Emerging economies are substantially reliant on foreign corporate debt issuance, which has major macroeconomic implications. This column quantifies the extent to which debt issuance matters for macroeconomic performance in emerging economies, and how much macro vulnerability it has entailed. It finds evidence that a large increase in debt reliance has had a considerable effect on macroeconomic performance, but suggests that potential negative impacts on overall health of economies can be reduced in the future if policymakers have access to more and better information.
Julián Caballero, Andrés Fernández, Jongho Park, 19 December 2016
Selim Elekdag, Gaston Gelos, 24 November 2016
The relationship between corporate governance and financial stability has received little attention in the context of emerging markets. Using new firm-level indices of governance in emerging markets, this column shows that both firm-level governance and governance frameworks have generally improved at the country level over recent years. These stronger frameworks have enhanced the resilience of firms to global shocks, and bolstered balance sheets.
Ross Levine, Chen Lin, Wensi Xie, 07 October 2016
Many policies have been put in place to constrain the expansion of banks across economic borders, in part to avoid them becoming too big and interconnected to fail. However, some argue that such expansion can reduce risk. This column evaluates the impact of geographic expansion on the cost of a bank’s interest-bearing liabilities. Geographic diversification materially lowers bank holding companies’ funding costs, suggesting there is a real cost of restricting banks from using geographic expansion to diversify their risks.
Louis Nguyen, Jens Hagendorff, Arman Eshraghi, 30 September 2016
Banks are regularly under scrutiny for their professional and ethical behaviour. This column assesses the role of boards in monitoring and advising conduct, and offers new insights for how to structure bank boards to prevent misconduct. Conventional board measures such as board independence and financial expertise have no measurable impact on misconduct being committed or detected. Instead, governance metrics revolving around CEO connections warrant more attention from regulators, investors, and governance activists.
Marco Becht, Andrea Polo, Stefano Rossi, 20 July 2016
Many corporate acquirers impose losses on their shareholders. Conflicted or overconfident CEOs and boards embark on acquisitions that are not in the best interest of the owners of the firm. The governance tool of shareholder voting can represent a potential solution. This column shows that in the UK, where bids for relatively large targets require mandatory shareholder approval, shareholders gain when the transaction is conditional on a vote and lose when it is not. The evidence suggests that the vote puts a constraint on the amount the CEO can offer for the target.
The global financial crisis has had a profound impact on output and productivity in advanced and emerging economies. In response, policymakers around the world have acted boldly with monetary policy, macro-prudential policy and regulation.
Is productivity being held back by financial factors - such as the lack of long term finance for long term investment - or is productivity being held back by real economy factors, such as globalisation and demographics? The recent crisis has also spurred a reassessment of the relationship between the level (and type) of finance and growth. Could weak productivity growth owe in part to wasteful investment spending or an undersupply of financial services? How does the mix of early and late stage financing drive investment and productivity? This conference aims to bring together perspectives on these big questions, as they will provide important guidance for future policy actions.
Rui Albuquerque, Miguel Ferreira, Luis Marques, Pedro Matos, 17 January 2016
Previous research has shown that the corporate governance practices of firms are constrained by the legal standards of their country of incorporation. This column explores how an active international market for corporate control can substitute for weak institutions in a host country. Using firm-level data from 22 countries, it shows how cross-border M&A activity improves the governance of non-target firms in the same industry, via peer pressure. These findings provide evidence for corporate governance improvements as a novel positive spillover from FDI.
Nadege Jassaud, 30 October 2014
Sound corporate governance is essential for a well-functioning banking system and the integrity of financial markets. This column discusses the corporate governance of Italian banks, its regulatory framework, and the specific challenges arising from the role played by foundations and large cooperatives. Although Italian banks have recently made progress in improving their corporate governance, more needs to be done.
Patricia Jackson, 13 October 2014
Following the Global Crisis the focus has been on how to make banks safer. Capital and liquidity requirements have been tightened, but attention now needs to shift to corporate governance and risk culture. This column argues that in opaque organisations, formal risk-appetite frameworks can provide a pre-commitment mechanism that tightens risk governance, but a focus on the wider risk culture is also important.
Alex Edmans, 11 September 2014
Executive pay is a controversial political issue with big implications for firm performance. Although public debate focuses on the level of compensation – or at best its sensitivity to firm performance – this column argues that the key issue is its temporal structure. A well designed payment structure can align CEO incentives with long-term shareholder value. The authors recommend lengthening the vesting period of equity and options.
Chie Aoyagi, Giovanni Ganelli, 19 August 2014
Japanese corporations hold a very high level of cash on their balance sheets compared to those in other advanced countries. Such excessive corporate savings are likely to be holding back growth by preventing a more efficient use of resources. This column presents recent research showing that improving corporate governance would help unlock Japan’s corporate savings, exit deflation, and revive growth. Comprehensive corporate governance reform should be a key component of Japan’s growth strategy.
Luc Laeven, Lev Ratnovski, 21 July 2014
Bank distress during the recent crisis caused significant damage to the real economy. Appropriately, the policy response focused on stronger bank supervision and regulation. This column asks if there is a role for improvements in bank corporate governance. Based on the literature the authors suggest that better risk management, regulation of pay, and enhanced market discipline can help make banks safer. However, corporate governance cannot substitute for strong supervision: it can at best provide a helping hand.
Alex Bryson, John Forth, Minghai Zhou, 24 June 2014
Publicly traded companies are the engine behind China’s growth, which raises the question of how CEO compensation works under an interventionist state. This column presents an analysis of executive compensation in China and a comparison to the West. Chinese listed firms have incentive structures similar to those of the US; in this case, effective compensation policies seem to transcend political boundaries.
Pascal Lamy, Ian Goldin, 28 March 2014
Excessive short-termism is always a problem for policy, but the Global Crisis has brought it sharply into focus. This column introduces a report that discusses how a shift to longer-term solutions is necessary and possible. A key message is that businesses as well as governments need to take a longer-term view. The report identifies ways to overcome the current impasse in key economic, climate, trade, security, and other negotiations.
Ian Gregory-Smith, Steve Thompson, Peter Wright, 24 March 2014
In 2003, the UK adopted a ‘say on pay’ policy, whereby quoted companies’ executive compensation offers have to be put to a shareholder vote. This column presents evidence that this policy has had a relatively modest impact on executive pay. A 10% increase in compensation is associated with an increase in shareholder dissent against the proposal of just 0.2%. However, remuneration committees representing the more highly rewarded CEOs are quite sensitive to dissent, provided it exceeds a critical threshold of about 10%. Shareholders do not appear more anxious about pay since the crisis.
Deniz Anginer, Asli Demirgüç-Kunt, Harry Huizinga, Kebin Ma, 10 November 2013
Bank capitalisation determines the probability of a bank failure. This column discusses how bank’s corporate governance affects its capitalisation. Corporate governance, in which the bank acts in the interest of its shareholders, is defined as a good one. Such governance, however, can lead to lower bank capitalisation. It also has possibly negative implications for financial stability.
Alex Edmans, Vivian Fang, Emanuel Zur, 16 February 2013
The stock market is a powerful tool for controlling corporations’ behaviour. But which is better, a highly liquid market or a number of large blockholders? This column argues in favour of liquidity. Evidence suggests that policymakers should not reduce stock liquidity through greater regulation. While the idea that liquidity encourages short-term trading – rather than long-term governance – sounds intuitive, deeper analysis shows that liquidity is beneficial because it encourages large shareholders to form in the first place, and allows shareholders to punish underperforming firms through selling their stake.
Mariassunta Giannetti , Guanmin Liao, Xiaoyun Yu, 03 January 2013
Is the brain drain reversing? This column argues that increasing numbers of foreign-educated and economic emigrants are returning home. Evidence suggests that the best of the bunch bring with them strong corporate governance practises and an appetite for internationalisation. Through this ‘brain gain’, the return of skilled professionals boosts emerging markets’ economies.
Hamid Mehran, Alan Morrison, Joel Shapiro, 06 April 2012
A recent op-ed by a former Goldman Sachs employee has led to an outcry over two important themes which came to the fore during the crisis, ie corporate culture and incentives. This column argues that neither regulation nor market forces has put either of these issues to rest. It adds that bank complexity and the too-big-to-fail policy both serve to undermine market discipline.
Craig Doidge, George Karolyi, René Stulz, 03 August 2011
Over the past two decades, there has been a dramatic change in initial public offering (IPO) activity around the world. The importance of IPOs in the US relative to the world has not kept up with the economic importance of the US. This column analyses nearly 30,000 IPOs from almost 90 countries between 1990 and 2007 to examine why this might be.