When countries liberalize their stock markets, firms that become eligible for foreign purchase (investible), experience an average stock price revaluation of 15.1%. Since the historical covariance of ...the average investible firm's stock return with the local market is roughly 200 times larger than its historical covariance with the world market, liberalization reduces the systematic risk associated with holding investible securities. Consistent with this fact: (1) the average effect of the reduction in systematic risk is 6.8 percentage points, or roughly two fifths of the total revaluation; and (2) the firm-specific revaluations are directly proportional to the firm-specific changes in systematic risk.
Using high-frequency data this article provides evidence that, on average, central bank interventions lead to increased volatility and a widening of bidask spreads in the intra-day market for foreign ...exchange. The results also show that there is dispersion in the bid-ask spread revisions posted by individual banks in response to the central bank entering the market. The findings are consistent with predictions from standard models of market microstructure with heterogeneous agents and have implications for the market power of central banks as well as the payoff generated by trading large amounts of international reserves.
Over the last two decades, the unprecedented increase in non-bank financial intermediation, particularly the rise of open-end mutual funds and exchange-traded funds, accounts for nearly half of the ...external financing flows to emerging markets, exceeding cross-border lending by global banks. Evidence suggests that investment fund flows enhance risk sharing across borders and provide emerging markets access to more diverse forms of financing. However, a growing body of evidence also indicates that investment funds are inherently more vulnerable to liquidity and redemption risks during periods of global financial market stress, increasing the volatility of capital flows to emerging markets. Benchmark-driven investments, namely passive funds, appear particularly sensitive to global risk shocks, such as tightening US dollar funding conditions, compared to their active fund counterparts. The procyclicality of investment fund flows to emerging markets during times of global stress poses financial stability concerns, with implications for the role of macroprudential policy.
This paper evaluates the effects of capital controls on firm-level stock returns and real investment using data from Brazil. On average, there is a statistically significant drop in cumulative ...abnormal returns consistent with an increase in the cost of capital for Brazilian firms following capital control announcements. Large firms and the largest exporting firms appear less negatively affected compared to external-finance-dependent firms, and capital controls on equity inflows have a more negative announcement effect on equity returns than those on debt inflows. Overall, the findings have implications for macro-finance models that abstract from heterogeneity at the firm level to examine the optimality of capital control taxation.
This paper examines the recent upsurge in foreign direct investment by emerging market firms into the United States. Traditionally, direct investment flowed from developed to developing countries, ...bringing with it superior technology, organizational capital, and access to international capital markets, yet increasingly there is a trend toward "capital flowing uphill" with emerging market investors acquiring a broad range of assets in developed countries. Using transaction-specific information and firm-level accounting data, the paper evaluates the operating performance of publicly traded U. S. firms that have been acquired by firms from emerging markets over the period 1980–2006. The empirical methodology uses a difference-in-differences approach combined with propensity score matching to create an appropriate control group of nonacquired firms. The results suggest that emerging country acquirers tend to choose U. S. targets that are larger in size (measured as sales, total assets, and employment) relative to matched nonacquired firms. In the years following the acquisition target firm sales and employment decline while profitability rises compared with matched nonacquired firms, suggesting significant restructuring of the target firms.
This paper examines the impact of the deregulation of compulsory industrial licensing in India on firm-size dynamics and reallocation of resources within industries. Following deregulation, resource ...misallocation declines and the left-hand tail of the firm-size distribution thickens significantly, which suggests increased entry by small firms. However, the dominance and growth of large incumbent firms remains unchallenged. Quantile regressions reveal that the distributional effects of deregulation on firm size are significantly nonlinear. The reallocation of market shares toward a small number of large firms and a large number of small firms is characterized as the shrinking middle in Indian manufacturing. Small and medium-sized firms may continue to face constraints in their attempts to grow.
The Baker Hypothesis Chari, Anusha; Henry, Peter Blair; Reyes, Hector
The Journal of economic perspectives,
07/2021, Letnik:
35, Številka:
3
Journal Article
Recenzirano
Odprti dostop
In 1985, James A. Baker III's "Program for Sustained Growth" proposed a set of economic policy reforms including, inflation stabilization, trade liberalization, greater openness to foreign ...investment, and privatization, that he believed would lead to faster growth in countries then known as the Third World, but now categorized as emerging and developing economies (EMDEs). A country-specific, time-series assessment of the reform process reveals three clear facts. First, in the ten-year period after stabilizing high inflation, the average growth rate of real GDP in EMDEs is 2.6 percentage points higher than in the prior ten-year period. Second, the corresponding growth increase for trade liberalization episodes is 2.66 percentage points. Third, in the decade after opening their capital markets to foreign equity investment, the spread between EMDEs average cost of equity capital and that of the US declines by 240 basis points. The impact of privatization is less straightforward to assess, but taken together, the three central facts of reform provide empirical support for the Baker Hypothesis and suggest a simple neoclassical interpretation of the unprecedented increase in growth that has taken place in EMDEs since the early 1990s.
In search of distress risk in emerging markets Asis, Gonzalo; Chari, Anusha; Haas, Adam
Journal of international economics,
July 2021, 2021-07-00, 20210701, Letnik:
131
Journal Article
Recenzirano
Odprti dostop
This paper employs a novel multi-country dataset of corporate defaults to develop a model of distress risk specific to emerging markets. The data suggest that global financial variables such as US ...interest rates and shifts in global liquidity and risk aversion have significant predictive power for forecasting corporate distress risk in emerging markets. We document a positive distress risk premium in emerging market equities and show that the impact of a global “risk-off” environment on default risk is greater for firms whose returns are more sensitive to a composite global factor.
•We develop a predictive model of distress risk specific to emerging market firms.•We study the impact of changes in firm-level, macro, and global variables on default risk.•Tighter global financial conditions raise default probabilities through various channels.•Stock returns predict distress and can exacerbate global shocks to emerging market firms.•We find a positive distress risk premium in EM equities, unlike past US-based studies.
The post-Global Financial Crisis period shows a surge in corporate leverage in emerging markets and a number of countries with deteriorated corporate financial fragility indicators (Altman's ...Z-score). Firm size plays a critical role in the relationship between leverage, firm fragility and exchange rate movements in emerging markets. While the relationship between firm-leverage and distress scores varies over time, the relationship between firm size and corporate vulnerability is relatively time-invariant. All else equal, large firms in emerging markets are more financially vulnerable and also systemically important. Consistent with the granular origins of aggregate fluctuations in Gabaix (2011), idiosyncratic shocks to the sales growth of large firms are positively and significantly correlated with GDP growth in our emerging markets sample. Relatedly, the negative impact of exchange rate shocks has a more acute impact on the sales growth of the more highly levered large firms.
Abstract
This paper examines the spillover effects of U.S. unconventional monetary policy (UMP) on emerging market capital flows and asset prices. Affine term structure model estimates show that U.S. ...monetary policy shocks, identified with high-frequency Treasury futures data, represent revisions to expected short-term yields and term premia, especially during the UMP period. The policy shocks exhibit sizable effects on U.S. holdings of emerging market assets. These effects disproportionately manifest through valuation changes versus physical flows, are more pronounced for equity relative to bond markets, and are asymmetric between the quantitative easing and tapering periods, with flows more important during the unwinding.
PDF
