Exploring Determinants of Firms’ Participation in the New Offshore Renminbi Debt Securities Market

Once in a while a major financial innovation creates a new product that changes the landscape for firms that adopt it. For example, junk bonds enabled leveraged buyouts, securitization stimulated off balance sheet growth in banks, and CDS offered pure trading in credit risk. New RMB financial products emerging as China opens its capital account provide a similar change to the landscape for firms and investors engaged with China or those using RMB as a vehicle currency. Uptake of the new products has been rapid, and in this paper we use the data from the Hong Kong Monetary Authority for offshore RMB bonds to explore that process. We are mostly interested in what determines firms’ participation decision in this market. We allow for changes in regulation, market depth, parallel market developments and changes in the advantages of participation using interest differentials to explain what influences firms’ and investors’ choices to enter the market and find that they all have an influence on the decision to participate in this new financial market

Sensemaking reconsidered : towards a broader understanding through phenomenology

We develop a typology of sensemaking in organizations that reconsiders existing sensemaking research by providing a more coherent and integrative conceptualization of what defines sensemaking and how it is connected with organizing. Drawing on existential phenomenology, we make the following core claims: (1) sensemaking is not a singular phenomenon but comprises four major types: immanent, involved-deliberate, detached-deliberate, and representational sensemaking; (2) all types of sensemaking originate and take place within specific practice worlds; (3) the core constituents of sensemaking within a practice world (sense–action nexus, temporality, embodiment, and language) are played out differently in each type of sensemaking. Furthermore, we elaborate the links between sensemaking and organizing, focusing especially on the connections between types and levels of sensemaking, and the consequences of sensemaking outcomes for organizing. Finally, we discuss how the typology contributes to the existing sensemaking perspective, outline methodological implications, and suggest ways of advancing sensemaking research

When fiction trumps truth : what ‘post-truth’ and ‘alternative facts’ mean for management studies

In this essay, we explore the notions of ‘post-truth’ and ‘alternative facts’ for management studies. Adopting a pragmatist perspective, we argue that there is no intrinsically accurate language in terms of which to refer to reality. Language, rather, is a tool that enables agents to grab hold of causal forces and intervene in the world. ‘Alternative facts’ can be created by multimodal communication to highlight different aspects of the world for the purpose of political mobilization and legitimacy. ‘Post-truth’ politics reveals the fragmentation of the language game in which mainstream politics has been hitherto conducted. Using the communicative acts of businessman-turned-politician President Trump and his aides, as a prompt, we explore the implications that ‘alternative facts’ and ‘post-truth’ have for today’s management scholarship. We argue that management scholars should unpack how managers navigate strategic action and communication, and how the creation of alternative realities is accomplished in conditions of informational abundance and multimodal communication

What Effect has Bond Market Development in Asia had on the Issue of Corporate Bonds

This paper investigates the determinants of the firm's decision to issue corporate bonds in emerging Asian economies, using a novel database covering the period 1995 to 2004. We use comparable micro level panel data for 4 countries - Indonesia, Korea, Malaysia and Thailand - to explore the influence of firms' size and growth prospects, financial health and indicators of bond market development on the decision to issue corporate bonds. Our results show that the likelihood of bond issuance increases with size and growth prospects and with creditworthiness in all countries; there is evidence of firm level heterogeneity across firm size classes. Importantly, there is no effect from bond market development on the likelihood of bond issuance. We conclude that the benefits of bond market development are yet to spillover to corporate bond markets.Bond financing, financial variables, development, emerging Asian markets.

Forecasting US bond default ratings allowing for previous and initial state dependence in an ordered probit model

In this paper, we investigate the ability of a number of different ordered probit models to predict ratings based on firm-specific data on business and financial risks. We investigate models based on momentum, drift and ageing and compare them against alternatives that take into account the initial rating of the firm and its previous actual rating. Using data on US bond issuing firms rated by Fitch over the years 2000 to 2007 we compare the performance of these models in predicting the rating in-sample and out-of-sample using root mean squared errors, Diebold-Mariano tests of forecast performance and contingency tables. We conclude that initial and previous states have a substantial influence on rating prediction.Credit ratings, probit, state dependence

Modelling the Persistence of Credit Ratings When Firms Face Financial Constraints, Recessions and Credit Crunches

Making accurate predictions of corporate credit ratings is a crucial issue to both investors and rating agencies. Recent events have drawn attention to ratings agencies methods. In this paper we investigate the determinants of credit ratings as a function of financial variables; we then consider whether there is persistence in ratings for different types of .rms in recessions and credit crunches. Using data on US Firms rated by Fitch we find substantial evidence of persistence in ratings, and great improvements in prediction as a result. Credit ratings vary for firms facing binding/non-binding financing constraints but do not vary for in recessions/credit crunches and other periods therefore agencies rate "through the cycle".

Evidence on the external finance premium from the US and emerging Asian corporate bond markets

Empirical investigation of the external finance premium has been conducted on the margin between internal finance and bank borrowing or equities but little attention has been given to corporate bonds especially for the emerging Asian market. In this paper we hypothesize that balance sheet indicators of creditworthiness could affect the external finance premium for bonds as they do for premia in other markets. Using bond-specific and firm-specific data for the United States, China, Hong Kong, Indonesia, Korea, Philippines, Singapore and Thailand during 1995-2005 we find that firms with better financial health face lower external finance premia in all countries. When we introduce firm-level heterogeneity we show that financial variables appear to be both statistically and quantitatively more important in the Asian market than in the US. Finally, the premium is more sensitive to firm-level variables during credit crunches, recessions and sudden stops than other periods, with stronger effects for the Asian bond market.Financing Constraints, External Finance Premium, Asian Bond Markets.

To what extent are savings-cash flow sensitivities informative to test for capital market imperfections?

We construct a simple model with lumpy investment, cash accumulation and costly external finance. Based on this model, we propose a new savings specification aimed at examining savings behavior in the presence of investment lumpiness and financial constraints. We then test a key prediction of our model, namely, that under costly external finance, savings-cash flow sensitivities vary significantly by investment regime. We make use of a panel of firms from transition and developed economies to estimate the new savings regression which controls for investment spikes and periods of inactivity. Our findings confirm the validity of the model's prediction

A Taste for Dim Sum: Analysing the Financial Diffusion in the New Offshore Renminbi Debt Securities

Periodically a major financial innovation creates a new product class that changes the financial landscape. Examples include junk bonds that enabled leveraged buyouts, securitization that stimulated off balance sheet growth in banks, and credit default swaps that offered pure trading in credit risk. Now new renminbi financial products are emerging as China opens its capital account, providing new opportunities for innovation in corporate finance that will promote financial stability and sustainable growth in China. This study illustrates the rapid growth in the use of these new products by Chinese and overseas firms. We use diffusion models to explore how participation in this market is influenced by greater depth and liquidity of the market, lower costs of issuance and greater expected appreciation of the renminbi against the US dollar. Understanding these offshore developments will help support smoother innovation in the onshore corporate bond market

The role of bond finance in firms' survival during the Asian crisis

In this paper we assess the effects of bond financing on firms' survival during the 1997-98 Asian crisis. Using a novel database covering the period 1995 to 2007 for five Asian economies most affected by the crisis - Indonesia, Korea, Malaysia, Singapore and Thailand - we find strong evidence that the Asian crisis affected both directly and indirectly (through interactions with financial indicators) the probability of survival. More importantly, we show that bond issuers, irrespective of the currency denomination, are more likely to survive compared to non-issuers. Nevertheless, only firms issuing bonds in local currency are shielded from the adverse effects of the crisis.