Hall, van Niekerk, Nguyen & Thomas: International Financial Institutions and Energy Investments

This paper examines:

■ The activities of the international financial institutions (IFIs) as they affect finance for the energy sector, through their preferences for private companies and insistence on eliminating price subsidies

■ How investments to extend electricity networks and develop new electricity generation depend largely on public finance

■ The annexe includes lists of current IFI projects affecting the energy sector.

 

Available for download here.

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Li, Cui & Lu: Heterogeneity of State-Owned Enterprises and Their Foreign Direct Investment Strategies

ABSTRACT:

This paper conceptualizes the heterogeneity of SOEs as an outcome of different institutional reform processes which create diversity between central and local SOEs along multiple organizational dimensions. It also theorizes the impacts of such characteristic differences on SOEs’ FDI strategies. We develop a trickle-down theoretical model drawing from the comparative capitalism and institutional theory. We advance the idea of ‘institutions-as-configurations’ to elucidate how the macro-institutional reform can lead to greater institutional diversity and subsequent emergence of different types of SOEs. Building on this logic, we argue that institutional changes leads to the renegotiation of firm boundaries, role realignment, and rechanneling of resources for SOEs affiliated with different levels of government, which in turn shape the way they seek institutional legitimacy when conducting FDI. Our main contribution lies in identifying macro patterns of institutional change as sources of micro level heterogeneity among SOEs and highlighting the implications of such diversity for SOE internationalization strategies. A number of testable propositions are derived to guide future empirical studies.

 

Available for download here.

Choudhury & Khana: State-Owned Entities Launching a Global Footprint Using Intellectual Property

ABSTRACT:

We have two major contributions in this paper – firstly, we posit that R&D oriented SOEs can achieve resource independence and launch a global footprint by licensing high quality foreign patents to multinationals. Secondly, we provide a unique theoretical explanation for a long standing result in the emerging market patent reform literature, that patent filing by local firms does not increase post patent reform. We build on institutional and resource dependence theories to posit that a common economic shock that leads to domestic patent reform might also lead SOEs to seek resource independence from government budgetary support. To achieve resource independence, SOEs might file foreign patents and license the same. We study this question in the context of India, where arguably the economic shock in 1991 led to domestic patent reform on the one hand and Indian SOEs seeking resource independence on the other hand. For 42 state-owned labs in India, we offer evidence that the labs increased filing of foreign patents in face of domestic patent reform and an increase in licensing revenue was related to an increase in foreign patents.

Available for download here.

Healey & Dhungana: A World with Higher Interest Rates

ABSTRACT:

The past ten years have been characterized by extraordinarily low interest rates around the industrialized world. These rates have persisted in the wake of the recent economic crisis, as central banks have loosened monetary policy significantly. While a dramatic increase in interest rates over the near-term is unlikely, speculation is rife that such an increase is not only  plausible, but could unfold rather quickly, impacting virtually every major sector of the economy.

This study attempts to take a more cautious and global approach in examining one possible future path of interest rates and their impact on selected sectors. Based on an analysis of global savings supply and investment demand, we suggest that a return to higher real rates could  happen through the savings supply channel. In addition, higher inflation could result in a contractionary monetary policy and higher nominal rates.

This report analyzes some of the consequences of a rise in interest rates. One heavily impacted area would be debt service for industrialized governments. Here, we identify rollover risk as a key factor for determining the size and timing of the debt service problem in the near future. Our findings suggest that countries with low debt maturity would be more prone to debt service problems than countries with long maturity debt.

Available for download here.

Basu: The Art of Currency Manipulation

ABSTRACT:

A frequent charge in foreign exchange markets in developing countries is that of manipulators being at work. Since to buy is to raise prices and to sell is to lower prices, the question that naturally arises is whether the widespread charge of market manipulation is valid. The paper shows that (whether or not “widespreadness” has any merit) it is possible for a player to manipulate and profiteer. By using some simple principles of game theory, the paper outlines a strategy that a manipulator may use. The aim of this paper is not to provide a manual for the manipulator but to enable the regulator to understand the art and develop policies to curb manipulation.

 

Available for download here.

Feng & Johansson: CEO Incentives in Chinese State-Controlled Firms

ABSTRACT:

This paper investigates CEO incentives in Chinese state-controlled firms. We find that firm performance has a positive effect on CEO compensation. We also find that firm performance is positively associated with CEO promotion and negatively associated with CEO turnover. CEOs for state-controlled firms thus face significant incentives, not only in monetary form, but also in terms of career prospects. These results suggest that the CEO labor market in the Chinese state sector exhibits characteristics similar to those of managerial labor markets in developed countries, at least during our sample period. Moreover, we show that local institutions have a significant impact on the relationship between CEO incentives and firm performance, with performance having a larger effect on CEO compensation, promotion and turnover in regions characterized by stronger institutions. Overall, our results demonstrate that firm performance is associated with CEO incentives also for state-controlled firms in China, suggesting that there is a functioning labor market for top managers in the Chinese state sector.

 

Available for download here.

Howson: 'Quack Corporate Governance' as Traditional Chinese Medicine | The Securities Regulation Cannibalization of China's Corporate Law and a State Regulator's Battle Against State Political Economic Power

ABSTRACT:

From the start of the PRC’s “corporatization” project in the late 1980s, a Chinese corporate governance regime subject to increasingly enabling legal norms has been determined by mandatory regulations imposed by the PRC securities regulator, the CSRC. Indeed, the Chinese corporate law system has been cannibalized by allencompassing securities regulation directed at corporate governance, at least for companies with listed stock. This article traces the path of that sustained intervention, and makes a case – wholly contrary to the “quack corporate governance” critique much aired in the U.S. – that for the PRC this phenomenon is necessary and appropriate, and benign. That analysis in turn reveals a great deal about: the development of Chinese law and legal institutions after 1979; China’s contemporary political economy; the true identity of the firm under the PRC “corporatization without privatization” program; the normative character and function of corporate law across increasingly globalized capital markets; and the ways in which state intervention may protect against state abuse of power and enable greater private autonomy. For analysts of China’s contemporary political system, this article uncovers a new and highly complex, horizontally-oriented, identity of the Chinese party state’s “fragmented authoritarianism”.

 

Available for download here.

Papaioannou, Park, Pihlman, & van der Hoorn: Procyclical Behavior of Institutional Investors during the Recent Financial Crisis | Causes, Impacts, and Challenges

ABSTRACT:

This paper (i) provides evidence on the procyclical investment behavior of major institutional investors during the global financial crisis; (ii) identifies the main factors that could account for such behavior; (iii) discussses the implications of procyclical behavior; and (iv) proposes a framework for sound investment practices for long-term investors. Such procyclical investment behavior is understandable and may be considered rational from an individual institution’s perspective. However, our main conclusion is that behaving in a manner consistent with  longterm investing would lead to better long-term, risk-adjusted returns and, importantly, could lessen the potential adverse effects of the procyclical investment behavior of institutional investors on global financial stability.

 

Available for download here.

Hetzel: Avoiding the Next Crisis | Can Central Banks Learn?

ABSTRACT:

Any effort to avoid future recessions must rest on an organized way to learn from the past. However, the absence of such efforts within central banks renders such learning problematic and makes likely the recurrence of episodes of recession and financial market turmoil. Critical to learning is the use by policymakers of models to evaluate the past performance of monetary policy. These models should not be the complicated, multiequation models favored by the forecasting departments of central banks. Rather, they should be simple models that require policymakers to take a stand on the basic issues in monetary economics: the nature of the price level (monetary or real) and how well the price system works to maintain output at potential (full employment). They should serve as a safeguard to the understandable tendency of central bankers to attribute economic disturbances exclusively to real shocks rather than monetary shocks.

This article explains how learning requires that policymakers use models to disentangle causation from correlation. In that way, models can bring coherence to the diverse experiences of the past and can facilitate prediction of how well alternative policy rules would work. The quantity-theory hypothesis that recessions originate in central bank interference with the price system is summarized and used to explain the Great Recession. The article concludes with comments on learning and models.

 

Available for download here.

Goodfriend: Lessons Learned from a Century of Federal Reserve Last Resort Lending (Congressional Testimony)

Goodfirend emphasizes five points in his testimony:

i) The Federal Reserve’s last resort lending powers were gradually and vastly expanded during the last century.

ii) Federal Reserve last resort lending is insufficiently disciplined by Walter Bagehot’s (1873) advice to the 19th Century Bank of England—to lend freely at a high rate against good collateral in a banking crisis.

iii) The reason is that the Bank of England’s shareholders earned the profit and bore the losses, while the fiscal authorities receive net Fed income and taxpayers bear any Fed losses.

iv) As the Fed expanded its lending reach in scale and scope, markets expanded the use of inexpensive but fragile short-term finance counting on the protection of last resort lending.

v) Federal Reserve last resort lending should be carefully circumscribed to put a stop to these destabilizing banking and money market dynamics.

Available for download here.