Mo.Fi.R. Working Papers (2015)


 
 
Mo.Fi.R. Working Papers (>> Mo.Fi.R. website)
 
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117  Michele Fratianni, Federico Giri
The Tale of Two Great Crises [dicembre 2015]
Keywords:
  Eurozone, Great Depression, Great Financial Crisis, gold standard, money multiplier, shadow banking
JEL Classification:
  E31- Macroeconomics and Monetary Economics - Prices, Business Fluctuations, and Cycles - Price Level; Inflation; Deflation
  E42- Macroeconomics and Monetary Economics - Money and Interest Rates - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
  E5- Macroeconomics and Monetary Economics - Monetary Policy, Central Banking, and the Supply of Money and Credit
  G21- Financial Economics - Financial Institutions and Services - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Abstract:
  The great depression of 1929 and the great financial crisis of 2008 have been the two big events of the last 75 years. Not only have they produced serious economic consequences but they also changed our view of economics and policymaking. The aim of this work is to compare these two great crises and highlight similarities as well as differences. Monetary policy, the exchange rate system and the role of the banks are our fields of investigation. Our findings are that two big events have more similarities than dissimilarities.
Citations:   CitEc
 
116  Andrew Berg, Edward F. Buffie, Catherine Pattillo, Rafael Portillo, Andrea Filippo Presbitero, Luis-Felipe Zanna
Some Misconceptions about Public Investment Efficiency and Growth [dicembre 2015]
Keywords:
  Efficiency, Growth, Low-Income Countries, Public investment
JEL Classification:
  H54- Public Economics - National Government Expenditures and Related Policies - Infrastructures; Other Public Investment and Capital Stock
  O40- Economic Development, Technological Change, and Growth - Economic Growth and Aggregate Productivity - General
  O43- Economic Development, Technological Change, and Growth - Economic Growth and Aggregate Productivity - Institutions and Growth
Abstract:
  We reconsider the macroeconomic implications of public investment efficiency, defined as the ratio between the actual increment to public capital and the amount spent. We show that, in a simple and standard model, increases in public investment spending in inefficient countries do not have a lower impact on growth than in efficient countries, a result confirmed in a simple cross-country regression. This apparently counter-intuitive result, which contrasts with Pritchett (2000) and recent policy analyses, follows directly from the standard assumption that the marginal product of public capital declines with the capital/output ratio. The implication is that efficiency and scarcity of public capital are likely to be inversely related across countries. It follows that both efficiency and the rate of return need to be considered together in assessing the impact of increases in investment, and blanket recommendations against increased public investment spending in inefficient countries need to be reconsidered. Changes in efficiency, in contrast, have direct and potentially powerful impacts on growth: "investing in investing" through structural reforms that increase efficiency, for example, can have very high rates of return.
Citations:   CitEc
 
115  Andrea Filippo Presbitero
Too much and too fast? Public investment scaling-up and abssoptive capacity [dicembre 2015]
Keywords:
  Absorptive capacity, Donor fragmentation, Infrastructure, Investment projects, Public investment
JEL Classification:
  F35- International Economics - International Finance - Foreign Aid
  O19- Economic Development, Technological Change, and Growth - Economic Development - International Linkages to Development; Role of International Organizations
  O22- Economic Development, Technological Change, and Growth - Development Planning and Policy - Project Analysis
Abstract:
  A recent trend in several low-income developing countries has been a rapid scaling-up of public investment. It is argued that in the presence of limited absorptive capacity countries are not able - in terms of skills, institutions, management - to translate additional public investment into sustained output growth. We test for the presence of absorptive capacity constraints using a large dataset of World Bank investment projects, approved between 1970 and 2007 in 80 countries. Our results indicate that projects undertaken in periods of public investment scaling-up are less likely to be successful, although this effect is relatively small, especially in poor and capital scarce countries. We also verify that this effect is unrelated to large aid flows and donor fragmentation.
Citations:   CitEc
 
114  Charles Abuka, Ronnie K. Alinda, Camelia Minoiu, Jose-Luis Peydro, Andrea Filippo Presbitero
Monetary Policy in a Developing Country: Loan Applications and Real Effects [dicembre 2015]
Keywords:
  Bank balance sheet channel, Bank lending channel, Developing countries, Monetary policy transmission
JEL Classification:
  E42- Macroeconomics and Monetary Economics - Money and Interest Rates - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
  E44- Macroeconomics and Monetary Economics - Money and Interest Rates - Financial Markets and the Macroeconomy
  E52- Macroeconomics and Monetary Economics - Monetary Policy, Central Banking, and the Supply of Money and Credit - Monetary Policy
  E58- Macroeconomics and Monetary Economics - Monetary Policy, Central Banking, and the Supply of Money and Credit - Central Banks and Their Policies
Abstract:
  We examine the bank lending channel in Uganda, a developing country where monetary policy transmission may be impaired by weaknesses in the contracting environment, shallow financial markets, and a concentrated banking system. Our analysis employs a supervisory loan-level dataset and focuses on a short period during which the policy rate rose by 1,000 basis points and then came down by 1,100 basis points. We find that an increase in interest rates reduces the supply of bank credit both on the extensive and intensive margins, and there is significant pass-through to retail lending rates. We document a strong bank balance sheet channel, as the lending behavior of banks with high capital and liquidity is different from that of banks with low capital and liquidity. Finally, we show the impact of monetary policy on real activity across districts depends on banking sector conditions. Overall, our results indicate significant real effects of the bank lending channel in developing countries.
Citations:   CitEc
 
113  Pietro Alessandrini, Michele Fratianni
In the absence of fiscal union, the Eurozone needs a more flexible monetary policy [ottobre 2015]
Keywords:
  Eurozone, adjustment mechanism, external imbalances, sterilisation
JEL Classification:
  E42- Macroeconomics and Monetary Economics - Money and Interest Rates - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
  E52- Macroeconomics and Monetary Economics - Monetary Policy, Central Banking, and the Supply of Money and Credit - Monetary Policy
  E58- Macroeconomics and Monetary Economics - Monetary Policy, Central Banking, and the Supply of Money and Credit - Central Banks and Their Policies
Abstract:
  This paper makes three points. The first is that inter-member external imbalances are a relevant objective for the performance of a monetary union. The second is that policy should aim at reducing inter-member external disequilibria, by setting targets on current-account imbalances applied symmetrically to both deficit and surplus countries. The correction of external imbalances needs to be taken as seriously as that of fiscal imbalances and debt-to-GDP ratios. The third is that, while the principle of the unified supranational monetary policy should remain the core of the monetary union, the heterogeneity in economic performances and current-account imbalances of member states calls for a more flexible common monetary policy. Our specific proposal is that National Central Banks should add a risk premium cost to official interest rates on banks that accumulate "excessive" borrowings or deposits to compensate, respectively, for outflows and inflows of the monetary base due to the effect of external imbalances.
Citations:   CitEc
 
112  Valentina Peruzzi
Does family ownership structure affect investment-cash flow sensitivity? Evidence from Italian SMEs [settembre 2015]
Keywords:
  Family firms, financing constraints, investment policy, investment-cash flow sensitivity
JEL Classification:
  G31- Financial Economics - Corporate Finance and Governance - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
  G32- Financial Economics - Corporate Finance and Governance - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Abstract:
  The aim of this paper is to investigate whether the conclusion reached by previous studies (Andres, 2011; Pindado et al., 2011) about the benecial effect of family control on investment-cash flow sensitivity may be extended to the category of small and medium-sized enterprises. Small unlisted firms are more likely to face financing constraints than their listed counterparts: they face more asymmetric information problems and strictly adhere to the pecking order theory, therefore strongly preferring internal capital to external debt and equity issues. Family control, in this context, may further exacerbate the relevance of internal generated cash flow for investment purposes by amplifying agency conflicts between (i) controlling and minority shareholders, and (ii) owners and external investors. Moreover, due to families' desire to pass a financially stable company onto future generations, family businesses may be less willing to rely on too much external debt and capital. Both this facts may be further exacerbated by highly concentrated ownership structure and family management. Hence, I test the following hypotheses: (H1) Family ownership increases investment-cash flow sensitivity in SMEs; (H2) The higher investment-cash flow sensitivity of family businesses, as compared to non-family ones, is mainly due to the presence of family CEOs and concentrated ownership; (H3) Investment-cash flow sensitivity is a good proxy for SMEs financing constraints. By employing panel data methodology and estimating the empirical model through the Generalized Method of Moments (GMM), I strongly confirm all these hypotheses.
Citations:   CitEc
 
111  Daisuke Miyakawa, Kaoru Hosono, Taisuke Uchino, Arito Ono, Hirofumi Uchida, Ichiro Uesugi
Financial Shocks and Firm Exports: A Natural Experiment Approach with a Massive Earthquake [luglio 2015]
Keywords:
  Bank Lending, Extensive and Intensive Margins, Firm Exports
JEL Classification:
  F14- International Economics - Trade - Country and Industry Studies of Trade
  G21- Financial Economics - Financial Institutions and Services - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Abstract:
  This paper investigates the effect of financial shocks on firms' exports. To circumvent endogeneity problems, we utilize the natural experiment provided by Japan's Great Hanshin-Awaji earthquake in 1995. Using a unique firm-level dataset, we single out the effect of exogenous financial shocks on firms' exports by focusing on exports of those firms that were not directly damaged by the earthquake but had main bank relationships with damaged banks. Our main findings are twofold. First, as for the extensive margins of exports, the probabilities of starting exports or of expanding export destination areas were smaller for undamaged firms transacted with a damaged main bank than for those transacted with an undamaged main bank. Second, as for the intensive margins of exports, undamaged firms transacted with a damaged main bank had a lower export-to-sales ratio than those transacted with an undamaged main bank. These findings lend support to the existence of the financial constraint on firm exports.
Citations:   CitEc
 
110  Hirofumi Uchida, Daisuke Miyakawa, Kaoru Hosono, Arito Ono, Taisuke Uchino, Ichiro Uesugi
Financial Shocks, Bankruptcy, and Natural Selection [luglio 2015]
Keywords:
  capital injection, financial constraint, firm bankruptcy, natural disaster, natural selection
JEL Classification:
  G21- Financial Economics - Financial Institutions and Services - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  L10- Industrial Organization - Market Structure, Firm Strategy, and Market Performance - General
Abstract:
  In this paper, we investigate whether financial shocks to firms affect their probability of bankruptcy. We also examine whether these shocks affect the natural selection of the firms, whereby more efficient firms are less likely to go bankrupt. By using the data on the bankruptcy of firms after the Great Tohoku Earthquake, we examine the impact of the damage to lender banks on the firms' probability of bankruptcy. To extract the impact of purely exogenous financial shocks on bankruptcy, we focus on firms located outside the earthquake-affected area but that transact with banks located inside the area. Our findings somewhat counterintuitively suggest that a damaged bank reduces the probability of bankruptcy and weakens the natural selection of firms. We further examine the impact of the injection of public capital into damaged banks and obtain some evidence that the injection reduces the probability of the bankruptcy of their borrowers and weakens the natural selection.
Citations:   CitEc
 
109  Tatiana Cesaroni
Procyclicality of credit rating systems: how to manage it [luglio 2015]
Keywords:
  PiT rating system, business cycle, financial stability, long run probability default, procyclicality
Abstract:
  The recent Eurozone financial crisis has highlighted the need for stable rating systems to assess portfolio banks risks exposures abstracting from the current cyclical conditions. This paper evaluates the characteristics of a Point in Time (PiT) rating approach for the estimation of firms' credit risk in terms of pro-cyclicality. To this end I first estimate a logit model for the probability default (PD) of a set of Italian non financial firms during the period 2006-2012, then, in order to address the issue of the rating stability (rating changes hedging) during the financial crisis, I study the effectiveness of an ex post PDs smoothing in terms of obligors' migration among rating risk grades. As bi-product I further discuss and analyze the role played by the rating scale definition (choice) in producing ratings stability. The results show that an ex post PD smoothing is able to remove business cycle effects on the credit risk estimates and to produce a mitigation of obligors' migration among risk grades over time. The rating scale choice also has a significant impact on the rating stability. These findings have important policy implications in banking sector practices in terms of financial system stability.
Citations:   CitEc
 
108  Giovanni Ferri, Angelo Leogrande
Was the Crisis due to a shift from stakeholder to shareholder finance? Surveying the debate [maggio 2015]
Keywords:
  Bank Governance, Financial Institutions and Organizations, Financial Regulation, Financial and Banking Crises
JEL Classification:
  G0- Financial Economics - General
  G01- Financial Economics - General - Financial Crises
  G14- Financial Economics - General Financial Markets - Information and Market Efficiency; Event Studies
  G15- Financial Economics - General Financial Markets - International Financial Markets
  G18- Financial Economics - General Financial Markets - Government Policy and Regulation
  G20- Financial Economics - Financial Institutions and Services - General
  G21- Financial Economics - Financial Institutions and Services - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  G24- Financial Economics - Financial Institutions and Services - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
  G28- Financial Economics - Financial Institutions and Services - Government Policy and Regulation
  G30- Financial Economics - Corporate Finance and Governance - General
  G32- Financial Economics - Corporate Finance and Governance - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Abstract:
  We discuss the literature on the shift from stakeholder to shareholder finance behind the Great Financial Crisis (GFC). Traditional banks generally maximized stakeholder value (STV). But before the GFC also many of them started maximizing shareholder value (SHV). Moving from STV to SHV often meant shifting credit management from Originate-to-Hold (OTH) to Originate-to-Distribute (OTD). Moving from STV-OTH to SHV-OTD increased systemic risk damaging the common good of financial stability. STV-oriented banks seemed to weather the GFC relatively better with more heterogeneous systems proving more resilient. Heterogeneity in banking governanceorientations/ownership-structures seems to add value reducing the probability of financial crises.
Citations:   CitEc
 
107  Luigino Bruni, Giovanni Ferri
oes Cooperativeness Promote Happiness? Cross-country Evidence [maggio 2015]
Keywords:
  Cross-country evidence, Extent of the cooperative sector, Happiness
JEL Classification:
  I31- Health, Education, and Welfare - Welfare and Poverty - General Welfare
  P13- Economic Systems - Capitalist Systems - Cooperative Enterprises
Abstract:
  Why is the share of happy people higher in some countries than in their equally developed neighbors? We conjecture that the apparent contradiction might depend on a country's endowment of relational goods, which we proxy empirically with the extent of cooperativeness. Compiling an index of the importance of the cooperative sector, we test whether higher values of the index associate with more happiness controlling for countries' HDI and other control variables. Checking for endogeneity, we find support for our hypothesis and that support is stronger for more developed countries. This suggests that, indeed, relational goods might help tackle Easterlin's paradox.
Citations:   CitEc
 
106  Andrea Bellucci, Alexander Borisov, Germana Giombini, Alberto Zazzaro
Collateral and Local Lending: Testing the Lender-Based Theory [aprile 2015]
Keywords:
  Bank lending, Collateral, Distance, Interest Rate
JEL Classification:
  G21- Financial Economics - Financial Institutions and Services - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  G32- Financial Economics - Corporate Finance and Governance - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
  L11- Industrial Organization - Market Structure, Firm Strategy, and Market Performance - Production, Pricing, and Market Structure; Size Distribution of Firms
Abstract:
  In this paper we empirically test the recent lender-based theory for the use of collateral in bank lending. Based on a proprietary dataset of loan contracts written by a local bank in competitive credit markets, we use the physical proximity between borrowers and the lending branch of the bank to capture its information advantage and the magnitude of collateral-related transaction costs. Overall, our results seem more consistent with several classic borrower-based explanations rather than with the lender-based view. We show that, conditional on obtaining credit from the local bank, more distant borrowers experience higher collateral requirements and lower interest rates. Moreover, competitive pressure from transaction lenders does not magnify the importance of lender-to-borrower distance. Our findings are also obtained with estimation techniques that allow for endogenous loan contract terms and joint determination of collateral and interest rates.
Citations:   CitEc
 
105  Luca Papi, Emma Sarno, Alberto Zazzaro
The geographical network of bank organizations: issues and evidence for Italy [aprile 2015]
Keywords:
  Distances in credit markets, network analysis, spatial organization of banks
JEL Classification:
  G2- Financial Economics - Financial Institutions and Services
Abstract:
  The evolution of the banking industry has always been affected by recurrent waves of technological, regulatory and organizational changes. All such changes have significant effects on the spatial organization of banks, the interconnectedness of geographical credit markets and the core-periphery structure of banking industry. In this chapter, we review the literature on the effects of geographical distances between the key actors of the credit market (the borrowing firm, the lending branch, the lending bank, and rival banks) on lending relationships and interbank competition. Using the metrics and graph techniques for network analysis we then provide evidence concerning the evolving geographical network of bank organizations in Italy.
Citations:   CitEc
 
104  Marco Cucculelli
  Financing investments: the enterprise perspective [aprile 2015]
Citations:   CitEc
 
103  Michele Fratianni, Francesco Marchionne
De-leveraging, de-risking and moral suasion in the banking sector [gennaio 2015]
Keywords:
  crisis, loans, moral suasion, regulator, securities
JEL Classification:
  G01- Financial Economics - General - Financial Crises
  G11- Financial Economics - General Financial Markets - Portfolio Choice; Investment Decisions
  G21- Financial Economics - Financial Institutions and Services - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  G28- Financial Economics - Financial Institutions and Services - Government Policy and Regulation
Abstract:
  This paper examines how banks around the world have resized and reallocated their earning assets in response to the subprime and sovereign debt crises. We also focus on the interaction between sovereign debt and the asset allocation process. We find that banks have readjusted asset shares and the overall regulatory credit risk by substituting government securities for loans. Furthermore, they have been sensitive to those variables that are of direct interest to the regulator, a result that is consistent with high-debt governments having exerting moral suasion on banks to privilege the purchase of government securities over credit to the private sector.
Citations:   CitEc