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Estimating Systemic Risk in the International Financial System

Systemic risk in the banking system has rightly attracted the attention of financial researchers (as well as regulators and policy makers) since the genesis of the discipline; bank failure and either simultaneous or subsequent macroeconomic collapse represents a financial dislocation with large and far-reaching consequences.

Cash flow, investment, and investment opportunities: New tests using UK panel data

The relationship between investment and cash flow has had a turbulent history. It was widely studied in the 1950s and 1960s (Meyer and Kuh, 1957; Kuh, 1963, etc.) Yet cash flow subsequently all but disappeared from the investment literature until its revival in the 1980s following the development of models of asymmetric information, and an empirical break through in 1988 by Fazzari, Hubbard, and Petersen (FHP, thereafter). FHP (1988) estimated investment equations as a function of Tobin's Q and cash flow using firm-level data.

Credit Constraints in Trade: Financial development and export composition

The standard Heckscher-Ohlin model predicts that a country rich in labor, natural resources, physical or human capital has a comparative advantage in goods intensive in the abundant input factors. This view abstracts from market frictions that may arise from agency problems, and presumes that entrepreneurs can enter any industry regardless of its need for outside finance or endowment of collaterizable assets.

Herbal Cough Syrups By Kami McBride

Herbal syrups come in handy this time of year and are easy to make. It is best not to take a lot of sugar when you are not feeling well, but if a little bit of sweetener makes the difference if someone takes their medicine or not, then it is worth it. A spoonful of sugar really does help the medicine go down. Often when someone is really sick, it can be difficult for them to stomach harsh tasting herbal medicines, so turning your herbal teas into syrups is a great way to make your herbal preparations taste good.

Diagnosis and Treatment of Cough

In this presentation, Ioffera theoretically oriented exposition of the diagnosis and treatment of cough. I begin with a brief outline of the history of cough in Chinese medicine. History Chinese medicine has not, as many people still appear to believe, remained unchanged for eons. It has been undergoing constant development. This can be seen in the realm of cough. The Neijing states, ``The five viscera and six bowels can all cause a person to cough, not just the lung.''By this statement, the authors of the Neijing were suggesting that although cough is associated with the lung, it can reflect disease in other organs of the body.

Exercise for People with Diabetes

Before you plan your exercise program, you should talk with your doctor or diabetes educator so they can help you do this safely. Usually, doctors recommend an exercise tolerance or "stress test" for all people with diabetes over the age of 35. When you plan a program of daily activity, your age, weight, physical limitations and prior exercise experiences will be taken into consideration. The exercise you choose does not have to be strenuous or difficult; a daily walking program can be very beneficial with minimal effort. Select an exercise or variety of exercises you enjoy and can do regularly.

The Real Effectsof Financial Constraints: Evidence froma Financial Crisis

In the fall of 2008, world financial markets were in the midst of a credit crisis of historic breadth and depth. In this paper, we provide a unique perspective of the impact of the crisis on the real decisions made by corporations in the United States, Europe, and Asia. While the crisis is dramatic and unfortunate, it provides an opportunity to study how financial constraints impact corporate behavior.

The Effectiveness and Allocation of Subsidized Credit: Evidence from Export Loans

The provision of subsidized credit to domestic firms is an important policy goal for many governments around the world. One of the main justifications for these subsidies is that they help local industries overcome capital market failures, especially in developing countries where such market imperfections are common. Yet, there is little empirical evidence showing how effective these subsidies are in improving the real outcomes of firms, or how efficiently these subsidies are allocated across targeted firms that is, are more capital-constrained firms allocated a greater share?

Banking Sector Openness and Economic Growth

Since previous empirical studies could not find a robust direct link between financial market openness and economic growth, the effects of financial openness on growth are investigated in two parts. Financial market openness is expected to improve the efficiency of financial markets and intermediaries. This, in turn, spurs economic growth through higher capital accumulation and efficiency.

How Does Capital Affect Bank Performance During Financial Crises?

The recent financial crisis has raised fundamental issues about the role of bank equity capital. Various proposals have been put forth which argue that banks should hold more capital (e.g., Kashyap, Rajan, and Stein 2009, Hart and Zingales 2009, Acharya, Mehran, and Thakor 2010, Basel III (2010)). An underlying premise in all of these proposals is that there are externalities due to the safety net provided to banks and thus social efficiency can be improved by requiring banks to operate with more capital, especially during financial crises.

Bank Capital, Survival, Performance around Financial Crises

A sizeable corporate finance literature focuses on the strategic use of leverage in product-market competition (e.g., Brander and Lewis 1986, Campello 2006, Lyandres 2006). This literature suggests that financial leverage can affect competitive dynamics in the product markets in which firms operate. The evidence suggests that firms with higher leverage compete more aggressively on price (e.g., Phillips 1995, Chevalier 1995, and Zingales 1998), and underinvest in their customer base (e.g., Dasgupta and Titman 1998).

Earnings Quality and Future Capital Investment: Evidence from Discretionary Accruals

Despite its fundamental importance, little empirical research investigates how earnings quality affects capital investment decisions with the notable exception of Biddle and Hilary (2006). They find that investment is more sensitive to internal cash flows for firms with lower accrual quality as defined in Dechow and Dichev (2002), for which the external cost of capital is higher (e.g., Francis et al., 2005).

Syndicated loans, foreign banking and capital market development

One of the puzzles of 20th century macroeconomics is the extent to which capital market integration did not occur. Feldstein and Horioka (1980) famously observed that even among developed countries capital markets were barely integrated. However, signs of change in the aggregate data do appear in the mid 1990s (Blanchard and Giavazzi 2002). In addition, banking data also indicates that capital market integration is finally underway. The volume of cross border lending has risen dramatically, cross border bank mergers are common and barriers to foreign bank entry have broken down (Clarke, Cull, Peria, and Sanchez 2003).

Location Decisions of Foreign Banks and Competitive Advantage

The last decade has seen many foreign banks entering other markets, especially in developing countries, to provide a broad range of financial services locally. This has been driven by domestic deregulation, e.g., the removal of entry barriers, technological advances, increased financial integration and more generally heightened globalization.

Accounting Quality, Stock Price Delay and Future Stock Returns

The role of market frictions, such as incomplete information and asymmetric information, in explaining asset prices has attracted much attention in prior research (e.g., Merton, 1987; Easley, Hvidkjaer and O'Hara, 2002; Aboody, Hughes and Liu, 2005; Francis, LaFond, Olsson and Schipper, 2005; Hou and Moskowitz, 2005; Lambert, Leuz and Verrecchia, 2007). This study examines the role of accounting quality in explaining stock market frictions, and the consequences of such association for future stock returns.

Cost Reducing Investment, Competition and Industry Dynamics

One of the most important factors behind intertemporal variations in market structure, as well as prices, output and profitability of firms in an industry, is productivity and technology improvements occurring at firm-level. Activities such as research and development (R&D) and innovation which lead to the emergence and adoption of new technologies are crucial factors behind such changes. These activities are potentially beneficial to all firms and even if direct "free-riding" is prevented by patents, there are widespread indirect spill-over effects.

Tightening Credit Standards: The Role of Accounting Quality

Over the latest twenty years, the average credit rating of U.S. corporations has trended down. This decrease in average credit ratings could be interpreted as indicative of a decline in the actual credit quality of U.S. corporate debt over time. Another interpretation is that the decline in average ratings reflects a tightening of credit standards by agencies, implying a decreasing default probability for a given credit rating.

The Differential Value Implications of the Profitability and Investment Components of Earnings

Earnings growth is a primary determinant of equity value. Firms may deliver earnings growth either by improving the profitability of capital (i.e., the accounting rate of return on invested capital) or by increasing the capital base on which that profitability is earned. Economic theory suggests that earnings growth achieved through incremental capital investments is less valuable to existing shareholders than growth obtained by improving profitability. Unlike improvements in profitability, increases in capital generate an incremental cost of capital.

Investment Dynamics and the Properties of Accounting Numbers

This paper uses a real investment framework to develop predictions about a firm's differential responses to positive and negative shocks to its investment opportunities. This framework predicts asymmetric timeliness of investment and investment outcomes such as sales, earnings and operating cash flows even in the absence of conservative accounting. In particular, I predict and find supporting empirical evidence that firms are able to react more quickly to negative shocks (by cutting investment and employment) than to positive shocks (where there is a lag in implementing new investments or expanding employment).

Conditional Conservatism and Firm Investment Efficiency

We study the association between conditional accounting conservatism and firm investment efficiency. Classic agency theory shows that managers have superior information about the expected profitability and the timing of the payoffs of undertaken projects and investments (Lambert 2001) and can therefore make investment or operating decisions that are harmful to the interests of the providers of finance (Jensen and Meckling 1976). Accounting research argues that increased disclosure and higher quality financial reporting mitigates information asymmetry problems and agency costs (Healy and Palepu 2001).

Solving for Country Portfolios in Open Economy Macro Models

Open economy macroeconomic models typically represent international financial linkages in terms of net foreign assets and the current account. Recent data show, however, that there are large cross-country gross asset and liability positions. Lane and Milesi-Ferretti (2001,2006) show that these gross portfolio holdings have grown rapidly, particularly in the last decade. The existence of large gross positions offers a number of interesting challenges for open economy macro theory. For instance, can international macroeconomic models offer any explanation for the observed structure of portfolio holdings?

Hedging Prepayment Risk under Equilibrium Pricing

Mortgages are fixed-income instruments with embedded interest rate, prepayment and default risks Because of the huge market volume, its pricing and risk analysis has been a popular research subject over the past two decades. The unique feature of an MBS compared with a straight bond is the uncertainty of the timing of the principal being returned.

Capital Flows, Cross-Border Banking and Global Liquidity

The renewed surge in capital flows to emerging economies in the aftermath of the global financial crisis has ignited a lively debate on the nature of "global liquidity" and its transmission across borders. Low interest rates and permissive monetary policy pursued by advanced economy central banks are often cited int he press and popular commentary as a key factor in driving the capital flows. One of the tasks in our paper is to shed light on the validity of this claim.

Cross-Country Empirical Studies of Systemic Bank Distress: A Survey

Until recently, research on banking crises was inspired mostly by the experiences of the 19th and early 20th century. In particular, the field was dominated by studies of the Great Depression, when numerous and catastrophic bank failures occurred around the world. Beginning in the 1990s, a resurgence of banking crises provided new impetus and new materials to researchers, and a rapidly growing literature is studying the causes and consequences of bank fragility in contemporary economies. This paper surveys this work and tries to highlight directions for future research.

Agency Problems and Risk Taking at Banks

The banking literature has emphasized a number of agency problems. As in non-financial corporations, limited liability gives bank shareholders an incentive to expropriate wealth from bondholders by increasing risk. Since the government protects bondholders (particularly depositors) from the consequences of bank risk taking, their incentive to monitor and constrain risk taking is weak. The absence of such discipline is known as "moral hazard" or the "moral hazard problem associated with deposit insurance" in the banking literature.

Entry Restrictions, Industry Evolution and Dynamic Efficiency: Evidence from Commercial Banking

How do price and entry regulations affect market structure, industry evolution, management quality, and through these, dynamic efficiency? Relatively little is known about this question. The literature on the effects of price and entry regulation on efficiency has shown that such interventions can reduce static efficiency by preventing firms from allocating their assets optimally. For example, trucking regulations prevented carriers from hauling regulated commodities on return trips, making empty backhauls a serious problem.

Real Business Cycles in Emerging Countries?

A central characteristic of business cycles in developed countries is their remarkable dampening after the second world war. This phenomenon is often attributed to improved policy management. Policy makers and policy institutions are generally credited for avoiding large economic depressions like the one that took place in the interwar period. By contrast, business cycles in many emerging countries display no signs of moderation in the past fifty years.

Ebook International Stock Returns, Labor Income, and Incomplete Markets

The importance of human capital for asset pricing has been long recognized at least since Mayers (1972) and Fama and Schwert (1977). Recent domestic asset pricing literature shows that information about returns on human capital, or more precisely, labor income growth, is important for explaining both time series and cross sectional variations of expected stock returns. For example, Campbell (1996) and Jagannathan and Wang (1996) find that the risk premium associated with aggregate labor income growth helps explain the cross section of expected stock returns.

Patience, Persistence, and Welfare Costs of Incomplete Markets in Open Economies

In recent years, numerical methods have been used to analyze a wide variety of open-economy dynamic general equilibrium models with incomplete asset markets. Inparticular, Baxterand Crucini (1995) showed that the degree of persis-tence and spillovers of the exogenous shocks plays a critical role in determining the extent to which the behavior of the incomplete markets economy diverges from that of the economy with complete asset markets.

Equilibrium Pricing and Optimal Hedging In Electricity Forward Markets

Wholesale power markets, where producers trade electricity among themselves and with power marketing and power-distribution companies, have grown rapidly in recent years. The United States Department of Energy (1999) reports that U.S. wholesale power transactions during 1998 amounted to over 2.5 billion megawatt hours (MWh), or about $75 billion dollars. The U.S. wholesale power market is likely to soon comprise the world's single largest commodity market.

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