Factor-Biased Technical Change and Specialization Patterns

We analyze the medium- and long-run effects of international integration of capital markets on specialization patterns of countries. For that purpose, we incorporate induced technical change into a Heckscher-Ohlin model with a continuum of final goods. This provides a comprehensive theory that explains the dynamics of comparative advantages based on differences in effective factor endowments. Our model constitutes an appropriate framework for understanding the changes in industrial structure of foreign trade observed, e.g., in the CEE countries over the last two decades. In addition, our approach provides a theoretical foundation for the empirical prospective comparative advantage index (Savin and Winker 2009) with new insights into the future dynamics of comparative advantages. Eventually, the model may serve as a basis to set development priorities in countries being in the period of transition.Factor-biased technical change, continuum of goods, comparative advantage, factor mobility, innovation, knowledge spillovers

Trading book and credit risk: How fundamental is the Basel review?

AbstractWithin the new Basel regulatory framework for market risks, non-securitization credit positions in the trading book are subject to a separate default risk charge (formally incremental default risk charge). Banks using the internal model approach are required to use a two-factor model and a 99.9% VaR capital charge. This model prescription is intended to reduce risk-weighted asset variability, a known feature of internal models, and improve their comparability among financial institutions. In this paper, we analyze the theoretical foundations and relevance of these proposals. We investigate the practical implications of the two-factor and correlation calibration constraints through numerical applications. We introduce the Hoeffding decomposition of the aggregate unconditional loss to provide a systematic-idiosyncratic representation. In particular, we examine the impacts of a J-factor correlation structure on risk measures and risk factor contributions for long-only and long-short credit-sensitive portfolios

Factor-Biased Technical Change and Specialization Patterns

We analyze the medium{ and long{run effects of international integra- tion of capital markets on specialization patterns of countries. For that purpose, we incorporate induced technical change into a Heckscher{Ohlin model with a continuum of �nal goods. This provides a comprehensive the- ory that explains the dynamics of comparative advantages based on differ- ences in effective factor endowments. Our model constitutes an appropriate framework for understanding the changes in industrial structure of foreign trade observed, e.g., in the CEE countries over the last two decades. In addition, our approach provides a theoretical foundation for the empirical prospective comparative advantage index (Savin and Winker 2009) with new insights into the future dynamics of comparative advantages. Even- tually, the model may serve as a basis to set development priorities in countries being in the period of transition

Syndicated loans, lending relationships and the business cycle

The syndicated loan market, as a hybrid between public and private debt markets, comprises financial institutions with access to valuable private information about borrowers as a result of close bank-borrower relationships. In this paper, we seek empirical evidence for the costs of these relationships in a sample of UK syndicated loan contracts for the time period 1996 through 2005. Using detailed financial data for both borrowers (private and public companies) and for financial institutions, we find that undercapitalized banks charge higher loan spreads for loans to opaque borrowers using various measures for borrower opaqueness and controlling for bank, borrower and loan characteristics. We further analyze this hold-up effect over the business cycle and find that it only prevails during recessions. In expansion phases, however, we do not find evidence for banks exploiting their information monopoly. This finding is consistent with theories on bank reputation in bank loan commitments. Ambiguity about borrower financial health, which induces the information monopoly in the first place, also gives banks the discretion to exploit or not exploit informational captured borrowers. Our findings are both statistically and economically significant and robust to alternative bank and macroeconomic risk proxies. We address potential concerns about unobserved borrower heterogeneity exploiting the panel data nature of our sample. Using firm-bank fixed effect regressions, we find supporting evidence for our theoretical framework. JEL Classifications: G14, G21, G22, G23, G24 Keywords: Syndicated loans; Hold-up; Lending relationships; Business cycl

Empirical Capital Structure Research: New Ideas, Recent Evidence, and Methodological Issues

Even 50 years after Modigliani/Miller’s irrelevance theorem, the basic question of how firms choose their capital structure remains unclear. This survey paper aims at summarizing and discussing corresponding recent developments in empirical capital structure research, which, in our view, are promising for future research. We first present some “stylized facts” on capital structure issues. The focus of the discussion is set on studies taking on the key idea to differentiate between competing theories by testing for firm adjustment behavior following shocks to their capital structure. In addition, we discuss empirical studies examining additional factors that may influence capital structure decisions, but have gained only recently attention in the literature (like corporate ratings or irrational managers). Since some of the available contradictory evidence on capital structure issues might be explained by econometric challenges due to the typical data structure, we also discuss methodological issues like panel data, endogeneity, and partial adjustment models in the capital structure context. Finally, we illustrate the methodological and empirical aspects discussed in this survey by providing corresponding evidence for exchange-listed German companies in the period 1987-2006

Exploring the connection between relational capital and female entrepreneurs

.Among intangible assets of contemporary companies, relational capital (RC) is a relevant strategic asset as well as a dimension of intellectual capital. In this scenario, micro-enterprises are key drivers of economic growth, and woman entrepreneurs are key developers of these businesses. So, the purpose of this study is to carry out a literature review analyzing how RC contributes to the startup phase of women-owned micro-enterprises. Another purpose is to understand whether and to what extent the studies conducted so far have addressed some issues such as “How and why women entrepreneurs use relational capital? What are the main benefits they get using relational capital? What are the main obstacles they face?” A literature search on Scopus was conducted, using a set of selected keywords. Scopus was used since it has quality publications. Selected papers were analyzed and classified, in an attempt to identify the main topics and results obtained from the research and analysis carried out so far. The contribution of the present research is to make the international literature focus on the connection between gender studies and RC. Particularly, the literature review emphasizes the topic proposed as emerging issue, which gives us the opportunity to identify new trends and future directions of research. This paper aims to advance knowledge and practice in the area of gender and management, using RC based on empirical research, theoretical developments, practice and current issues. The main evidences are related to a better understanding of the debate on gender and relational capital, considering that female entrepreneurship is central to the development and welfare of economies. Deep knowledge on how women entrepreneurs manage business relation can contribute to improving the effectiveness policies that promote the participation of female entrepreneurs in the economy

Bail-In: a sustainable mechanism for rescuing banks

Until the Great Recession, rescuing banks with taxpayers’ money had been the preferred way to deal with banking crises. The dramatic effects of these practices on the real economy highlighted that bailouts are not a sustainable method to resolve troubled banks going forward. As a result, a new regulatory framework has been proposed, forcing the financial industry to move from “bailout” to “bail-in.” Understanding the implications of such a change is key to ensuring the success of these new banking rules. This article aims to build up a comprehensive and unbiased set of research articles in order to draw conclusions about the current status of the academic literature in the field of capital and loss absorption requirements. A research agenda on the topic is also proposed. The methodological approach undertaken is based on ProKnow-C (Knowledge Development Process-Constructivist). We also contribute to the development of Proknow-C methodology by adding a cross-reference extension to the original framework. The results of our analysis point out that further research has to be undertaken on the subject of loss absorption requirements

Business Groups in Emerging Markets - Financial Control and Sequential Investment

Business groups in emerging markets perform better than unaffiliated firms. One explanation is that business groups substitute some functions of missing institutions, for example, enforcing contracts. We investigate this by setting up a model where firms within the business group are connected to each other by a vertical production structure and an internal capital market. Thus, the business group’s organizational mode and the financial structure allow a self-enforcing contract to be designed. Our model of a business group shows that only sequential investments can solve the ex post moral hazard problem. We also find that firms may prefer not to integrate