406 research outputs found
Trade Credit as a Competitiveness Tool;Evidence from Developing Countries
Statistics show that the sale of goods on credit is widespread among firms even when they are financially constrained and thus face relatively high costs in providing trade credit. A possible explanation for this is the use of trade credit as a competitiveness tool. By analyzing both the impact of customer as well as producer market power on a firm’s decision to provide trade credit, we examine whether trade credit is indeed used as a way to lock in customers by firms in developing countries. Using a new dataset containing a large number of firms in 42 developing countries, we find strong evidence that an important driving force behind the decision to provide trade credit is the urge to be competitive. This especially holds for those firms that still have to establish a solid market reputation and for firms located in countries with an underdeveloped banking sector.
Customer market power and the provision of trade credit : evidence from Eastern Europe and Central Asia
Statistics show that the sale of goods on credit is widespread among firms even when they are capital constrained and thus face relatively high costs in providing trade credit. This study provides an explanation for this by arguing that customers who possess strong market power are able to increase their customer surplus by demanding to purchase the goods on credit. This gain in customer surplus increases with the degree of asymmetric information between buyer and seller with respect to product quality. Therefore, firms that are perceived as risky are especially subject to the market power of the customer and have to sell their goods on credit. Using detailed firm-level data from a large number of firms in Eastern Europe and Central Asia, this study finds evidence consistent with this hypothesis. It finds a strong positive correlation between customer market power and trade credit provision. Furthermore, this relationship is especially strong when the supplier is more risky and in countries with limited financial sector development or a weak legal system.Economic Theory&Research,Markets and Market Access,Investment and Investment Climate,Financial Intermediation,Access to Markets
Location decisions of foreign banks and competitive advantage
While institutional differences have been found to affect country growth patterns, much has remained unexplained, including how economic actors"overcome"institutional weaknesses and how internationalization helps or hinders development. Banking is an institutionally-intensive activity and the location decision of foreign banks provides a good test of how institutional differences are dealt with and how they may affect economic choices. Specifically, the authors examine whether banks seek out those markets where institutional familiarity provides them with a competitive advantage over other foreign competitor banks. Using bilateral data on banking sector foreign direct investment in all developing countries and controlling for other factors, they find that competitive advantage is an important factor in driving foreign banks'location decisions. The findings suggest that high institutional quality is not necessarily a prerequisite to attract foreign direct investment in banking and that there are specific benefits, as well as risks, to international financial integration between developing countries.Banks&Banking Reform,Foreign Direct Investment,Country Strategy&Performance,Corporate Law,Economic Theory&Research
The crisis as a wake-up call: do banks tighten screening and monitoring during a financial crisis?
Recent developments and theoretical work on the transition economies has emphasised the importance of internal bargaining and incentives. This paper constitutes the first attempt to systematise the large and growing body of case studies of enterprise restructuring in Poland, Hungary, Slovakia, Russia and the Czech Republic. We begin from a framework in which the incentives and constraints on managers are crucial for the success of transforming enterprises into value maximising firms. The forms of, and the constraints on, active behaviour are examined for each enterprise across the dimensions of internal organisation, product and labour markets and investment. There is a huge variety in the quality of the evidence and in the experiences documented. Although we find widespread evidence of enterprise managers reacting to the post-reform environment, examples of deep restructuring are rare. Managers are hamstrung by weak incentives and increasing employee opposition, as well as by the uneven development of social and market infrastructure external to the enterprise. Low incentives arise from the absence of a managerial labour market, monopoly power and the large component of idiosyncratic knowledge possessed by incumbents. Opposition is based on the high costs of job loss. A characteristic feature of the transition economies is the ability of employees to veto restructuring and the opposition of labour appears likely to increase as unemployment rates and durations grow. Cases are described where the passage of restructuring measures has been facilitated by the willingness of the state to provide compensation to the ‘losers’. The examination of pre-privatisation behaviour suggests that the pace and depth of restructuring would increase after privatisation only when privatisation clearly transforms the incentives and constraints facing managers. The limited evidence on post- privatisation restructuring surveyed here suggests that foreign ownership of a former state-owned enterprise is the exception in which privatisation produces a marked change in behaviour. The role of product market power runs through the survey. Some enterprises use profits as a shield to avoid painful change, others have actively sought to build dominant positions. Aggregate data is presented which raises the possibility that the pattern of restructuring is being distorted by the uneven distribution of monopoly power across sectors. In our conclusions, we suggest ways in which future enterprise-level research could be improved to shed more light on the pattern of restructuring and to facilitate safer policy advice. From a policy perspective, we stress the complementarity between different reforms. The focus on the incentives and constraints facing enterprise managers highlights the limitations to a strategy which relies on privatisation to raise efficiency. The state must play a role in facilitating labour shedding and internal reorganisation of enterprises through providing finance for compensation, promoting the provision of social services outside the structure of enterprises and fostering the creation of new jobs. The hardening ahs promoted adjustment but over-tight budgetary policies may offset this, slowing the arte of new job creation ad heightening uncertainty about the prospects of enterprises under restructuring.
International Shock Transmission after the Lehman Brothers Collapse. Evidence from Syndicated Lending
After Lehman Brothers filed for bankruptcy in September 2008, cross-border bank lending contracted sharply. To explain the severity and variation in this contraction, we analyze detailed data on cross-border syndicated lending by 75 banks to 59 countries. We find that banks that had to write down sub-prime assets, refinance large amounts of long-term debt, and experienced sharp declines in their market-to-book ratio, transmitted these shocks across borders by curtailing their lending abroad. While shocked banks differentiated between countries in much the same way as less constrained banks, they restricted their lending more to small borrowers.Cross-border lending; bank-funding shocks; crisis transmission
Running for the exit: international banks and crisis transmission
The global financial crisis has reignited the debate about the risks of financial globalisation, in particular the international transmission of financial shocks. We use data on individual loans by the largest international banks to their various countries of operations to examine whether banks’ access to borrower information affected the transmission of the financial shock across borders. The simultaneous use of country and bank-fixed effects allows us to disentangle credit supply and demand and to control for general bank characteristics. We find that during the crisis banks continued to lend more to countries that are geographically close, where they are integrated into a network of domestic co-lenders, and where they had gained experience by building relationships with (repeat) borrowers.
Breaking the mould on copycats:When are imitation strategies successful
Consumer product companies and retailers often imitate the appearance (or “trade-dress”) of a leader brand to profit from the positive associations attached to the leader brand. Such a copycatting strategy is deliberate and frequently used, as evidenced by the plethora of copycats one can find in the supermarket. Despite the frequent use of such product imitation strategies, it is however less clear when they are successful and why. This dissertation sheds new light on this important question and demonstrates that the effectiveness of a copycat strategy is not only determined by package similarity, but is highly dependent on where the copycat is sold (e.g., in which store) and how it is positioned on the supermarket shelf (e.g., next to the leader brand or not). Furthermore and in contrast to the current opinion, this dissertation shows that high similarity copycats can backfire and reduce consumer’s liking of copycats, whilst subtler forms of copycatting can free-ride more effectively on the leader brand’s equity. Because this dissertation examines the mechanisms underlying copycat effectiveness beyond consumer confusion (where consumers accidentally purchase the copycat instead of the leader brand) are examined, the subsequent findings are an important supplement to the existing literature.
The cost of power : externalities in South Africa's energy sector
Bibliography: pages [201]-220.The long-awaited birth of political democracy in South Africa in 1994 has led to a fundamental re-assessment of policy in most sectors of society. Although the energy sector has witnessed a clrar shift away from the self-sufficiency concerns of the apartheid era, to more universal goals of economic efficiency, social equity and environmental sustainability, there has, as yet, been very little analysis of problems at the energy-environment interface. In this context, this thesis investigates environmental externalities arising in South Africa's energy sector. Two questions are posed: first and foremost, which environmental problems give rise to the most significant social costs? Secondarily, how helpful is an environmental economic analysis in this context? With respect to the first question, it is hypothesised that the external costs arising from two sectors are significant: the electricity generation sector, and the low-income, unelectrified household sector. Of these two, it is suggested that externalities in the latter are most serious. After reviewing the literature on externalities and environmental valuation, the thesis undertakes an empirical investigation of external costs in both energy sub-sectors. A classification system is developed and used to select those externalities in each sector which are potentially serious and regarding which there is sufficient information for quantification purposes. After reviewing a larger number of impacts, data are collected from both published and unpublished sources for four environmental externalities in the electricity sector, and six in the household sector
The Price of Inconvertible Deposits: The Stock Market Boom during the Argentine crisis",
The Argentine crisis witnessed, among other things, a deposit run, the suspension of deposit convertibility, and a “boom” in the stock market. We argue that this boom reflects the cost that depositors were willing to incur to get their money out of the banking system, in light of the impending risks. This boom was generalized to all stocks and more pronounced in liquid stocks. Furthermore, the boom was a symptom that deposits were effectively restricted and that investors were not able to circumvent capital controls.
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