Government-Business Relationship and International Corporate Finance

This paper shows both theoretically and empirically the importance of bureaucratic quality in shaping the pattern of corporate finance in different countries. It argues that firm management under corrupt and interventionist governments is particularly powerful in expropriating outside investors because they can threaten to withdraw their government relationship specific human capital that is central to firm survival and growth. The prevalence of concentrated ownership, relative reliance on bank financing and bank ownership of firms under corrupt and interventionist governments are various means of overcoming the management expropriation. This paper also proposes a new synthesis of the legal and political theories: a broad-based legal approach.

China as a regulatory state

Market economy models differ in the degree of the power of the government vis-à-vis the market in the economy. Under the classications set forth by Glaeser and Shleifer (2002, 2003), and Djankov et al. (2003), these market models range from those emphasizing low government intervention in the market (private orderings and private litigation through courts) to those where the state is an active participant (regulatory state). This paper, using data from a survey of 3,073 private enterprises in China, constructs an index to quantify the power of the government vis-à-vis the market. Regional government power is found to vary considerably across China's regions. Notably, enterprises located in regions where government exerts more power in the market perform better, suggesting that the regulatory state model of the market economy is appropriate for China.regulatory state; disorder costs; dictatorship costs; market economy models; China's economic reform

Channels of Interprovincial Consumption Risk Sharing in the People’s Republic of China

This paper analyzes consumption risk sharing among provinces in the People’s Republic of China (PRC) during 1980–2007. The analysis finds that 9.4% of shocks to gross provincial product are smoothed by the interprovincial fiscal transfer system. This system also cushions a relatively large percentage of province-specific shocks in coastal areas. Using a variety of indicators, we explored nonfiscal channels of consumption risk sharing. We found that the migration of rural labor to urban areas and the remittance of migrant wages play an important role in promoting interprovincial consumption risk sharing in inland PRC provinces. In contrast, the extent of risk sharing through financial intermediation and capital markets is very limited. These factors have resulted in a low degree of risk sharing among provinces, especially during the last decade.prc provinces; interprovincial fiscal transfers; consumption risk sharing

Channels of interprovincial consumption risk sharing in the People's Republic of China

This paper analyzes consumption risk sharing among provinces in the People's Republic of China (PRC) during 1980 - 2007. The analysis finds that 9.4% of shocks to gross provincial product are smoothed by the interprovincial fiscal transfer system. This system also cushions a relatively large percentage of province-specific shocks in coastal areas. Using a variety of indicators, we explored nonfiscal channels of consumption risk sharing. We found that the migration of rural labor to urban areas and the remittance of migrant wages play an important role in promoting interprovincial consumption risk sharing in inland PRC provinces. In contrast, the extent of risk sharing through financial intermediation and capital markets is very limited. These factors have resulted in a low degree of risk sharing among provinces, especially during the last decade

Institutional Difference and FDI Location Choice: Evidence from China

Rest upon an extensive data set on Foreign Invested Enterprises (FIEs) in China, we investigate the role of institutional difference in determining the locational choice of foreign direct investment (FDI). Estimation results using firm-level discrete choice model suggest that FIEs from source countries that are more remote institutionally from the Chinese mainland exhibit a higher degree of sensitivity toward regional economic institutions in their choice of FDI location. Furthermore, we find that FIEs coming from countries with better institutions than China are more sensitive to institutional difference. Interestingly, we find that the deterrent effct of institutional distance on FDI entry is mitigated for FIEs coming from countries with more ethnic Chinese in their overall populations

Once an enemy, forever an enemy? the long-run impact of the Japanese invasion of China from 1937 to 1945 on trade and investment

We are living in an increasingly globalized world yet with constant and endless conflicts among countries. While studies have uncovered the impacts of various economic factors and policy regimes on trade and investment, a much less understood issue is whether conflicts among countries have any, especially long-lasting, impacts on cross-border trade and investment. In this paper, we exploit one of the most important conflicts of the 20th century between what are currently the world's second and third largest economies, the Japanese invasion of China from 1937 to 1945, to investigate its long-run impact on contemporary trade and investment between the two countries. We find that Chinese regions that suffered more severe damage in the Japanese invasion are both less likely to trade with and trade less with Japan. Consistently, we also find that Japanese multinationals are less likely to invest in Chinese regions that suffered greater numbers of casualties during the Japanese invasion. Our study shows that historical animosity still matters for international trade and investment, despite the trend toward a flat world

Institutional Difference and FDI Location Choice: Evidence from China

Rest upon an extensive data set on Foreign Invested Enterprises (FIEs) in China, we investigate the role of institutional difference in determining the locational choice of foreign direct investment (FDI). Estimation results using firm-level discrete choice model suggest that FIEs from source countries that are more remote institutionally from the Chinese mainland exhibit a higher degree of sensitivity toward regional economic institutions in their choice of FDI location. Furthermore, we find that FIEs coming from countries with better institutions than China are more sensitive to institutional difference. Interestingly, we find that the deterrent effct of institutional distance on FDI entry is mitigated for FIEs coming from countries with more ethnic Chinese in their overall populations

Once an enemy, forever an enemy? the long-run impact of the Japanese invasion of China from 1937 to 1945 on trade and investment

We are living in an increasingly globalized world yet with constant and endless conflicts among countries. While studies have uncovered the impacts of various economic factors and policy regimes on trade and investment, a much less understood issue is whether conflicts among countries have any, especially long-lasting, impacts on cross-border trade and investment. In this paper, we exploit one of the most important conflicts of the 20th century between what are currently the world's second and third largest economies, the Japanese invasion of China from 1937 to 1945, to investigate its long-run impact on contemporary trade and investment between the two countries. We find that Chinese regions that suffered more severe damage in the Japanese invasion are both less likely to trade with and trade less with Japan. Consistently, we also find that Japanese multinationals are less likely to invest in Chinese regions that suffered greater numbers of casualties during the Japanese invasion. Our study shows that historical animosity still matters for international trade and investment, despite the trend toward a flat world

Return enhancing, cash-rich or simply empire-building? An empirical investigation of corporate real estate holdings

No, we find no evidence for a return-enhancing role for corporate real estate holdings, which is consistent with the previous literature. Instead, our study based on a sample of U.S. listed corporations suggests that corporate real estate holdings are a form of managerial “empire building”. Corporations with weaker corporate governance and a lower degree of financial constraint tend to have higher real estate holdings, whereas higher real estate holdings are associated with lower returns to shareholders. The impact of corporate governance on corporate real estate holdings seems to be stronger in manufacturing-related industries. Implications and future research directions are discussed