when is external debt sustainable the article empirically examines the determinants of debt distress defined as periods in which countries resort to any of three forms of exceptional finance significant arrears on external debt paris club rescheduling and non concessional international monetary fund lending probit regressions show that three factors explain a substantial fraction of the cross country and time series variation in the incidence of debt distress the debt burden the quality of policies and institutions and shocks the relative importance of these factors varies with the level of development these results are robust to a variety of alternative specifications and the core specifications have substantial out of sample predictive power the quantitative implications of these results are examined for the lending strategies of official creditors

when in rome how non domestic companies listed in the uk may not comply with accepted norms and principles of good corporate governance does home market culture explain these corporate behaviours and attitudes to compliance non domestic companies are increasingly present on the london stock exchange such companies have specific governance requirements they may seek to access capital in a more liquid market and to diversify ownership the reputational bonding coffee northwest univ law rev 93 641 708 1999 columbia law rev 102 1757 1831 2002 to a prestigious exchange should be a statement to the market of a propensity to disclosure and a willingness to protect minority shareholders yet many non domestic companies retain tightly controlled shareholding structures and are based in emerging regions where national culture norms differ to the uk we hypothesise that non domestic companies are likely to be less compliant with the principles of the uk corporate governance code and suggest a correlation between lower levels of compliance and non domestic companies from countries that demonstrate high power distance in the hofstede culture s consequences international differences in work related values 1980a cultural value framework we find some encouraging signs of compliance with the reigning governance code principles in board structures however we find only partial compliance in leadership and board effectiveness measures in those companies from cultures high on the power distance scale further we include analysis into ownership characteristics and find companies from emerging markets are dominated by a single or controlling group of shareholders which is likely to impact on attitudes to compliance and is particularly evidenced in terms of board structures with no executive directors or led by an executive chairman much of the prior research effort into the levels of compliance with the uk s comply or explain approach to governance has produced mixed results and focused on all companies in our exploratory approach to analysing only the non domestic subsample we report some evidence linking cultural distance to lower levels of compliance with the uk standards we develop a framework to guide future research into the context and cultural underpinnings of this sub sample of companies hypothesising that frequent market capitalisation induced index changes may divert attention away from any potential compliance issues on the one hand our evidence is encouraging for governance regimes based on voluntary compliance disclosures such as the uk and similar european and international markets as we report partial compliance with the principles of the current governance code our research may however be helpful in guiding future versions of the uk governance framework and other international governance regimes adopting the comply or explain approach and in setting policy to improve disclosure it contributes to the understanding of the specific context of non domestic companies and any cultural tendencies to non compliance by demonstrating evidence of lower levels of compliance with key principles of the code by non domestic companies we present a framework enabling lawmakers to further improve corporate governance codes

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

human capital inequality and economic growth some new evidence this paper provides new measures of human capital inequality for a broad panel of countries taking attainment levels from barro and lee 2001 we compute gini coefficients and the distribution of education by quintiles for 108 countries over five year intervals from 1960 to 2000 using this new cross country data on human capital inequality two main conclusions are obtained first most countries in the world have tended to reduce the inequality in human capital distribution second human capital inequality measures provide more robust results than income inequality measures in the estimation of standard growth and investment equations

speed of convergence to market efficiency for nyse listed foreign stocks abstract this paper contributes to the cross listing literature by documenting the speed of convergence to market efficiency for foreign stocks listed on the nyse we find that on average it takes 30 60 minutes for a foreign stock to achieve market efficiency for a comparable us stock it takes only 10 15 minutes the significant difference between foreign and us stocks remains robust when the speed is measured by the number of transactions rather than in calendar time after relevant firm characteristics are controlled for the time that it takes for foreign stocks to reach efficiency is significantly negatively related to the quality of their home country institutions we find that one possible channel through which institutions affect the speed is through their impact on information asymmetry

balance of payment crises in emerging markets how early were the early warning signals although many papers have already proposed empirical models of currency crises the timing of such crises has received relatively little attention so far most papers use indeed a static specification and impose the same lag structure across all explanatory variables this by construction prevents from specifically timing the crisis signals sent by the leading indicators the objective here is to fill this gap by considering a set of dynamic discrete choice models the first contribution is to identify how early in advance each explanatory variable sends a warning signal some indicators are found to signal a crisis in the very short run while others signal a crisis at more distant horizons the second contribution is to show that state dependence matters albeit mostly in the short run the results have important implications for crisis prevention in terms of the timeliness and usefulness of the envisaged policy response

from physical to human capital accumulation inequality and the process of development this paper develops a growth theory that captures the replacement of physical capital accumulation by human capital accumulation as a prime engine of growth along the process of development it argues that the positive impact of inequality on the growth process was reversed in this process in early stages of the industrial revolution when physical capital accumulation was the prime source of growth inequality stimulated development by channelling resources towards individuals with a higher propensity to save as human capital emerged as a growth engine equality alleviated adverse effects of credit constraints on human capital accumulation stimulating the growth process this research develops a growth theory that captures the endogenous replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth in the transition from the industrial revolution to modern growth the proposed theory offers a unified account for the effect of income inequality on the growth process during this transition it argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth changed the qualitative impact of inequality on the process of development in the early stages of the industrial revolution when physical capital accumulation was the prime source of economic growth inequality enhanced the process of development by channelling resources towards individuals whose marginal propensity to save is higher in the later stages of the transition to modern growth as human capital emerged as a prime engine of economic growth equality alleviated the adverse effect of credit constraints on human capital accumulation and stimulated the growth process the proposed theory unifies two fundamental approaches regarding the effect of income distribution on the process of development the classical approach and the credit market imperfection approach 1 the classical approach was originated by smith 1776 and was further interpreted and developed by keynes 1920 lewis 1954 kaldor 1957 and bourguignon 1981 according to this approach saving rates are an increasing function of wealth and inequality therefore channels resources towards individuals whose marginal propensity to save 1 the socio political economy approach provides an alternative mechanism equality diminishes the tendency for socio political instability or distortionary redistribution and hence it stimulates investment and economic growth see the comprehensive survey of benabou 1996b

income distribution and growth the kuznets hypothesis revisited this study develops a general equilibrium model in which the evolution of income inequality and output conforms with the kuznets hypothesis the paper presents a novel endogenous mechanism that generates the inverted u relation between income inequality and per capita output and captures the reciprocal influence between the two unlike previous attempts for a comprehensive theoretical modelling of this phenomenon the evolution of the economy is consistent with another important empirical observation namely that output growth is accompanied in the early stages of development by a widening wage differential between skilled and unskilled labour whereas in a later stage this wage differential declines this study develops a general equilibrium model in which the evolution of income inequality and output conforms with the kuznets hypothesis the paper presents a novel endogenous mechanism that generates the inverted u relation between income inequality and per capita output and captures the reciprocal influence between the two unlike previous attempts for a compre hensive theoretical modelling of this phenomenon the economic evolution is consistent with another important empirical observation namely that output growth is accompanied in early stages of development by a widening wage differential between skilled and unskilled labour whereas in a later stage this wage differential declines the relationship between the distribution of income and economic growth has been a focus of research for several decades in a seminal contribution kuznets 1955 explored the historical evolution of income distribution and per capita output his study demonstrated that income inequality widens in the early phase of economic growth and narrows in the later stage of development kuznets s inverted u hypothesis has been debated in the last few decades and has been confirmed by a large number of cross section empirical studies and refuted by others time series analysis indicates that the hypothesis is consist 2 ent with the experience of most of the developed world furthermore these studies suggest that output growth is accompanied in early stages of develop ment by a widening wage differential between skilled and unskilled labour and that in a later stage this wage differential declines see e g williamson 1985 throughout the years the link between income distribution and economic growth has been interpreted mostly as a causal relation from growth to income distribution recently however the nature of this link has been re examined and attention has been paid to the causality in the other direction galor and zeira 1993 have demonstrated that owing to borrowing constraints income

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

local institutions audit quality and corporate scandals of us listed foreign firms using data on shareholder initiated class action lawsuits in the us i investigate the corporate scandals of us listed foreign firms the shareholders of scandal firms suffer considerable loss in both the short term and the long term i document that firms domiciled in countries with weak institutions are more likely to be embroiled in corporate scandals but such a relation can be moderated by the presence of big 4 auditors investors automatically adjust for undiscovered misconduct when valuing the stocks of non scandal firms i e the spillover effect investors rely on the audit quality to form their expectations about the severity of undiscovered misconduct and thus impose less negative spillovers on firms with big 4 auditors especially when the firms are from countries with weak institutions taken together my results suggest that listing on us exchanges does not fully compensate for weak local institutions voluntarily bonding to a more stringent audit process has an incremental effect on protecting shareholder interests and enhances the confidence of investors in firms financial integrity

escaping the iron cage liabilities of origin and csr reporting of emerging market multinational enterprises this article examines the link between the condition of institutional voids in emerging markets and the use of the practice of corporate social responsibility csr reporting by emerging market multinational enterprises em mnes based on neo institutional theory and in light of the specificity of emerging markets we propose a positive relationship between institutional voids and csr reporting home country institutional voids push companies to internationalize as a way to escape the institutional constraints and inefficiencies in their own markets but at the same time create legitimacy challenges for these companies abroad in particular em mnes from less institutionally developed countries are likely to face liabilities of origin negative perceptions in host countries about these firms willingness and ability to conduct legitimate business csr reporting is an effective strategy to overcome such liabilities and barriers to legitimation as it conveys to host countries and global stakeholders alignment with global meta norms and expectations internationalization listing on developed country stock exchanges and time further magnify em mnes legitimacy challenges and thus the use of csr reporting to mitigate them our hypotheses are supported in a longitudinal study of 157 of the largest em mnes ranked by the united nations conference on trade and development unctad between 2004 and 2011

internal equity financing and the performance of multinational subsidiaries in emerging economies we examine the internal equity financing of the multinational subsidiary which retains and reinvests its own earnings internal equity financing is a type of firm specific advantage fsa along with other traditional fsas in innovation research and development brands and management skills it also reflects subsidiary level financial management decision making here we test the contributions of internal equity financing and subsidiary level financial management decision making to subsidiary performance using original survey data from british multinational subsidiaries in six emerging countries in the south east asia region our first finding is that internal equity financing acts as an fsa to improve subsidiary performance our second finding is that over 90 of financing sources including capital investment by the parent firms in the british subsidiaries come from internal funding our third finding is that subsidiary level financial management decision making has a statistically significant positive impact on subsidiary performance our findings advance the theoretical empirical and managerial analysis of subsidiary performance in emerging economies

can foreign firms bond themselves effectively by renting u s securities laws abstract the study tests the functional convergence hypothesis which states that foreign firms can leapfrog their countries weak legal institutions by listing equities in new york and agreeing to follow u s securities law evidence shows that the sec and minority shareholders have not effectively enforced the law against cross listed foreign firms detailed evidence from mexico further shows that while some insiders exploited this weak legal enforcement with impunity others that issued a cross listing and passed through an economic downturn with a clean reputation went on to receive privileged long term access to outside finance as compared with legal bonding reputational bonding better explains the success of cross listings

can leading indicators assess country vulnerability evidence from the 2008 09 global financial crisis abstract we investigate whether leading indicators can help explain the cross country incidence of the 2008 09 financial crisis rather than looking for indicators with specific relevance to the recent crisis the selection of variables is driven by an extensive review of more than eighty papers from the previous literature on early warning indicators our motivation is to address suspicions that indicators found to be useful predictors in one round of crises are typically not useful to predict the next round the review suggests that central bank reserves and past movements in the real exchange rate were the two leading indicators that had proven the most useful in explaining crisis incidence across different countries and episodes in the past for the 2008 09 crisis we use six different variables to measure crisis incidence drops in gdp and industrial production currency depreciation stock market performance reserve losses and participation in an imf program we find that the level of reserves in 2007 appears as a consistent and statistically significant leading indicator of who got hit by the 2008 09 crisis in line with the conclusions of the pre 2008 literature in addition to reserves recent real appreciation is a statistically significant predictor of devaluation and of a measure of exchange market pressure during the current crisis we define the period of the global financial shock as running from late 2008 to early 2009 which probably explains why we find stronger results than earlier papers such as obstfeld et al 2009 2010 and rose and spiegel 2009a b 2010 2011 which use annual data

human capital kuznets curve with subsistence consumption level abstract we examine the human capital kuznets curve in a simple model that does not assume increasing returns to scale in human capital formation with a utility function that specifies a subsistence consumption level consumption is a necessary good and education is a luxury good as the children of poor households receive a low level of education the gap in human capital endowments expands between poor and rich households eventually economic development increases income and expenditure for education and income inequality declines

corporate bond covenants and social responsibility investment this paper examines the effect of corporate social responsibility csr on the number of bond covenants we find that a high csr score has a negative association with the number of bond covenants moreover our results are more pronounced for firms with a high bid ask spread and high agency costs our analysis highlights the effect of the good stakeholder relationship on the bond contracts

persistent inequality an explanation based on limited parental altruism abstract this paper proposes an alternative theory for the observed persistence in income inequality across households a theory based on limited parental altruism we argue that the degree of parental altruism is limited by the economic status of the parent a poor parent not only has less ability but also has less willingness to invest in children s human capital formation this generates a non linearity in such investment expenditures as a result initial income differences may perpetuate over time even with convex technology and convex preferences in this context we also compare the efficacy of the public vis a vis the private education system from the perspective of long run growth

vagabond shoes longing to stray why foreign firms list in the united states abstract how do firms that go public decide whether to list on a major stock exchange or locally using a unique data set on israeli ipos in the us and tel aviv we show that companies that list in the us are young and overwhelmingly high tech oriented we argue that high quality innovative firms are willing to incur additional costs associated with listing in the us in order to reveal their value and distinguish themselves from firms that issue stock back home costs of listing in the us include first day underpricing and relinquishing corporate control

human capital inequality and growth a local perspective abstract a recent body of work has demonstrated the crucial role played by local human capital externalities and local school funding in generating socio economic segregation persistent poverty and low aggregate income or productivity growth we present a simple model which captures the main insights from this literature and prove three general propositions first minor differences in education technologies preferences wealth or minor imperfections in capital markets can lead to a high degree of stratification second stratification makes inequality in education and income more persistent across generations the same is true for total wealth provided the rich succeed in capturing the rents created by their secession finally this polarization or urban areas can be very inefficient especially in the long run

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

are currency crises self fulfilling abstract this paper studies the respective roles of the fundamentals and self fulfilling speculation in currency crises we first present a model of a fixed exchange rate system in which self fulfilling speculation can arise following a bifurcation in the fundamentals we then estimate the model in the case of the 1992 3 crisis of the french franc and find some evidence that self fulfilling speculation was at work

cross country differences in intergenerational earnings mobility international studies of the extent to which economic status is passed from one generation to the next are important for at least two reasons first each study of a particular country characterizes an important feature of that country s income inequality second comparisons of intergenerational mobility across countries may yield valuable clues about how income status is transmitted across generations and why the strength of that intergenerational transmission varies across countries the e rst section of this paper explains a benchmark measure of intergenerational mobility commonly used in u s studies the second section summarizes comparable empirical e ndings that have accumulated so far for countries other than the united states the third section sketches a theoretical framework for interpreting cross country differences in intergenerational mobility

how much does having a bank account help the poor abstracthaving a bank account is widely regarded as the first step toward financial inclusion of the poor funds deposited in a bank account are also observed to lead to higher savings exploiting

economic growth and the quantity and distribution of education a survey the focus of this survey is to discuss different attempts at incorporating the distributional dimension of human capital into the theoretical and empirical growth framework we present a series of models which deviate from the direct link between the aggregate or average level of human capital and economic growth in that they introduce the distribution of education as a new element in explaining the relationship under investigation after surveying the theoretical literature we present recent empirical work on the relation between economic performance and the average level as well as the distribution of education respectively

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

internationalization and the evolution of corporate valuation by documenting the evolution of tobin s q before during and after firms internationalize the authors provide evidence on the bonding segmentation and market timing theories of internationalization using new data on 9 096 firms across 74 countries over the period 1989 2000 they find that tobin s q does not rise after internationalization even relative to firms that do not internationalize instead q rises significantly before internationalization and during the internationalization year but then q falls sharply in the year after internationalization quickly relinquishing the increases of the previous years to account for these dynamics the authors show that market capitalization rises before internationalization and remains high while corporate assets increase during internationalization the evidence supports models stressing that financial internationalization facilitates corporate expansion but challenges models stressing that internationalization produces an enduring effect on q by bonding firms to a better corporate governance system

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

contractual structure and wealth accumulation can historical wealth distributions affect long run output and inequality despite rational saving convex technology and no externalities we consider a model of equilibrium short period financial contracts where poor agents face credit constraints owing to moral hazard and limited liability if agents have no bargaining power poor agents have no incentive to save poverty traps emerge and agents are polarized into two classes with no interclass mobility if instead agents have all the bargaining power strong saving incentives are generated the wealth of poor and rich agents alike drift upward indefinitely and history does not matter eventually d31 d91 i32 o17 q15

equilibrium income inequality among identical agents the paper offers a theory of income differences in which income inequality exists and persists despite identical tastes and talents teams of unskilled labor supervised by schooled managers produce goods with increasing returns to scale agents are assumed unable to borrow to fund the human capital investment needed to become managers despite ex ante identical agents the model displays the following equilibrium phenomena i risk averse agents accept fair gambles implying an unequal ex post distribution of unearned income ii agents agree to publicly subsidize education although those receiving the subsidy have the highest material wealth and iii income and educational differences are perpetuated from generation to generation

pareto superiority of unegalitarian equilibria in stiglitz model of wealth distribution with convex saving function this paper extends the conclusions obtained by stiglitz and others about the asymptotic wealth distribution in the neo classical growth model when the saving function is convex it is shown not only that locally stable two class unegalitarian equilibria may exist along with the egalitarian equilibrium but also that they necessarily are pareto superior to it more generally the paper also analyzes the class of pareto optimal unegalitarian equilibria

intergenerational earnings mobility inequality and growth abstract we examine a model in which per capita income inequality intergenerational mobility and returns to education are all determined endogenously individuals earn wages depending on their ability which is a random variable they purchase an education with transfers received from their parents and are subject to liquidity constraints in the model multiple steady state equilibria are possible countries with identical tastes and technologies can reach differing rates of mobility inequality and per capita income equilibria with higher levels of output also have lower inequality higher mobility and more efficient distribution of education

political incentives to suppress negative information evidence from chinese listed firms this paper tests the proposition that politicians and their affiliated firms i e firms operating in their province temporarily suppress negative information in response to political incentives we examine the stock price behavior of chinese listed firms around two visible political events meetings of the national congress of the chinese communist party and promotions of high level provincial politicians that are expected to asymmetrically increase the costs of releasing bad news the costs create an incentive for local politicians and their affiliated firms to temporarily restrict the flow of negative information about the companies the result will be fewer stock price crashes for the affiliated firms during these event windows followed by an increase in crashes after the event consistent with these predictions we find that the affiliated firms experience a reduction an increase in negative stock return skewness before after the event these effects are strongest in the three month period directly preceding the event among firms that are more politically connected and when the province is dominated by faction politics and cronyism additional tests document a significant reduction in published newspaper articles about affected firms in advance of these political events suggestive of a link between our observed stock price behavior and temporary shifts in the listed firms information environment

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

optimal growth with decreasing marginal impatience abstract this paper analyses the long run dynamics of a continuous time infinite horizon optimal growth model with identical households where the households rate of time preference is endogenously determined however unlike the existing literature we assume that households have decreasing marginal impatience i e the instantaneous discount rate is negatively related to the current consumption with this assumption we analyse the stability and uniqueness of the long run equilibrium we show that contrary to the general belief a negative relationship between the instantaneous discount rate and the household s current consumption does not necessarily result in instability of the dynamic system however even a stable system may be characterized by multiple equilibria so that the initial condition becomes important in determining the long run behaviour of the economy we derive a set of sufficient conditions for stability and uniqueness in this context

macroeconomic impacts of the korean financial crisis comparison with the cross country patterns this paper analyzes the macroeconomic adjustment process of the korean financial crisis in a broad international perspective in particular the impacts of the crisis on gdp growth inflation current account balance and employment are analyzed using a cross country data set which compiled 150 financial crisis episodes from all developing countries that have received conditional financial assistance from the imf over the period from 1973 to 1994 the cross country patterns show that gdp growth rates sharply drop with the eruption of a crisis but then recover quickly to the pre crisis level in two or three years showing a v pattern of adjustment inflation and current account deficit exhibit an inverse v pattern but they do not improve to the level of non program period employment growth is most sluggish in the recovery process compared with other macroeconomic variables we find that the korean case is in general consistent with these stylized patterns however the degree of initial contraction and following recovery has been far greater in korea than what the cross country evidence predicts cross country comparison indicates that both the export oriented structure and the swift adjustment of macroeconomic policies contributed to the speedy adjustment of the korean economy this abstract was borrowed from another version of this item

credit rating initiation and accounting quality for emerging market firms we examine whether certification by an internationally recognized information intermediary helps emerging market firms overcome the liability of foreignness in capital markets specifically we ask whether securing a credit rating from standard poor s s p enables these firms to certify their financial reporting quality we hypothesize that the unique information demands of lenders motivate firms to provide more conservative financial statements upon securing an s p rating we find evidence consistent with this conjecture moreover the rating appears to be part of an international expansion strategy for these firms and is followed by increased international activity in capital and product markets

disentangling the incentive and entrenchment effects of large shareholdings this article disentangles the incentive and entrenchment effects of large ownership using data for 1 301 publicly traded corporations in eight east asian economies we find that firm value increases with the cash flow ownership of the largest shareholder consistent with a positive incentive effect but firm value falls when the control rights of the largest shareholder exceed its cash flow ownership consistent with an entrenchment effect given that concentrated corporate ownership is predominant in most countries these findings have relevance for corporate governance across the world

the impact of cross listing in the united states on the precision of public and private information our study explores the source of improvement in the information environment from cross listing shares on us stock exchanges are the improvements from cross listing in the united states achieved more through public or private information channels while we find evidence that us cross listing is significantly associated with improvements in both public and private information precision the association is stronger between cross listing and improvements in private information precision this suggests that the improvement in the information environment for cross listed firms is largely due to analysts expending more effort on firm specific information discovery as opposed to broader improvements in overall public disclosure this research should influence international business scholars that improvements in the information environment do not occur solely through public information channels they also occur through investors private information search activities

investor protection and corporate governance recent research has documented large differences among countries in ownership concentration in publicly traded firms in the breadth and depth of capital markets in dividend policies and in the access of firms to external finance a common element to the explanations of these differences is how well investors both shareholders and creditors are protected by law from expropriation by the managers and controlling shareholders of firms we describe the differences in laws and the effectiveness of their enforcement across countries discuss the possible origins of these differences summarize their consequences and assess potential strategies of corporate governance reform we argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank centered and market centered financial systems

rate of time preference intertemporal elasticity of substitution and level of wealth the rate of time preference rtp and the intertemporal elasticity of substitution ies are two important factors shaping intertemporal consumption decisions models in which the rtp and or the ies differ systematically between rich and poor households have different empirical and policy implications for economic development growth and the distribution of income and consumption from those of standard models in which these parameters are constant across households in this chapter we estimate a model in which both rtp and ies are allowed to differ across rich and poor households using household level panel data from india our empirical results are consistent with the view that the rtp is constant across poor and rich households but the ies is larger for the rich than it is for the poor

tunneling and propping a justification for pyramidal ownership abstract this paper links existence of the pyramidal ownership structure to tunneling and propping tunneling refers to a transfer of resources from a lower level firm to a higher level firm in the pyramidal chain whereas propping concerns a transfer in the opposite direction intended to bail out the receiving firm from bankruptcy we show that tunneling alone cannot justify the pyramidal structure unless outside investors are myopic since rational outside investors anticipate tunneling and adjust their willingness to pay for the firm s shares accordingly with propping however they may be willing to be expropriated in exchange for implicit insurance against bankruptcy

intertemporal dependence impatience and dynamics abstract this paper develops simple geometric methods for analyzing consumer behavior under recursive but intertemporally dependent tastes since the preferences studied need not be time additive they allow the marginal utility of consumption on a given date to vary with consumption on other dates intertemporal dependence is induced by the presence of a variable individual rate of time preference the optimal consumption responses to transitory and anticipated changes in incomes and interest rates are easily derived and are similar in many respects to the responses implied by the standard constant time preference model intuitive explanations of the first order conditions describing optimal paths are provided

looking for a needle in a haystack revisiting the cross country causes of the 2008 9 crisis by bayesian model averaging in this paper we explore the cross country variation in the output impact of the global financial crisis in 2008 9 we use the extensive dataset of rose and spiegel but control for the problems of model uncertainty and outliers by using a variety of bayesian model averaging techniques we find first that cross country differences in crisis intensity can be explained by macroeconomic vulnerabilities second ignoring model uncertainty can lead to incorrect inferences third international trade linkages do matter

do countries matter for voluntary disclosure evidence from cross listed firms in the us this paper explores the likelihood and consequences of voluntary disclosure proxied by management earnings forecasts for a sample of 1005 cross listed firms in the us from 40 countries over the period 1996 2005 our study is grounded in a three tiered conceptual framework that relies on insights from and implications of institutional theory agency theory and bonding theory to explain the costs and benefits associated with voluntary disclosure consistent with institutional theory and agency theory our results indicate that disclosure likelihood increases with the strength of cross listed firms home country legal institutions and is also influenced by us listing type product market internationalization and ownership structure further our results show that voluntarily committing to us disclosure practice is associated with lower information asymmetry which supports reputational bonding theory overall our study provides a costs and benefits framework to understand voluntary disclosure practices in an international context our work also presents evidence that home country institutions still matter when foreign firms migrate into the us financial market which highlights the importance of country level institution development

foreign independent directors and the quality of legal institutions foreign directors can affect firm value through their advising and monitoring functions however the demand for these directors as well as their effect on firm performance is likely to be influenced by firm and country level characteristics in a large sample of non us firms we find that foreign directors are more likely to be associated with firms that have more foreign operations and an international shareholder base and firms that are located in countries with a limited supply of potentially qualified domestic directors countries with a smaller less well educated populace and lower levels of capital market development we also find that the association between foreign directors and firm performance is more positive in countries with lower quality legal institutions and when the director comes from a country with higher quality legal institutions than the firm s host country our study highlights the importance of considering national demographic factors and levels of capital market development when modeling the supply and demand for foreign directors and also underscores the importance of institutional quality in the foreign director s home and host country when assessing the effect of that director on firm performance

cross listing and legal bonding evidence from mergers and acquisitions abstract using a sample of foreign acquisitions of us targets this study examines the extent to which cross listing in the us leads to legal and regulatory bonding and or whether reputational bonding proxied by financial intermediaries monitoring an often ignored component of the bonding mechanism is an important factor in us investors decision to hold shares in cross listed firms we find that compared to us firms cross listed firms are less likely to use equity in takeovers of us targets further cross listed firms from countries with poorer legal protections are less likely to finance with equity and pay higher premiums than cross listed firms from countries with better legal protections using analysts coverage and institutional following as proxies for financial intermediary monitoring we find some support for the importance of reputational bonding the evidence suggests that while cross listing reduces barriers to investment there are limits to its ability to completely subsume both the legal environment and the importance of the monitoring of financial intermediaries this further suggests that the extent of actual legal and regulatory bonding by cross listed firms may be more limited than often assumed

income distribution and macroeconomics the persistence of inequality in a convex technology framework i show that non convexities in technology assumed in the capital market imperfection literature on the relationship between income distribution and economic development can be replaced by an assumption that the bequest function is convex with respect to income 2002 elsevier science b v all rights reserved

domestic liquidity and cross listing in the united states abstract this study examines changes in domestic liquidity after cross listing in the united states our liquidity measures are based on intraday data from domestic markets for a large sample of firms that cross list in the united states and for a matched sample of firms that do not cross list we find that unadjusted liquidity significantly improves after cross listing however after controlling for contemporaneous changes in liquidity for a matched sample of firms that do not cross list there is no evidence of improvements in domestic liquidity due to cross listing our results offer no support for the bonding hypothesis or for the hypothesis that cross listing improves domestic liquidity because of increased intermarket competition and additional order flow

discussion of adrs analysts and accuracy does cross listing in the united states improve a firm s information environment and increase market value lang lins and miller 2002 investigate the relation between cross listing in the united states and information intermediation by analysts the results suggest that cross listing in the united states increases analyst following and forecast accuracy and that both variables are associated with tobin s q these findings are interesting and advance the cross listing literature in several ways this discussion raises two issues first i highlight that the sources of cross listing effects are not obvious and are difficult to disentangle to illustrate this point i replicate the analysis using cross listed canadian firms for which mandated disclosures are held constant thus if disclosure effects are important for documented cross listing effects i expect to find no relation in the canadian sample the findings for forecast accuracy are consistent with this hypothesis however analyst following continues to be significantly higher for cross listed canadian firms these findings suggest that the sources of cross listing effects differ for analyst coverage and forecast accuracy second i discuss the link between analyst variables firm value and cost of capital as they are only tenuously related i draw attention to some unresolved questions and areas for future research

leading indicators of fiscal distress evidence from extreme bounds analysis early warning systems ewss are widely used to assess a country s vulnerability to fiscal distress a fiscal distress episode is identified as a period when government experiences extreme funding

increasing returns human capital and the kuznets curve abstract we present a simple model of human capital accumulation which generates the kuznets curve as an equilibrium outcome the central ingredient that helps generate the kuznets curve in the model is what we call short run increasing returns to scale in the learning technology the learning technology exhibits increasing returns to scale but only in the short run since one of the factors of production time is bounded above by the endowment we show that short run increasing returns to scale is necessary to obtain the kuznets curve but not sufficient

subsistence substitutability and sustainability in consumption we propose a representation of individual preferences with a subsistence requirement in consumption and examine its implications for substitutability and sustainability specifically we generalize the standard constant elasticity of substitution ces utility specification for manufactured goods and environmental services by adding a subsistence requirement for environmental services we find that the hicksian elasticity of substitution strictly monotonically increases with the consumption of environmental services above the subsistence requirement and approaches the standard ces value as consumption becomes very large whether the two goods are market substitutes depends on the level of income we further show that the subsistence requirement may jeopardize the existence of an intertemporally optimal and sustainable consumption path our results have important implications for growth development and environmental policy

does the bonding effect matter in a more integrated capital market world abstract this paper examines the bonding effect of cross listing before and after the stock market liberalization reforms in china consistent with the bonding hypothesis we find that chinese firms with foreign listings attain higher valuations than firms without foreign listings we also find that they manage earnings less than comparable purely domestic listed firms and have more informative stock prices further investigation indicates that the divergence in earnings quality between cross listed and non cross listed firms shrinks dramatically after the chinese stock market liberalization reforms in 2001 and 2002 overall the results suggest that the bonding effect is mitigated in an increasingly integrated capital market world

is there a better commitment mechanism than cross listings for emerging economy firms evidence from mexico the last decade of work in corporate governance has shown that weak legal institutions at the country level hinder firms in emerging economies from accessing finance and technology affordably to attract outside resources these firms must often use external commitments for repayment research suggests that a common commitment mechanism is to borrow us securities laws which involves listing the emerging economy firm s shares on a us exchange this paper uses a quasi natural experiment from mexico to examine the conditions under which forming a strategic alliance with a foreign multinational firm is actually a superior mechanism for ensuring good corporate governance

discount rate heterogeneity and social security reform abstract as many countries consider the privatization of existing pay as you go social security systems the option to make participation in the new system voluntary may appeal to policy makers who need to obtain the political support of their workers a critical issue in evaluating such a reform and its economic consequences is the unobserved heterogeneity in households preferences for consumption this paper estimates the distribution of rates of time preference from the wealth data in the survey of consumer finances 1992 and a flexible life cycle model of consumption under income uncertainty the estimated distribution is then applied to a variety of reform proposals that incorporate a voluntary choice of how much to contribute to a dedicated retirement account and a rebate of the existing payroll tax that increases with the magnitude of the contribution the main finding is that an appropriate menu of reform plans can induce the voluntary buy out of 84 of existing payroll taxes at an immediate cost to national saving of less than 0 25 percentage point

exchange market mayhem the antecedents and aftermath of speculative attacks exchange market mayhem the antecedents and aftermath of speculative attacks this paper evaluates the causes and consequences of episodes of turbulence in foreign exchange markets using data from 1959 through 1993 for twenty oecd countries we consider the antecedents and aftermath of devaluations and revaluations flotations fixings and speculative attacks which may not be successful we find that realignments of fixed exchange rates are alike devaluations are preceded by political instability budget and current account deficits and fast growth of money and prices revaluations are mirror images of devaluations speculative attacks resemble devaluations but money growth and inflation are more endemic and there is no last minute attempt to tighten monetary policy in contrast few consistent correlations link regime transitions like flotations or fixings to macroeconomic or political variables transitions between exchange rate regimes are largely idiosyncratic and are neither consistently provoked ex ante by systematic imbalances nor typically justified ex post by subsequent changes in policy we conclude that there are no clear early warning signals of many speculative attacks and no easy solutions for policy makers barry eichengreen andrew k rose and charles wyplosz

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association

international financial integration through equity markets which firms from which countries go global the authors study international financial integration analyzing firms from various countries raising capital trading equity and cross listing in major world stock markets using a large sample of 39 517 firms from 111 countries covering the period 1989 2000 they find that although international financial integration increases substantially over this period only relatively few countries and firms actively participate in international markets firms more likely to internationalize are from larger and more open economies with higher income better macroeconomic policies and worse institutional environments these firms tend to be larger grow faster and have higher returns and more foreign sales while changes occur with internationalization these firm attributes are present before internationalization takes place the results suggest that international financial integration will likely remain constrained by country and firm characteristics

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

to steal or not to steal firm attributes legal environment and valuation data on corporate governance and disclosure practices reveal wide within country variation that decreases with the strength of investors legal protection a simple model identifies three firm attributes related to that variation investment opportunities external financing and ownership structure using firm level governance and transparency data from 27 countries we find that all three firm attributes are related to the quality of governance and disclosure practices and firms with higher governance and transparency rankings are valued higher in stock markets all relations are stronger in less investor friendly countries demonstrating that firms adapt to poor legal environments to establish efficient governance practices

the dynamics of the wealth distribution and the interest rate with credit rationing are uniquely determined and wealth dispersion among individuals or firms is irrelevant introducing credit rationing into the solow model modifies these conclusions multiple stationary interest rates and wealth distributions can exist because higher initial rates can be self reinforcing through higher credit rationing and lower capital accumulation the wealth accumulation process is ergodic in every steady state but wealth mobility is lower with higher steady state interest rates aggregate output is higher in steady states with lower interest rates because credit is better allocated short run interest rate or distribution shocks can be self sustaining and can have long run effects on output through the induced dynamics of the wealth distribution and credit rationing

intergenerational mobility and the process of development this paper offers an explanation for some evidence that intergenerational earnings mobility is higher in more developed economies and that mobility is positively correlated with wage equality in the model mobility promotes economic growth via its effect on the accumulation and allocation of human capital growth influences mobility via its effect on incentives to acquire education and its effect on liquidity constraints upon such acquisition in the process of development mobility increases and the distribution of education becomes better correlated with ability redistributive policy has a negative effect on growth in developed economies and a positive effect in developing economies

did established early warning signals predict the 2008 crises abstract over the past 60 years a voluminous literature has painstakingly developed crises theories and their associated early warning signals the hallmark of this literature is the consistency with which selected early warning signals such as the level of reserves and exchange rate appreciations are presumed to predict different types of crises across countries and time the diversity of crises theories that motivate early warning signals presents however a challenge to empirical implementations given that the true model of early warning signals is unknown omitted variable bias contaminates estimates and confidence levels when the uncertainty surrounding a particular theory has been ignored after addressing model uncertainty in early warning signal regressions using an extended version of frankel and saravelos 2012 j int econ 87 216 231 dataset we do not find a single early warning signal that alerts to all dimensions of the 2008 crisis instead distinct sets of early warning signals identify different dimensions of the crisis banking balance of payments exchange rate pressure and recession

reputation effects and the limits of contracting a study of the indian software industry this paper examines evidence of the role that reputation plays in determining contractual outcomes we conduct an empirical analysis of the indian customized software industry using a data set we collected containing detailed information on 230 projects carried out by 125 software firms we propose a model ofthe industry where reputation determines contractual outcomes the evidence supports the view that reputation matters ex ante contracts as well as the outcome after ex post renegotiation vary with firms characteristics plausibly associated with reputation this holds after controlling for project client and firm characteristics

understanding the relationship between poverty and children s health abstract throughout the world children from poor households have worse health than children from wealthier households there are numerous channels through which such disparities may arise for designing programs to improve children s health it is important to identify for example whether these disparities arise from differences in pre natal health inputs and behaviors nutrition alcohol and tobacco use during pregnancy or differential health inputs following birth we explore these issues for russia where children s health is particularly poor we find that large health disparities between rich and poor originate largely from differences in pre natal nutrition and alcohol use

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

international business responses to institutional voids for nearly two decades scholars in international business and management have explored the implications of institutional voids for firm strategy and structure although institutional voids offer both opportunities and challenges they have largely been associated with firms efforts to avoid or mitigate institutional deficiencies and reduce the transaction costs associated with operating in settings subject to those institutional shortcomings the goal of this special issue is to advance scholarship on this topic by a exploring institutional voids that are new to the literature b providing a deeper assessment of the different ways in which firms respond to these voids and c utilizing diverse disciplines and theoretical approaches to do so in this introduction we first review and synthesize extant research on institutional voids tracking the evolution of institutional void scholarship since the inception of the concept khanna palepu journal of economic literature 45 2 331 372 1997 and providing our perspective on its contributions and limitations we then summarize the contributions of the articles included in this special issue in addition to identifying an array of institutional voids economic and social the articles highlight four different strategies for responding to them internalization substitution borrowing and signaling drawing on these we develop new insights on the implications of institutional voids for firm behavior we conclude with suggestions for future research

the diminishing benefits of u s cross listing economic consequences of sec rule 12h 6 on mar 21 2007 the u s securities and exchange commission sec passed exchange act rule 12h 6 to make it easier for cross listed firms to deregister from the u s market and escape its regulatory costs using difference in difference dd tests we find that on average rule 12h 6 s passage induced an increase in voting premium a decline in equity raising and a decline in cross listing premium these effects are observed for exchange listed firms and for firms from countries with weak investor protection we conclude that although cross listed firms are still valued at a significant premium over non cross listed firms the rule decreased the value of commitment to the u s regulatory system

differences in food insecurity between adults and children in zimbabwe food insecurity is a serious challenge facing millions of households across africa within these households distinguishing the incidence of food insecurity between adults and children is often difficult because most surveys rely on the reports of adults in this paper we address this shortcoming of previous work by using a survey from over 6000 households in zimbabwe where interviews were conducted with both an adult caregiver and a child using two measures of food insecurity we find that reports of adults and children differ within households with lower reports of food insecurity among children with children in the youngest age groups particularly being protected from food shortages an exception to this general rule though is in better off households where children are often more likely to be food insecure than adults findings also demonstrate the need for multiple measures to comprehensively capture the full picture of food insecurity in the household