The impact of access to credit on household welfare in rural Vietnam

In this paper, we investigate the determinants of household borrowing from the formal financial sector, the determinants of credit rationing by the formal sector and the impact of credit on household welfare in rural Vietnam. We find that education, savings, the area devoted to farming and the availability of formal credit are important determinants of both household borrowing and credit rationing by the formal sector. We also find that credit has a positive (albeit small) effect on household welfare in rural Vietnam. Our findings have policy implications for land and banking sector reform

Convergence of European financial system: Single financial space?

This paper tests the extent to which convergence has been occurring between EU member states in the sources of funding for investment by non-financial corporations. The evidence from time series on 9 EU member countries during 1971-1996 suggests that bank lending (credit) remains the most important source of external financing, although internal financing is increasing in importance. There is also evidence of convergence amongst the financial systems of the 9 EU member countries, for which data were readily available, and a shift from bank financing to direct financing in response to the financial liberalisation in the 1980's (securitisation). These findings suggest an evolving single financial space in Europe.

Competition and Profitability in European Financial Services

Financial services firms play a key role in the European economy. The efficiency and profitability of these firms and the competition among them have an impact on allocation of savings, financing of investment, economic growth, the stability of the financial system and the transmission of monetary policy. This collection of research contributions includes evaluations of trends in the European financial service industry and examinations of the driving forces of efficiency, competition and profitability of financial firms and institutions in Europe. The papers have been written by leading academics and researchers in the field, who specialize in strategic, systematic and policy issues related to the European financial services industry. This edited collection will be will be essential reading for students and academics but will also be of interest to financial practitioners and government officials interested in acquiring a deeper understanding of this complex issue

Convergence of Corporate Finance Patterns in Europe

ABSTRAC

Lessons from the UK

In 1992 the Cadbury Committee report on the financial aspects of corporate governance was published. The Committee had been established following the failures of a number of high profile businesses in the UK which had shaken confidence in the market. Some nine years later, in 2001, the collapse of Enron sent shockwaves through the US market. As a result of the Enron collapse and various other high profile scandals in the years since its occurrence, the US is examining its own corporate governance structures and provisions to determine how these might be improved and help avoid another Enron. The EU similarly is developing principles and legislation to improve corporate governance, and scandals such as Royal Ahold and Parmalat have helped drive further governance reforms. In this paper we detail the development of corporate governance codes in the UK and the adaptation of similar codes in the EU. We discuss the role of the financial sector in corporate governance and how principles for regulation and supervision of the financial sector complement codes of conduct and legislation in the area of corporate governance. JEL Classification numbers: G34, G28, G22, G23 Keywords: corporate governance, financial sector; institutional investors

Theory and Evidence on the Finance-Growth Relationship: The Virtuous and Unvirtuous Cycles

Since the 1980s, financial crises have tended to reoccur with increasing frequency and growing intensity. They are endogenously generated by the established OTD (Originate-To-Distribute) model within the new finance-growth paradigm. Good finance fosters the correct allocation of financial resources, the fair redistribution of wealth and positive economic growth (the virtuous cycle), whereas bad finance captures part of the created wealth and, thanks to a highly technologically advanced financial system with the ability to create money ex nihilo, over time it drags the economy down to recession or negative growth, destroying wealth and consequentially social welfare (the unvirtuous cycle). Therefore, structural factors are at the foundation of the persistence of instability and thus of what we define as the unvirtuous cycle, which can generate what we label the wealth trap. A VUC index has been developed by us to capture the status quo of the finance-growth relationship. A cross country analysis for the US, UK and Euro area economies has been made in order to verify the validity of the index. A core variable is identified: the degree of financial innovation. This is an endogenous variable within the endogenous money/credit creation process; its identification is of crucial importance, as it is the key to full understanding of the finance-growth relationship and is the element of originality in this field of studies. The VUC index for all countries shows clearly the exponential effect of the degree of financial innovation over time. It is important for scholars and policymakers to understand the mechanism underpinning the finance-growth relationship and that it is their responsibility to return the economic system to what we will call the virtuous cycle

INCORPORATING RISKY ASSETS IN DIVISIA MONETARY AGGREGATES

Capital uncertain or risky assets are typically excluded from traditional broad monetary aggregates. Barnett et al (1997), however, extend the Divisia aggregation methodology to incorporate such assets. In addition, recent evidence provided by Drake et al (1998) suggests that risky assets are close substitutes for monetary assets. This paper constructs “wide” Divisia monetary aggregates which include risky assets such as unit trusts (mutual funds), equities and bonds, and contrasts their empirical properties with conventional Divisia and simple sum broad money aggregates. The key finding in the paper is that a “wide” monetary aggregate, which incorporates unit trusts, exhibits a stable long run and dynamic money demand function, has good leading indicator properties in the context of Granger causality tests, and tends to outperform all other aggregates on the basis of non-nested tests. JEL : E41, C43, E5

Asymmetric effects of interest rate changes: the role of the consumption-wealth channel

Original article can be found at : http://www.tandfonline.com/ Copyright Taylor & FrancisThis article examines the role of the consumption-wealth channel in explaining asymmetric effects of monetary policy changes. Towards this end, we draw upon available literature on the consumption function and behavioural finance to construct a framework for asymmetric effects of monetary policy caused by the impact of wealth changes on aggregate consumption. We then employ data from the UK to examine the validity of the proposed framework. In the context of a liberalized economy with easy access to consumer credit, wealth reduction due to monetary tightening is expected to have weaker impact on spending than increase in wealth. Our results validate the above hypothesis.Peer reviewedFinal Accepted Versio