asset screening and impaired asset quality

balancing subsidiary influence in the federative mnc a business network view the contest for intra organisational power in the multinational corporation mnc has gradually become a prominent issue on the research agenda as long as 25 years ago hedlund 1980 investigated the strategic roles of subsidiaries in mncs and doz and prahalad 1981 raised the issue of how difficult it is for headquarters to remain in control of its subsidiaries and to influence their strategies over time since then several researchers have suggested that mncs can be considered to be dispersed structures of power in which the top management s authority does not necessarily result in hierarchical power being the ultimate control mechanism hedlund 1986 forsgren 1989 ghoshal and bartlett 1990 doz and prahalad 1993 ferner and edwards 1995 kristensen and zeitlin 2001 morgan and whitley 2003 birkinshaw and hood 1998 examined the evolution of capabilities at the subsidiary level and recognised that in most corporations there is an internal competition for charter that implies a process of change in subsidiary roles birkinshaw and hood 1998 782 case research has also indicated that changes in the charters of divisions or subsidiaries in mncs constitute a strong feature of horizontal or vertical competition in the corporate marketplace galunic and eisenhardt 1996 birkinshaw and fry 1998 the tension between the headquarters and overseas laboratories caused by the laboratories desire for autonomy and influence is an example of such a competition asaka wa 2001

deposit insurance and subsidized recapitalizations the 2007 2009 financial crisis saw a vast expansion in deposit insurance guarantees around the world and yet our understanding of the design and consequences of deposit insurance schemes is in its infancy we provide a new rationale for the provision of deposit insurance in our model the banking sector exhibits both adverse selection and moral hazard which implies that the social benefits of bank monitoring must for incentive reasons be shared between depositors and banks consequently socially too few deposits are made in equilibrium deposit insurance or equivalently bank recapitalization corrects this market failure we find that deposit insurance should be funded not by banks or depositors but out of general taxation the optimal level of deposit insurance varies inversely with the quality of the banking system hence when the soundness of the financial sector is uncertain governments should consider supporting deposit insurance schemes and undertaking subsidized recapitalizations

fairly priced deposit insurance and bank charter policy the thrust of current deposit insurance reform risk based insurance premiums and capital requirements is an effort to price deposit insurance more fairly fairly pricing deposit insurance eliminates inequitable wealth transfers but it does not lead to an efficient equilibrium this paper shows that an alternative charter policy results in an efflcient separating equilibrium this article analyzes the effect of alternative charter policies when deposit insurance is fairly priced the thrust of current deposit insurance reformrisk based capital requirements 1988 and risk based insurance premiums 1994 is an effort to price deposit insurance more fairly chan greenbaum and thakor s 1992 seminal paper dramatically illustrated that fairly pricing deposit insurance is not enough to solve the deposit insurance problem in their model when banks hold nontraded private information assets no equilibrium exists with fairly priced deposit insurance unless banks earn rent or are subsidized fairly pricing deposit insurance eliminates inequitable transfers of wealth but it does not lead to an efficient equilibrium this paper shows that an alternative charter policy gives an efficient separating equilibrium the separating equilibrium segregates the market for insured transactions deposits from private information financial intermediation the analysis in this article provides support for the deposit insurance reform proposal in the recent 1993 national commission on financial institution reform recovery and enforcement ncfirre report to the president and congress and for merton and bodie s 1993 proposal both proposals impose a separating equilibrium that isolates insured transactions accounts and the public information traded assets that secure them from private information assets in the bank s portfolio the formal model developed here is designed to demonstrate the effect of charter policy on the efficiency of market equilibrium in an uncomplicated setting but the main result that a separating equilibrium is more efficient is extremely robust with respect to the model specification the model has two types of financial intermediaries intermediaries that hold nontraded private

the effect of bank ownership and deposit insurance on monetary policy transmission abstract in this paper we develop a theoretical model with a representative bank whose ownership is shared between state and private sector the bank faces a risk of failure and provides private and public explicit deposit insurance banks owned to a larger extent by the government are more able to counteract a restrictive monetary policy because of their capacity to raise additional volume of deposits therefore the greater the state s share in the bank ownership the less the impact of a monetary tightening on the level of loan supply

a data envelopment model for aggregating preference rankings this paper presents a general model for aggregating votes from a preferential ballot the thrust of the model is to accord each candidate a fair assessment in terms of his overall standing vis a vis first place second place kth place votes the form of the model is a combined index j 1kwjvij where vij is the number of the jth place votes received by the ith candidate the weights wj are assumed to form a monotonically decreasing sequence with wj wj 1 dj e these constraints correspond to the assurance region ar side constraints in the dea framework the properties of the model are examined in terms of this discrimination intensity function d and in the special case that dj e e our model is shown to be equivalent to the consensus models of borda and kendall

optimal capital structure and project financing abstract we examine the financing and incorporation modes for new projects there are two objectives the first is to provide a theory of optimal capital structure that links risk leverage and value and is particularly applicable to large firms counter to conventional wisdom we show riskier firms acquire more debt pay higher interest rates and have higher values in equilibrium second we provide an economic rationale for project financing which entails organizing a new project legally distinct from the firm s other assets we explain why project financing involves higher leverage than conventional financing and why highly risky assets are project financed

is fairly priced deposit insurance possible we analyze risk sensitive incentive compatible deposit insurance in the presence of private information and moral hazard without deposit linked subsidies it is impossible to implement risk sensitive incentive compatible deposit insurance pricing in a competitive deregulated environment except when the deposit insurer is the least risk averse agent in the economy we establish this formally in the context of an insurance scheme in which privately informed depository institutions are offered deposit insurance premia contingent on reported capital the result holds for alternative sorting instruments as well this suggests a contradiction between deregulation and fairly priced risk sensitive deposit insurance this paper exposes a conflict between a deregulated competitive financial services industry on the one hand and fairly priced risk sensitive deposit insurance on the other we show that if depository institutions dis are perfectly competitive i e each makes zero profits on average then it is impossible to implement incentive compatible risk sensitive deposit insurance pricing recent distress among dis has fueled debate about reform of the existing deposit insurance system many believe that the prevailing risk insensitive premium structure encourages dis to choose excessively risky assets and that it should be replaced by deposit insurance premia linked to the dis choices of risk 2 risk sensitive deposit insurance pricing however imposes greater informational demands on the deposit insurer and runs afoul of both

becoming a multinational enterprise using industry recipes to achieve rapid multinationalization we aim to build a greater understanding of how young entrepreneurial firms internationalize fast through foreign subsidiaries to become a multinational enterprise mne despite the prevalence of fast paced international expansion theory development on how it is achieved through high commitment entry modes has been scarce our work substantially addresses this gap by conceptualizing how rapid multinationalization occurs using qualitative case studies we explore eight young entrepreneurial firms operating in the software as a service industry aspiring to achieve early market dominance internationally through rapid multinationalization drawing on the concept of industry recipes we explain how recipe heuristics and recipe augmentation enable rapid multinationalization and showcase the economic and knowledge acquisition logics which underpin these endeavors this study introduces internationalization via industry recipe explains the micro level regulation of internationalization speed and contributes to aligning international entrepreneurship and mne perspectives on internationalization

how much does subnational region matter to foreign subsidiary performance evidence from fortune global 500 corporations investment in china what explains the heterogeneity of foreign subsidiary performance previous studies have emphasized the importance of industry corporate parent and home country effects on the variation of foreign subsidiary performance building on recent international business and economic geography research this study examines the extent to which subnational region effects can also explain such performance variation we empirically decompose the variance of the performance of fortune global 500 corporations subsidiaries in china during 1998 2006 results show that not only are subnational region effects statistically significant in explaining the variation of subsidiary performance but their interactions with industry corporate parent and home country effects are also significant and economically important we further show that subnational region effects tend to be stronger in the period prior to china s wto accession and in the country s less developed subnational regions our findings highlight the importance of considering both the direct and indirect roles of subnational region in shaping firms strategy and performance in international business research

extending the internationalization process model increases and decreases of mne commitment in emerging economies the internationalization process model suggests that firms internationalize by building positions in foreign markets and networks following iterative cycles of learning and changes in commitment however as subsidiaries evolve commitments may be decreased as well as increased a phenomenon that has rarely been studied moreover it remains an open question why strategic intentions at the outset of an investment project differ from the actual operations established we address these questions by extending the model and combining it with mintzberg and waters framework of strategy formation specifically we suggest that commitment decisions correspond to statements of intended strategy while network positions correspond to realized strategies the processes of learning opportunity creation and trust building triggered by commitment decisions are however moderated by institutional influences that lead to divergences between realized and intended strategies we test propositions derived from this framework on a survey data set of subsidiaries of multinational enterprises in hungary lithuania and poland and find that institutional voids and institutional uncertainty affect subsidiary strategy implementation but in opposing directions under high institutional uncertainty investors prefer low commitment but flexible modes that enable later commitment increases whereas institutional voids increase up front information search and adaptation costs that reduce the likelihood of early post entry adjustments our analysis reinforces the need for more differentiated theoretical analyses of how institutions affect business strategies over time

bank funding modes securitization versus deposits abstract we examine a bank s choice of whether to fund the loans it originates by emitting deposits or to sell the loans to investors with common knowledge of loan quality and laissez faire banking we find that the choice is irrelevant with asymmetric information but without government intervention we find that better quality assets will be sold securitized and poorer quality assets will be funded with deposits public regulation can influence the bank s choice subsidies can cause a bank to favor deposit funding but mutual funds and third party insurers may mitigate the effects of governmental subsidies

charter value minimum bank capital requirement and deposit insurance pricing in equilibrium abstract this paper shows that leaving insolvent banks with large enough charter values open can be optimal and derives normative bank closure reorganization policies based on the liquidation value of assets and the charter value the charter value of a bank is broadly defined as the value that would be foregone due to a closure our simulations of risk taking show that an optimal forbearance for an insolvent bank with a large enough charter value alleviates the moral hazard problem this is because increasing the risk raises the probability of losing the charter value although it generates a moral hazard gain

from a distance and generalizable to up close and grounded reclaiming a place for qualitative methods in international business research journal of international business studies 2011 42 573 581 doi 10 1057 jibs 2011 19 it is exhilarating to write the introduction to this special issue as it presents an important opportunity for qualitative research to reclaim its position as an integral part of international business ib research the field of ib was founded on a rich qualitative research legacy e g bartlett 1979 crozier 1965 fayerweather 1969 johanson vahlne 1977 kindleberger 1956 prahalad 1975 wilkins 1970 1974 over time however such methods have been progressively marginalized in our field as quantitative methods have become the norm this shift in emphasis has mirrored the broader trend toward more positivistic empirical methods in the social sciences the field of ib is multidisciplinary in scope and interdisciplinary in content and methodology statement of jibs editorial policy however as our respective home disciplines came under growing pressure to solidify their legitimacy as scientific endeavors that merit scholarly attention it is not surprising that we began to take on the norms propagated within our own academic communities that typically equated quantitative data with hard science while there are clear merits associated with quantitative methods the multi cultural multi dimensional and dynamic nature of the field of ib lends itself to a broad range of research methodologies qualitative methods being one of them in order to understand the complexities of emergent and evolving phenomena scattered over distance and the differentiated contexts typical to many topics under investigation in ib it is often inappropriate to engage in large scale cross sectional studies or reductionist methods in the absence of well developed theory rather thick description exploratory research and comparative case analysis that focus on inductive theory building and hypotheses generation may be more suitable

global cities and multinational enterprise location strategy we combine the concept of location derived by economic geographers with theories of the multinational enterprise mne and the liability of foreignness developed by international business scholars to examine the factors that propel mnes toward or away from global cities we argue that three distinctive characteristics of global cities global interconnectedness cosmopolitanism and abundance of advanced producer services help mnes overcome the costs of doing business abroad and we identify the contingencies under which these characteristics combine with firm attributes to exert their strongest influence consistent with these arguments our analysis of a large sample of mne location decisions using a multilevel multinomial model suggests not only that mnes have a strong propensity to locate within global cities but also that these choices are associated with a nuanced interplay of firm and subsidiary level factors including investment motives proprietary capabilities and business strategy our study provides important insights for international business scholars by shedding new light on mne location choices and also contributes to our understanding of economic geography by examining the heterogeneous strategies and capabilities of mnes the primary agents of economic globalization that shape the nature of global cities

deposit insurance a reconsideration abstract this paper undertakes a simple general equilibrium analysis of the consequences of deposit insurance programs the way in which they are priced and the way in which they fund revenue shortfalls in our economy the central issue in analyzing deposit insurance is how the government will make up any fdic losses deposit insurance premia matter only in so far as they affect the level of implied fdic revenue shortfalls moreover local variations in the magnitude of fdic losses will generically be irrelevant for the determination of any equilibrium quantities that affect agent welfare however large enough changes in these losses can matter there is no presumption that keeping these shortfalls low is a good idea finally we show that multiple pareto ranked equilibria can be observed the potential for multiplicity of equilibria may depend on components of fdic policy our analysis provides counterexamples to the following propositions 1 actuarially fair pricing of deposit insurance is always desirable 2 implicit fdic subsidization of banks through deposit insurance is always undesirable 3 large fdic losses are necessarily symptomatic of a poorly designed deposit insurance system 4 risk based deposit insurance premia can easily be used to reduce moral hazard problems associated with deposit insurance provision

location and the multinational enterprise in the early development of the international business field the focus of attention moved from the country level to the firm level and interest in location issues declined more recently firm based research has itself become increasingly concerned with the study of firm location interactions when examining two way knowledge flows or spillovers between multinational enterprises mnes and other actors in specific locations the diversity or heterogeneity of firms matters as does the diversity of locational environments the localization of knowledge sources depends on mne group level strategies for growth and organizational decentralization on subsidiary level evolution towards local competence creating efforts and on the development of suitable business networks within locations mnes now have a greater potential to benefit from a synergistic locational portfolio of complementary sources of knowledge the locational composition of the international network for knowledge sourcing of a given mne depends upon the extent of institutional compatibility between the locations in which the mne is active this compatibility between locations in turn affects the capacity of the mne to become an insider in local business systems and to influence the local institutional environment

optimal capacity in the banking sector and economic growth the paper investigates from the welfare and growth point of view the determination of the optimal capacity of the banking system for that purpose we consider an overlapping generation model with endogenous growth there is horizontal differentiation and imperfect competition in the banking sector macroeconomic shocks affect the return on capital and together with the expectations of depositors condition the stability of the banking sector we specify to what extent deposit insurance may reduce instability and increase the number of deposits welfare and growth we also characterize the conditions under which excess banking capacities may appear and how their reduction may improve welfare

moving toward risk based deposit insurance premiums in the european union the case of spain this article provides a scenario based analysis of how the european union proposal for a new funding model for deposit insurance systems diss would affect the spanish banking sector we examine the risk profiles of commercial banks savings banks and credit cooperatives over the period 2007 to 2011 and compare the contributions to the deposit insurance fund dif under the current flat rate regime with those that would have occurred under the new risk sensitive system we find that a risk based scheme could provide an incentive for sound management by reducing the premiums for credit institutions with better risk profiles we also conclude that the proposed reform may help to mitigate the moral hazard associated with larger credit institutions

bank runs deposit insurance and capital requirements diamond and dybvig provide a model of intermediation in which deposit insurance can avoid socially undesirable bank runs we extend the diamond dybvig model to evaluate the costs and benefits of deposit insurance in the presence of moral hazard by banks and monitoring by depositors we find that complete deposit insurance alone will not support the first best outcome depositors will not have adequate incentives for monitoring and banks will invest in excessively risky projects however an additional capital requirement for banks can restore the first best allocation

interest risk sensitive deposit insurance premia stable ach estimates abstract the parameters of interest rate uncertainty are estimated by maximum likelihood for the period 1952 1982 and used to evaluate bank or thrift deposit insurance as a function of duration mismatching capital asset ratio and the recent history of interest rate forecasting errors homoskedasticity is overwhelmingly rejected in favor of adaptive conditional heteroskedasticity ach even after removing this heteroskedasticity normality gives much lower likelihood than paretian stable distributions with characteristic exponent in the range 1 614 to 1 714 the conditional deposit insurance values fluctuate by factors in excess of 300 for some duration gaps over the past three decades

market rate versus fixed rate demand deposits abstract in an economy with uninsured banks market rate deposits are shown to provide services identical to fixed rate deposits without risking banking panics as long as there is not both aggregate uncertainty about liquidity demands and asymmetric information about bank asset quality however if both factors are present then the preferred deposit form depends on the riskiness of bank assets and information revealed through market prices the analysis may explain the evolution of fixed rate deposits before the introduction of deposit insurance moreover it provides currently relevant insights regarding deposit contract forms and deposit insurance

deposit insurance and international bank liabilities abstract this paper examines the responsiveness of external bank liabilities to deposit insurance policies for a sample of developed countries external bank liabilities held by non banks are found to increase after the introduction of explicit deposit insurance deposit insurance schemes tend to exclude interbank deposits from coverage and the response of external interbank liabilities to deposit insurance appears to be varied neither external non bank nor external interbank liabilities are found to be materially affected by deposit insurance design this suggests that international competition in the area of deposit insurance design as possible under the eu deposit insurance directive of 1994 would be fruitless