Financial Linkages and Sectoral Business Cycle Synchronisation: Evidence from Europe
Hannes Böhm, Julia Schaumburg, Lena Tonzer
Abstract
We analyse whether financial integration between countries leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996-2017, we find that the spillover effects are positive on average but much larger during periods of financial stress, pointing towards stronger business cycle synchronisation. Dismantling GDP growth into value added growth of ten major industries, we observe that some sectors are strongly affected by positive spillovers (wholesale & retail trade, industrial production), others only to a weaker degree (agriculture, construction, finance), while more nationally influenced industries show no evidence for significant spillover effects (public administration, arts & entertainment, real estate).
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Total Factor Productivity Growth at the Firm-level: The Effects of Capital Account Liberalization
Xiang Li, Dan Su
Journal of International Economics,
November
2022
Abstract
This study provides firm-level evidence on the effect of capital account liberalization on total factor productivity (TFP) growth. We find that a one standard deviation increase in the capital account openness indicator constructed by Fernández et al. (2016) is significantly associated with a 0.18 standard deviation increase in firms’ TFP growth rates. The productivity-enhancing effects are stronger for sectors with higher external finance dependence and capital-skill complementarity, and are persistent five years after liberalization. Moreover, we show that potential transmission mechanisms include improved financing conditions, greater skilled labor utilization, and technology upgrades. Finally, we document heterogeneous effects across firm size and tradability, and threshold effects with respect to the country's institutional quality.
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Surges and Instability: The Maturity Shortening Channel
Xiang Li, Dan Su
Journal of International Economics,
November
2022
Abstract
Capital inflow surges destabilize the economy through a maturity shortening mechanism. The underlying reason is that firms have incentives to redeem their debt on demand to accommodate the potential liquidity needs of global investors, which makes international borrowing endogenously fragile. Based on a theoretical model and empirical evidence at both the firm and macro levels, our main findings are twofold. First, a significant association exists between surges and shortened corporate debt maturity, especially for firms with foreign bank relationships and higher redeployability. Second, the probability of a crisis following surges with a flattened yield curve is significantly higher than that following surges without one. Our study suggests that debt maturity is the key to understand the financial instability consequences of capital inflow bonanzas.
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Tournament Incentives and Acquisition Performance
Iftekhar Hasan, Marco Navone, Thomas To, Eliza Wu
Review of Corporate Finance Studies,
Nr. 2,
2020
Abstract
This paper examines the impact of promotion-based tournament incentives on corporate acquisition performance. Measuring tournament incentives as the compensation ratio between the CEO and other senior executives, we show that acquirers with greater tournament incentives experience lower announcement returns. Further analysis shows that the negative effect is driven by the risk-seeking behavior of senior executives induced by tournament incentives. Our results are robust to alternative identification strategies. Our evidence highlights that senior executives, in addition to the CEO, play an influential role in acquisition decisions.
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Cross-country Evidence on the Relationship between Regulations and the Development of the Life Insurance Sector
Chrysovalantis Gaganis, Iftekhar Hasan, Fotios Pasiouras
Economic Modelling,
July
2020
Abstract
Using a global sample, this study sketches the impact of insurance regulations on the life insurance sector, revealing a significant negative association between supervisory control on policy conditions of life annuities as well as pension products and the development of the industry. A similar inverse relation is observed between the index of capital requirements and insurance development. These results hold when we control for demographic factors, economic factors, religious inclination, culture, as well as for other relevant regulations. We also find some evidence that while the overall supervisory power does not matter, the ability to intervene at an early stage could have a positive effect on insurance development. Additionally, the impact of some regulations appears to differ between advanced and developing countries.
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Military Directors, Governance and Firm Behavior
Chen Cai, Iftekhar Hasan, Yinjie (Victor) Shen, Shuai Wang
Advances in Accounting,
December
2021
Abstract
We build a large dataset of board of directors with military experience and document a substantial and persistent presence of independent military directors serving on corporate boards. We find that firms with independent military directors are associated with better monitoring outcomes, including less excessive CEO compensation, greater forced CEO turnover–performance sensitivity, and less earnings management.
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The State Expropriation Risk and the Pricing of Foreign Earnings
Iftekhar Hasan, Ibrahim Siraj, Amine Tarazi, Qiang Wu
Journal of International Accounting Research,
Nr. 2,
2021
Abstract
We examine the pricing of U.S. multinational firms' foreign earnings in regard to their risk of expropriation and unfair treatment by the governments of the countries in which their international subsidiaries are located. Using 8,891 firm-years observations during the 2001–2013 period, we find that the value relevance of foreign earnings increases with the improvement of the protection from state expropriation risk in the subsidiary host-countries. Our results are not driven by the earnings management practice, investor distraction, country informativeness, and political and trade relationship of a foreign country with the U.S. Furthermore, our results are robust to the confounding effects of country factors, measurement error in the variable of the risk of expropriation, the influence of private contracting institutions, and endogeneity in the decision of the location of subsidiaries.
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Global Syndicated Lending during the COVID-19 Pandemic
Iftekhar Hasan, Panagiotis Politsidis, Zenu Sharma
Journal of Banking and Finance,
December
2021
Abstract
This paper examines the pricing of global syndicated loans during the COVID-19 pandemic. We find that loan spreads rise by over 11 basis points in response to a one standard deviation increase in the lender's exposure to COVID-19 and over 5 basis points for an equivalent increase in the borrower's exposure. This implies excess interestof about USD 5.16 million and USD 2.37 million respectively for a loan of average size and duration. The aggravating effect of the pandemic is exacerbated with the level of government restrictions to tackle the virus's spread, with firms’ financial constraints and reliance on debt financing, whereas it is mitigated for relationship borrowers, borrowers listed in multiple exchanges or headquartered in countries that can attract institutional investors.
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VC Participation and Failure of Startups: Evidence from P2P Lending Platforms in China
Iftekhar Hasan, Xiaoyang Li
Finance Research Letters,
May
2021
Abstract
We investigate how VC participation affects the failure of startups. Using a unique dataset of the survival of peer-to-peer (P2P) platforms in China, we identify two types of failures, bankruptcy, and run off with investors' money. The Competing Risk Model results show that while VC participation reduces bankruptcy hazard, it has little impact on the runoff failures. The findings are robust to the use of matched subsamples that disentangle the influence of pre-investment screening by VC. Further analysis of exit routes reveals that conditional on failure, VC participation is associated with a higher chance of running for the exit.
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The Impact of Political Uncertainty on Institutional Ownership
Bill Francis, Iftekhar Hasan, Yun Zhu
Journal of Financial Stability,
December
2021
Abstract
This paper provides original evidence from institutional investors that political uncertainty greatly affects investment behavior. Using institutional holdings of common stock, we find that institutions significantly reduce their holdings by 0.8–2.3% points during presidential election years. Such effect holds for gubernatorial elections with cross-state-border difference-in-difference analysis and for tests using a political uncertainty index. The effect is the opposite for American Depository Receipts (ADRs). In addition, we find that institutions benefit financially from the observed strategy, and such strategy is in line with predicted outcomes of presidential election polls.
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