Floating Exchange Rate Regime

In recent years, many developing countries having a history of high inflation, unfavorable balance of payment situation and a high level of foreign currencies denominated debt, have switched or are in the process of switching to a more flexible exchange rate regime. Therefore, the stability of the exchange rate and the dynamics of its volatility are more crucial than before to prevent financial crises and macroeconomic disturbances. This paper is designed to find out the reasons behind Bangladesh’s exit to floating exchange rate system and evaluate its performance under the new regime. It’s found that, the shift to market based floating exchange rate for the Taka was a major step towards protecting the country’s external competitiveness and insulating the country from adverse external shocks. The comparisons of selected economic indicators during the first three year’s experience under the new regime showed an impressive effect on the economy of Bangladesh specially export growth, low volatility of exchange rate, towering foreign exchange reserve etc.Floating exchange rate, foreign currency liquidity, trade openness, exchange rate volatility, inflation

Foreign Direct Investment in Bangladesh: An Empirical Analysis on its Determinants and Impacts

In this paper, the catalyst variables of FDI inflows in Bangladesh are examined by applying extreme bounds analysis to the time series data from 1990-91 to 2005-06. The results reveal that wage, trade openness, net export, GDP growth and tax rate have robust result. Also two years lagged values of FDI and change in the level of domestic investment are found to have a positive effect on economic growth

Floating Exchange Rate Regime

In recent years, many developing countries having a history of high inflation, unfavorable balance of payment situation and a high level of foreign currencies denominated debt, have switched or are in the process of switching to a more flexible exchange rate regime. Therefore, the stability of the exchange rate and the dynamics of its volatility are more crucial than before to prevent financial crises and macroeconomic disturbances. This paper is designed to find out the reasons behind Bangladesh’s exit to floating exchange rate system and evaluate its performance under the new regime. It’s found that, the shift to market based floating exchange rate for the Taka was a major step towards protecting the country’s external competitiveness and insulating the country from adverse external shocks. The comparisons of selected economic indicators during the first three year’s experience under the new regime showed an impressive effect on the economy of Bangladesh specially export growth, low volatility of exchange rate, towering foreign exchange reserve etc

Floating Exchange Rate Regime

In recent years, many developing countries having a history of high inflation, unfavorable balance of payment situation and a high level of foreign currencies denominated debt, have switched or are in the process of switching to a more flexible exchange rate regime. Therefore, the stability of the exchange rate and the dynamics of its volatility are more crucial than before to prevent financial crises and macroeconomic disturbances. This paper is designed to find out the reasons behind Bangladesh’s exit to floating exchange rate system and evaluate its performance under the new regime. It’s found that, the shift to market based floating exchange rate for the Taka was a major step towards protecting the country’s external competitiveness and insulating the country from adverse external shocks. The comparisons of selected economic indicators during the first three year’s experience under the new regime showed an impressive effect on the economy of Bangladesh specially export growth, low volatility of exchange rate, towering foreign exchange reserve etc

Constraints to SMEs: A Rotated Factor Analysis Approach.

There is little doubt that SMEs plays a vital role in development of an underdeveloped economy, but still this sector is facing multifarious problems relating to raw materials, power, land, marketing, transport, technical facilities, and finance etc and due to these constraints it is getting more difficult for them to contribute to nation’s GDP as expected. This paper attempts to find out the major constraints faced by the SMEs in Bangladesh selected from five sub-sectors using varimax normalization method based on primary questionnaire survey and rank the factor constraints according to their level of severity. It identified seven major factors comprised of 12 variables working as impediments to SME growth and development, amongst which high lending rate, government regulatory constraint, small domestic market size, collateral requirement for financing and lack of technically skilled workers are on the top

Constraints to SMEs: A Rotated Factor Analysis Approach

Although there is little doubt that SMEs plays a vital role in development of an underdeveloped economy yet this sector is facing multifarious problems relating to raw materials, power, land, marketing, transport, technical facilities and finance etc. Due to these constraints, it is getting more difficult for them to contribute to a nation’s GDP as expected. This paper attempts to find out the major constraints faced by the SMEs in Bangladesh selected from five sub-sectors using varimax normalization method based on primary questionnaire survey and rank the factor constraints according to their level of severity. It identified seven major factors comprising of 12 variables working as impediments to SME growth and development, amongst which high lending rate, government regulatory constraint, small domestic market size, collateral requirement for financing and lack of technically skilled workers are on the top.&nbsp

Cash Flow Sensitivity of Cash: A Cross Country Analysis

Using a large panel of 5086 firms from 7 European countries, namely Belgium, France, Germany, Italy, Netherland, Sweden and UK over the period of 1981 to 2010, we made attempt to see the effect of financial constraints on international corporate policies based on their liquidity demand. Controlling for firm size, investment opportunities and alternative sources and competing uses of funds, a firm's decision to change its cash holdings is found to be positively and significantly related with internal cash flows. Our results further reveal that constrained firms like to save relatively more cash out of their cash inflows, whereas the unconstrained firms do not maintain any such significant cash hoarding behavior. The observed relationships prevail for the whole sample, within each countries and remain consistent across different estimation procedures and alternative financial constraint criteria. Our results thus point to the fact that average firms in our sample face constrained access to external finance due to financially imperfect and incomplete markets. Keywords: Asymmetric information, financial constraints, cash hoarding. JEL classifications: C26, D92, G14, L2

Investigating the Relationship between Stock Liquidity and Firm Value

Purpose: This paper aims to investigate the effect of stock liquidity on firm value (MV), operating income to price (OIP), market value of equity to market value of the asset (MVEA), and operating income to assets (OIA) ratios in Bangladesh. This paper also investigates whether firm size, leverage, or financial crisis have any moderating role to play on the liquidity-firm value relationship. Method: The study used panel data on 159 nonfinancial firms listed in the Dhaka Stock Exchange for the period of 2006 to 2019. Ordinary Least Squares, Fixed Effect, and Two-Stage least Squares estimation methods are used to determine the desired relationship. Results: The results show that stock liquidity has a positive and significant impact on firm value and the results are robust to alternative estimation techniques. The relationship is found more acute for small and less levered firms and more intense in the post-crisis (after the 2010 stock market crash) period in Bangladesh. Implications: The role of firm size, leverage, or financial crisis on the liquidity-firm value relationship will help corporate managers to adopt policies and strategies for improving the stock liquidity, changing investors' perceptions, and overall, increasing the depth and stability of the capital market in Bangladesh or elsewhere. Limitations: Due to the unavailability of data, for the robustness check, we couldn't use any alternative proxy of stock liquidity such as bid-ask spreads

Corporate Efficiency, Financial Constraints and the Role of Internal Finance: A Study of Capital Market Imperfection

Drawing on insights from the corporate finance and industrial economics literatures, this thesis combines different empirical strategies and econometric techniques to study the role of capital-market imperfections on the financial and operational activities of firms. The thesis is mainly composed of three different but interlinked empirical chapters as summarized below using an unbalanced panel data on 1122 UK firms listed on the London Stock Exchange during the period 1981 to 2009. Stochastic Frontier Analysis to Corporate Efficiency : Using the stochastic frontier analysis (SFA), long run and short run corporate efficiencies are predicted in this chapter focusing on value and profit maximization approach respectively. The estimation results reveal that, an average firm in the sample achieves 74.5% of it's best performing peer's market value and 86.6% of it's best performing peer's profit and both of them are highly significant in the analysis. The inverse of these serve as proxies of agency costs and significantly related to the chosen explanatory variables. The general conception that larger firms are more efficient remains valid in this study. The long run market value efficiency supports the agency cost of outside equity and the short run profit efficiency supports the agency cost of outside debt hypothesis. Also there is a positive rank correlation between these two efficiencies which confirms that an average firm in the UK suffers from inefficiency or agency conflicts to a certain extent, no matter whether the firm is driven by short run or long run growth perspectives. Corporate Efficiency, Credit Status and Investment : The endogenous switching regression models (SRM) incorporating the predicted corporate efficiencies are estimated in this chapter in an effort to clarify the role of cash flow in examining the impact of capital-market imperfections. It is revealed that a financially constrained firm is more likely to be smaller, younger, deficient in capturing better investment opportunities, reserves higher safety stock, pays low dividends, has less collaterizable assets and less external debt. Moreover, a firm's constrained credit status changes with the improvement of it's efficiency. The results further reveal that financially constrained firm's investment is comparatively more sensitive to cash flow, but this sensitivity is negatively and significantly related with corporate efficiency. These results point to the fact that high investment sensitivity to cash flow may not be solely driven by measurement error in investment opportunity, but may still be interpreted as a consequence of imperfect substitutability between internal and external financing arising from the capital market imperfections. Financial constraints and the dynamics of firm size and growth : Differential quantitative effects of cash flow on growth among firms facing different degrees of financial constraints are found in this chapter using the generalized methods of moments (GMM) estimations and the results are consistent with financial constraints arising from capital market imperfections. The results in general reject Gibrat's "Law of Proportionate Effects" and smaller and younger firms are found to grow faster. The estimated results indicate a substantially greater sensitivity of growth to cash flow for firm years facing the most binding financial constraints on their growth. Furthermore, these firms can actually expand their size more than the extent of increase in cash flow they may have supporting the leverage effect hypothesis. The estimated impact decreases monotonically thereafter as financial constraints become less binding allowing the firms to finance successively bigger portion of their growth through external financing