International Capital Flows and the Allocation of Credit Across Firms

Substantial research yields opposing conclusions regarding the effects of international capital flows on economic growth. However, microeconomic channels that help to explain these inconsistencies are to date underexplored. This paper overcomes intricate identification issues by using a comprehensive dataset that covers about 20,000 firm-year observations to study the effects of the exogenous fluctuations in European capital flows on bank lending and the real behavior of firms from 1995-2014. We find that higher capital inflows are associated with more loans to less profitable firms, thereby, impeding the creative economic destruction. Consequently, there is evidence for time-varying implications of foreign capital for economic growth

Cross-Border Debt Flows and Credit Allocation:Firm-Level Evidence from the Euro Area

This paper employs euro area firm-level data covering the years 2002–18 to examine the impact of cross-border debt flows on the domestic allocation of credit across firms conditional on their profitability. As only debt flows driven by global push factors are exogenous with respect to domestic credit allocation, I overcome the endogeneity of debt flows by instrumenting them with a measure of global uncertainty (VIX). My results show that debt flows raise the credit growth rates of low performing firms significantly more than those of high performing firms. This result is driven by domestic banking sectors with lower capitalization

Global Imbalances and Bank Risk-Taking

Financial crises are usually preceded by large current account deficits. However, the channel through which international capital flows affect financial stability is hardly identified, yet. In this paper, we study the impact of current account balances on bank risk-taking making use of the exogenous and huge variation in capital flows within the euro area between the years 2001 and 2012. We find that bank risk-taking is positively associated with current account deficits. We provide a series of tests showing that this is the case both because banks in countries with large external deficits substitute new investments in asset markets (e.g. sovereign debt) with loans that are typically riskier and because the average quality of bank loans deteriorates

Capital account liberalization and the composition of bank liabilities

Using a sample of almost 600 banks in Latin America, we show that capital account liberalization lowers the share of equity and raises the share of interbank funding in total liabilities of the consolidated banking system. These shifts are mostly due to large banks; smaller banks, instead, increase their resort to retail funding by offering higher average deposit interest rates than larger banks. We also find significant differences in the behavior of foreign banks and of banks with seemingly greater information opacity. These findings have positive implications for macro-prudential regulation.info:eu-repo/semantics/publishedVersio

Capital Flows, Real Estate, and Local Cycles:Evidence from German Cities, Banks, and Firms

We study how capital flows affects German cities’ GDP growth depending on the state of their real estate markets. Identification exploits a policy framework assigning refugees to cities on a quasi-random basis and variation in nondevelopable area for the construction of an exposure measure to real estate market tightness. We estimate that the most exposed cities to real estate market tightness grew at least 1.9 percentage points more than the least exposed ones, cumulatively, from 2009 to 2014. Capital inflows shift credit to firms with more collateral, which leads firms to hire and invest more in response to these shocks

Global Factors in Non-core Bank Funding and Exchange Rate Flexibility

We show that fluctuations in the ratio of non-core to core funding in the banking systems of advanced economies are driven by a handful of global factors of both real and financial natures, with country-specific factors playing no significant roles. Exchange rate flexibility helps insulate the non-core to core ratio from such global factors but only significantly so outside periods of major global financial disruptions, as in 2008-2009

Reproducibility in Management Science

With the help of more than 700 reviewers we assess the reproducibility of nearly 500 articles published in the journal Management Science before and after the introduction of a new Data and Code Disclosure policy in 2019. When considering only articles for which data accessibility and hard- and software requirements were not an obstacle for reviewers, the results of more than 95%of articles under the new disclosure policy could be fully or largely computationally reproduced.However, for 29% of articles at least part of the dataset was not accessible to the reviewer. Considering all articles in our sample reduces the share of reproduced articles to 68%. These figures represent a significant increase compared to the period before the introduction of the disclosure policy, where only 12% of articles voluntarily provided replication materials, out of which 55% couldbe (largely) reproduced. Substantial heterogeneity in reproducibility rates across different fields is mainly driven by differences in dataset accessibility. Other reasons for unsuccessful reproduction attempts include missing code, unresolvable code errors, weak or missing documentation, but also soft- and hardware requirements and code complexity. Our findings highlight the importance of journal code and data disclosure policies, and suggest potential avenues for enhancing their effectiveness.<br/

Essays on Financial Globalization, Inequality and Economic Growth

This dissertation explores several aspects of financial globalization, inequality and economic growth. In the first two essays, we show that cross-border capital inflows raise the domestic credit volumes and lead to higher bank risk-taking. In particular, capital inflows are related to an increased credit supply towards ex-ante risky and low performing firms. These results are amplified when the financial system is more prone to agency problems—problems that rise in the financial system’s size/concentration and undercapitalization. Therefore, from a policy perspective, we gauge that the regulation of the financial sector shapes the allocation of global liquidity to the real economy. Turning our attention towards firms’ real activities, we show that capital inflows are negatively linked with the ex-post performance of firms. Consequently, foreign capital is not only allocated overproportionally to firms with a low ex-ante profitability; additionally, low performing firms display further decreases in their future profitability, constituting long-run hazards for the aggregate economic performance. This result helps to explain the difficulties of the empirical literature to identify a distinct positive relationship between cross-border capital flows and aggregate economic growth. In the third essay, we identify the growth effects of another macroeconomic variable that has been shown to increase with financial globalization—income inequality. We find that higher income inequality increases the growth rates of industries that are dependent on physical capital. In contrast, human capital intense industries grow less in countries with a more unequal distribution of income. We further gauge that higher aggregate investments (in financially more closed economies) and devaluations of the real exchange rate (in financially more open economies) drive the positive growth effects of inequality. The negative growth effects are an implication of lower human capital investments. Consequently, policy makers should keep in mind the potential negative implications of inequality for aggregate economic growth in case their country’s industrial structure relies to a great extent on human capital