financial markets and growth the last five years have witnessed a resurgence of interest in the relationship between financial intermediation and economic growth this issue had been extensively studied nearly two decades earlier by goldsmith 1969 mckinnon 1973 shaw 1973 and others who produced considerable evidence that financial development correlates with growth but their work though insightful lacked analytical foundations in traditional growth theory financial intermediation could be related to the level of the capital stock per worker or to the level of productivity but not to their respective growth rates the latter were ascribed to exogenous technical progress the recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of endogenous growth models which have shown that there can be self sustaining growth without exogenous technical progress and that the growth rate can be related to preferences technology income distribution and institutional arrangements this provides the theoretical underpinning that early contributors lacked tinancial intermediation can be shown to have not only level effects but also growth effects the resulting models have offered important insights into the effect of financial development on growth and vice versa they have also provided new impetus to empirical research on these issues this paper reviews the ground covered so far on the theoretical and empirical front and points to some still unresolved issues

does bank competition reduce cost of credit cross country evidence from europe abstract despite the extensive debate on the effects of bank competition on economic welfare and growth only a handful of single country studies deal with the impact of bank competition on the cost of credit we contribute to the literature by investigating the impact of bank competition on the cost of credit in a cross country setting using a panel of firms from 20 european countries covering the period 2001 2011 we consider a broad set of measures of bank competition including two structural measures herfindahl hirschman index and cr5 and two non structural indicators lerner index and h statistic we find that bank competition increases the cost of credit and observe that the positive influence of bank competition is stronger for smaller companies our findings accord with the information hypothesis whereby a lack of competition incentivizes banks to invest in soft information and conversely increased competition raises the cost of credit this positive impact of bank competition is however influenced by the institutional and economic framework as well as by the crisis

perceived credit constraints in the european union the promotion and support of small and medium sized enterprises smes is an essential component of policies designed to help improve europe s economic performance a crucial issue is whether smes face difficulty obtaining bank loans using pre crisis survey data from 2005 and 2006 for nearly 3 500 smes firms with fewer than 250 employees in the european union eu we investigate the determinants of perceived bank loan accessibility at the firm level and at the country level based on hierarchical multi level binomial logit regressions our findings show that the youngest and smallest smes have the worst perception of access to bank loans the smes in nations with concentrated banking sectors are more positive about loan accessibility in addition a high fraction of foreign owned banks is associated with improved perception of loan accessibility in the eu 15 but not in the eu 10

a reexamination on the effect of bank competition on bank non performing loans this article examines whether competition in the deposit and loan markets results in a more stable or fragile banking industry following the assumption that deposit and loan competitions are not s

taxes tariffs and transfer pricing in multinational corporate decision making three interrelated aspects of u s multinational corporation activity are analyzed here the ability to shift profits from high tax countries to low tax countries the impact of host country taxes and tariffs on the distribution of real capital and the influence of these policies on international trade patterns of the united states and host countries the cross sectional empirical analysis indicates that the observed pattern of reported profits in high and low tax countries is consistent with income shifting behavior and that real investment responds to host country effective tax rates and tariffs the united states appears both to import more from and export more to low tax countries where mnc investment is greater but this bilateral focus must be amplified to consider multilateral effects if trade benefits are to be projected copyright 1991 by mit press

diversification in banking is noninterest income the answer this paper assesses potential diversification benefits in the u s banking industry from the steady shift toward activities that generate fee income trading revenue and other types of noninterest income in the aggregate declining volatility of net operating revenue reflects reduced volatility of net interest income not diversification benefits from noninterest income which is quite volatile and increasingly correlated with net interest income at the bank level greater reliance on noninterest income particularly trading revenue is associated with lower risk adjusted profits and higher risk this suggests few obvious diversification benefits from the ongoing shift toward noninterest income

globalization derailed multinational investors response to the 1997 denial of fast track trade negotiating authority is globalization being derailed by opponents results of this event study analysis of the 1997 fast track denial suggest that investors 1 may have perceived fast track as a debate on globalization and 2 appear to have expected financial losses to result from the failure to enact fast track regression results further support the event study findings

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

diffusion of a new product under network effects the us dvd market we formulate a model that captures the inter dependence between hardware demand and software supply indirect network effect in the dvd industry the identification of the network effect comes from the difference in software availability across two different formats vhs and dvd we find that a 1 increase in the number of dvd titles raises the demand for dvd players by 0 87 simultaneously a 1 increase in video player ownership leads to a 0 14 increase in the variety of video titles our simulations show that hardware manufacturers might be able to internalize the network externality to increase total industry revenues

institutional failure or market failure we investigate the effect of the power of creditors property rights protection and institutional quality on bank profits using a panel of 498 banks from 46 countries results show that better institutions and stronger property rights protection reduce bank profits while stronger power of creditors drives up bank profits significantly results imply that better institutions and enhanced property rights protection lead to greater flow of credit allowing firms and investors to undertake more profitable ventures by extension stronger creditor rights erect steeper barriers to external finance for firms and investors national indicators of economic freedoms may be more important to lowering the spread than strict creditor rights seemingly credit markets fail when economic institutions fail or when governments intervene into these markets in ways that impede the safety and soundness of financial transactions and private contracting

market discipline financial crisis and regulatory changes evidence from indonesian banks abstract following the 1997 1998 financial crisis indonesian banks experienced major regulatory changes including the adoption of the blanket guarantee scheme bgs in 1998 a limited guarantee lg in 2005 and changes in capital regulation in 1998 and 2001 we examine the impact of these regulatory changes on market discipline during the period 1995 2009 the price of deposits is used to measure market discipline in a dynamic panel data methodology on a sample of 104 commercial banks we find a weakening of market discipline following the introduction of the bgs the result is consistent with the deposit insurance scheme being credible in the lower capital requirement environment the adoption of lg in a recovering economy also mitigates the role of market discipline however market discipline is more pronounced in listed banks than unlisted banks and in foreign banks than domestic banks these results have important implications for banking regulation and supervision particularly during a crisis period

pandemics of the poor and banking stability we first develop a theoretical model that shows that the likelihood of a collapse of the banking industry of a developing country increases as the joint prevalence of large pandemics such as aids and malaria increases we also show that the optimal bank reserves increase as the prevalence increases in the empirical part of the paper we consider a large dataset of developing countries and we exhibit a causality effect from combined prevalence to deposit turnover as well as causality effect from an increase of combined prevalence to an increase in bank reserves those empirical facts therefore support our theoretical findings

reciprocal deposits and incremental bank risk even after controlling for other observable factors reciprocal deposits are associated with higher bank risk as measured by the probability of failure and the z score these results are consistent with the moral hazard hypothesis and reject the risk substitution hypothesis

competition and commercial banks risk taking evidence from sub saharan africa region abstractthis study investigates the relationship between competition and the risk taking attitude of banks we test how this relationship manifests in the sub saharan african ssa region s commerci

competition in banking and the lending channel evidence from bank level data in asia and latin america abstract this paper examines how banking competition affects the transmission of monetary policy through the bank lending channel we apply a two step estimation procedure using bank level panel data for commercial banks in 10 asian and 10 latin american countries during the period from 1996 to 2006 in the first step we measure the degree of banking competition by applying the methodology proposed by panzar and rosse 1987 in the second step we estimate a loan growth equation where the explanatory variables include the panzar rosse measure of banking competition the estimation results provide consistent evidence that increased competition in the banking sector weakens the transmission of monetary policy through the bank lending channel this is especially true for banks in latin american countries and banks of small size low liquidity and low capitalization we also discuss the policy implications of the main findings of this paper

drivers of systemic risk do national and european perspectives differ abstract with the establishment of the banking union the european central bank has been granted the power to impose stricter regulations than the national regulator if systemic risks are not adequately addressed at the national level we ask whether there is a cross border externality in the sense that a bank s systemic risk differs when applying a national versus a european perspective on average banks contribution to systemic risk is similar at the two regional levels and so is the ranking of banks generally larger banks and banks with a lower share of loans are more systemically important the effects of these variables are qualitatively but not quantitatively similar at the national versus the european level

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

foreign entry and bank competition abstract foreign entry and bank competition are modeled as the interaction between asymmetrically informed principals the entrant uses collateral as a screening device to contest the incumbent s informational advantage both better information ex ante and stronger legal protection ex post are shown to facilitate the entry of low cost outside competitors into credit markets the entrant s success in gaining borrowers of higher quality by offering cheaper loans increases with its efficiency cost advantage this paper accounts for evidence suggesting that foreign banks tend to lend more to large firms thereby neglecting small and medium enterprises the results also explain why this observed bias is stronger in emerging markets

firm growth and efficiency in the banking industry a new test of the efficient structure hypothesis abstract in this paper we propose a new test of the efficient structure es hypothesis which predicts that efficient firms come out ahead in competition and grow as a result our test has significant advantages over existing ones because it is more direct and can jointly test the so called quiet life hypothesis which predicts that in a concentrated market firms do not minimize costs we then apply this test to large banks in japan consistent with the es hypothesis we find that more efficient banks become larger we also find that market concentration reduces banks efficiency which supports the quiet life hypothesis these findings imply that there is an intriguing growth efficiency dynamic throughout banks life cycle although our findings also suggest that the es hypothesis dominates the quiet life hypothesis in terms of economic impact

the panzar rosse revenue test and market power in banking abstract the panzar rosse h statistic is a commonly used measure of market power in banking it is widely believed that h 0 is inconsistent with significant market power this study rigorously disproves that perception instead the possibility of h 0 under conditions of substantial market power turns out robust to the timing of banks actions relative costs choice of strategic variable degree of product differentiation strategy static or dynamic and degree of heterogeneity in banks conduct collusive versus fringe and hence may be common in practice

some economic effects of standards standards may be used to increase market efficiency when markets fail the market for standards however may fail since standards are a public good and producers and consumers may use standards to entrench or extend their market power using a sample of 252 products standard usage was found to be a function of buyer and seller concentration the importance of product quality for health and safety the elasticity of demand product complexity research nd development r d and advertising intensity and whether the product was a producer or consumer good standards affected product cost and price the location of production and product availability

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

bank competition and financial stability much ado about nothing the theoretical literature gives conflicting predictions on how bank competition should affect financial stability and dozens of researchers have attempted to evaluate the relationship empirically we collect 598 estimates of the competition stability nexus reported in 31 studies and analyze the literature using meta analysis methods we control for 35 aspects of study design and employ bayesian model averaging to tackle the resulting model uncertainty our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way the choice of data estimation methodology and control variables also affects the reported coefficient we find evidence for moderate publication bias taken together the estimates reported in the literature suggest little interplay between competition and stability even when corrected for publication bias and potential misspecifications this abstract was borrowed from another version of this item

internalization an event study test abstract the internalization theory of multinational firms proposes that direct international investment occurs when a firm has information related intangible assets with public good properties we find that firms with characteristics suggesting the presence of information based assets experience a significantly positive stock price reaction upon announcing a foreign acquisition on the other hand firms apparently lacking such assets experience at best zero abnormal returns upon announcing overseas acquisitions

russia s resource capitalism market vs political signalling since the early post soviet era when many strategically important russian oil and gas fields were sold on unfavourable terms the state has been seeking to regain control of these strategic assets with putin s return to the presidency in 2012 russia s u turn over oil and gas privatizations has again caused market consternation we examine strategic asset acquisitions by russian o g companies during putin s first terms as president and suggest that there should however be few surprises under putin strategic deals in russia are often informal dominated by russian partners subject to internecine rivalries and we show are somehow known by markets prior to promulgation findings suggest that in russia deals of strategic substance are recognized by financial markets prior to the announcement of political policy

the wealth effect of merger activity and the objective functions of merging firms abstract this paper studies the net effects of the long run sequence of events leading to merger and of merger per se on shareholder wealth the appropriate measure of the wealth effect is shown to be the abnormal dollar return cumulated over time using this measure the long run wealth effect of the event sequence culminating in merger is significantly negative for acquiring firms for acquired firms the effect is negative but not significant the immediate impact of merger per se is positive and highly significant for acquired firms but larger in absolute value and negative for acquiring firms the evidence also reveals that measured abnormal rates of return to acquiring firms are sensitive to a slight variation in model specification and dependent on firm size with smaller firms earning significantly negative post merger returns

comment on what drives bank competition some international evidence the question of bank competition is vitally important for a number of reasons the essential role of bank credit and other financial services as an input in the production of most other goods and services places banks in a unique and influential position such that any allocative inefficiency or other market distortions in banking are almost certain to be felt throughout the economy moreover recent history has provided numerous instances where the textbook paradigm of atomistic competition has proven inadequate as a policy guide for efficient banking either because there are simply too few banks to rely on sheer numbers as a guarantee of vigorous competition as in canada or because of evidence that there can be such a thing as too much competition in banking as suggested by several studies or because of instances where nearly competitive pricing has been observed in markets containing only one or two banks or because conversely substantially noncompetitive pricing has sometimes been deduced in banking products such as credit cardswith thousands of suppliers thus the study of bank competition remains an urgent field of research claessens and laeven 2004 this issue of jmcb make two key contributions here first they extend a proven empirical method to an unprecedentedly large and varied crosscountry sample second they offer the logical and policy relevant additional step of seeking to identify factors associated with variations in measured conduct this step is needed to assess the empirical validity of the traditional structure conductperformance paradigm in their sample and is especially important where that paradigm is found lacking as a predictor of bank conduct indeed although the authors

economic value competition and financial distress in the european banking system abstract in this paper we examine the impact of a large number of factors at the bank level liquidity and credit risks asset size income diversification and market power at the industry level banking concentration and macro level real gdp growth on bank financial distress using an unbalanced panel of 308 european commercial banks between 1996 and 2009 the observations falling below a given threshold of the empirical distribution of the shareholder value ratio proxy bank financial distress we employ a panel probit regression and given the presence of overlapping data giving rise to residual autocorrelation we use the bertschek and lechner 1998 robust estimator of the covariance matrix of parameters we show that credit risk liquidity risk and bank market power are the most influential determinants of distressed shareholder value ratio finally we evaluate the model out sample forecasting performance over the 2008 2009 crisis period

mergers and the market concentration doctrine evidence from the capital market the last 3 decades of vigorous enforcement of u s antimerger laws is based on the market concentration doctrine one of the oldest and most controversial propositions in industrial economics this doctrine which is an implication of oligopoly models in the tradition of cournot 1838 1927 and nash 1950 holds that the level of industry concentration is a reliable index of the industry s market power the empirical implication is that a relatively high level of industry concentration which in the presence of entry barriers is believed to facilitate intraindustry collusion or dominant firm pricing should be associated with relatively large industrywide monopoly rents following bain 1951 numerous the market concentration doctrine predicts that a horizontal merger is more likely to have collusive anticompetitive effects the greater the merger induced change in industry concentration since a collusive anticompetitive merger generates an increase in the industry s quality adjusted product price or a decrease in factor prices it also follows from the doctrine that the mergerinduced expected benefits to the product market rivals of the merging firms should be an increasing function of the concentration change the empirical results of this paper which are based on the industry wealth effect of a large sample of horizontal mergers including cases found in violation of antimonopoly laws fail to support this prediction this conclusion is robust with respect to assumptions concerning the probability that a proposed merger will be prevented by the law enforcement agencies and it continues to hold after transforming the industry wealth effect into a hypothetical constant expected change in the industry s product price the results imply that the levels of concentration and market shares found in the department of justice s merger guidelines are unlikely to identify truly anticompetitive mergers i wish to thank paul asquith gregg jarrell rex thompson walter vandaele the participants of the economics workshop at the antitrust division of the u s department of justice and a referee of this journal for helpful comments earlier drafts were presented at the 1983 meetings of the european association for research in industrial economics and at the 1984 meetings of the western finance association financial support from the social sciences and humanities research council of canada grant no 494 83 0091 and the u s federal trade commission is also gratefully acknowledged 1 a closely related but somewhat less general prediction is that high levels of concentration should be associated with relatively high supracompetitive product prices although

on the implications of market power in banking evidence from developing countries abstract this paper investigates how different degrees of market power affect bank efficiency and stability in the context of developing economies it sheds light on the competition stability nexus by documenting and analyzing the complex interactions between a tripod of variables that are central for regulators the degree of market power bank cost and profit efficiency and overall firm stability the results show that an increase in the degree of market power leads to greater bank stability and enhanced profit efficiency despite significant cost efficiency losses the findings lend empirical justification to the traditional view that increased competition may undermine bank stability and may bear significant implications for stressed banking systems in developing economies

parent firm performance across international joint venture life cycle stages the benefits that firms obtain from investing in international joint ventures ijvs can be reinforced or reduced by the management of later stages of collaboration this paper presents an analysis of the shareholder wealth effects of ijv formation and five types of ijv termination the empirical findings challenge common assumptions in the ijv literature contrast prior evidence on the performance implications of market entry and exit through acquisitions and divestitures and demonstrate the value of integrating ijv life cycle stages in future research

is financial inclusion good for bank stability international evidence abstract financial inclusion has become an important public policy priority following the recent global financial crisis yet we know very little of how it impacts soundness of the providers of financial services using an international sample of 2635 banks in 86 countries over the period 2004 12 we find that higher level of financial inclusion contributes to greater bank stability the positive association is particularly pronounced with those banks that have higher customer deposit funding share and lower marginal costs of providing banking services and also with those that operate in countries with stronger institutional quality the results are robust to instrumental variables analysis controlling for bank fixed effects alternative measures of financial inclusion among several other robustness tests our results highlight that the importance of ensuring inclusive financial system is not only a development goal but also an issue that should be prioritised by banks as such a policy drive is good for their stability

bank m a a market power story this paper analyzes capital market reactions to international bank m a we investigate the combined stock return patterns of targets bidders and their peers upon takeover announcement and closing or withdrawal we distinguish five common m a hypotheses and relate characteristic and mutually exclusive abnormal stock return patterns to each hypothesis the findings show that there are more investors who believe in gains through the exploitation of market power by the post merger entity than investors who believe in any of the other motives tested in the paper in a multinomial logistic model we show that patterns related to market power significantly concur with large relative target size intra industry mergers and increasing market concentration suggesting a substantial lessening of competition through m a

competition and credit procyclicality in european banking abstract this paper empirically assesses how competition in the banking sector affects credit procyclicality by estimating both an interacted panel var model using macroeconomic data and a single equation model with bank level data these two empirical approaches show that a deviation of actual gdp from potential gdp leads to greater credit fluctuations in economies where bank competition is weak this suggests that increased market power for banks increases the financial accelerator mechanism which is consistent with recent macroeconomic models showing that monopolistic banking tends to increase macroeconomic volatility by making credit cheaper during booms and more expensive during recessions

bank competition and financial stability in asia pacific the impact of bank competition on financial stability has been a focus of academic and policy debate over the last two decades and particularly since the 2007 08 global financial crises beck 2008 oecd 2011 under the traditional competition fragility view banks cannot earn monopoly rents in competitive markets and this results in lower profits capital ratios and charter values this makes banks less able to withstand demand or supply side shocks and encourages excessive risk taking marcus 1984 alternatively the competition stability view suggests that competition leads to greater stability a less competitive banking market may lead to more risk taking if the big banks are deemed too important to fail and as such obtain implicit or explicit subsidies via government safety nets mishkin 1999 in addition banks with more market power tend to charge higher loan rates which may induce borrowers to assume greater risk leading to greater default in competitive banking markets loan rates are lower too big to fail issues and safety net subsidies are smaller and this results in a positive link between bank competition and stability boyd and de nicolo 2005 it could also be the case as noted by martinez miera and repullo 2010 that bank competition and stability are linked in a non linear manner and in a similar vein berger et al 2009 argue that competition and concentration may coexist and can simultaneously induce stability or fragility

driving forces for standardization at standardization development organizations this paper investigates sector specific driving forces for the standardization activities at national standardization organizations in the first part theoretical hypotheses concerning sector specific standardization are derived the empirical test is performed by a two step procedure first based on 19 sectors these hypotheses are tested empirically for germany the results show that rd additionally intellectual property rights play an important role furthermore standardization increases with the concentration of the enterprises up to a certain threshold where standardization activities decline again finally export intensive sectors tend to standardize more secondly because of the small data base these hypotheses are empirically tested in a pool model an international cross section approach based on 20 sectors and seven countries these results are generally in concordance with the findings of germany after a summary of the results recommendati

event studies in management research theoretical and empirical issues we examined the use of event studies in management research and found that there was inadequate attention paid to theoretical and research design issues this lack of attention may lead to false in

examining event study methodologies in foreign exchange markets a brown and warner 1980 1985 event study methodology is applied to the foreign exchange area comparisons of the performance of four abnormal return models are examined with simulations under different experimental conditions such as choice of foreign currency or numeraire level of abnormal shock sample size length of estimation period market return proxy and time period examined the results provide practical suggestions on the selection of an event study methodology and demonstrate that some of the findings of brown and warner are not generalizable to the foreign exchange area

trade liberalization comparative advantage and scale economies stock market evidence from canada abstract the canada united states free trade agreement fta provides an excellent opportunity to analyze the impact of a comprehensive trade liberalization in this paper a stock market event study is employed to capture investors expectations about the consequences of this agreement for manufacturing firms in canada the primary question addressed is whether abnormal stock market returns corresponding to news about the fta are consistent with hypotheses based on comparative advantage and economies of scale the results indicate that both comparative advantage and scale economies played a role in determining investors perceptions of the impact of the fta

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

the joint estimation of bank level market power and efficiency the aim of this study is to provide a methodology for the joint estimation of efficiency and market power of individual banks the proposed method utilizes the separate implications of the new empirical industrial organization and the stochastic frontier literatures and suggests identification using the local maximum likelihood lml technique through lml estimation of market power of individual banks becomes feasible while a number of restrictive theoretical and empirical assumptions are relaxed the empirical analysis is carried out on the basis of emu bank data market power estimates indicate fairly competitive conduct in general however heterogeneity in market power estimates is substantial across banks the latter result suggests that the practice of some banks deviates from the average fairly competitive behavior a finding that has important policy implications finally efficiency and market power present a negative relationship which is in line with the so called quiet life hypothesis

oligopolistic interdependence and the structure of production in banking an empirical evaluation the main purpose of this paper is to incorporate the oligopolistic nature of the banking industry into the conventional production model in order to contribute to the empirical literature on the structure conduct and performance in banking and to achieve unbiased measures of scale economies and efficiency depending on which of the models is accepted by the data this is done by appending behavioral equations specifying banks conjectures regarding the reactions of other banks to its output change this formulation enables us to test for the correct type of behavioral model and relate it to the resulting estimated technology if estimates of economies of scale and inefficiencies depend on the behavioral model adopted other studies which ignore product market behavior may well be subject to misspecification errors the paper also sheds light on the nature of the oligopolistic interdependence in the banking sector copyright 1994 by ohio state university press