• Investment, accessibility to external financing and financial flexibility

    14 Jan 2019

    Firms with greater access to external capital markets are more flexible in adjusting their sources of financing for corporate investment in response to mispricing, according to a study of US manufacturing firms over 37 years before 2008.

  • Value at Risk and Expected Shortfall Estimation for China Securities Market

    07 Aug 2017

    Financial system stability matters for economic growth.  Instability generates adverse effects on the economy because of their spilled over effects as observed in the recent financial crisis.  Many US and European banks required governments capital injections to stay afloat.  In January 2016, Basel Committee on Banking and Supervision of Bank for International Settlements issued a new revised market risk framework – “Minimum capital requirements for market risk”.  One of the features of the revised framework is a shift to an expected shortfall measure of risk under stress.  In this paper, we performed both value-at-risk and expected shortfall estimations for US and China securities markets.  While we use S&P 500 index, SPX, for US market, we use the time series of iShares China Large-Cap ETF, FXI, as a proxy for the broad market indicator of China securities market.  It is because there is a corresponding volatility index, VXFXI, for this Large-Cap ETF.  In this study, efforts have been made to turn volatility index into a risk management tools in the context of value-at-risk and expected shortfall.  It is found that it would be inappropriate to simply scale up the 1-day volatility by multiplying the square root of time (or the number of days) ahead to determine the risk over a longer horizon of i days.  Instead, empirical constants that are used to multiply the levels of volatility indexes, VIX and VXFXI, for estimating value-at-risk and expected shortfall of various significance levels for 1 to 22 days ahead for SPX and FXI have been statistically determined using 16 years and 4.75 years of daily data respectively.  Results show that the shift to expected shortfall approach with significance level of 2.5% yields an unexpected impact on regulatory capital requirements from the value-at-risk approach with significance level of 1%.
  • Home Purchase Restriction and Housing Price: A Distribution Dynamics Analysis

    16 Jun 2017

    China’s residential housing market has been largely influenced by the central government’s policy initiatives. This study examines how implementation and removal of home purchase restrictions affect housing price changes in major cities. Based on the dataset of 70 large and medium sized cities between 2014 and 2015, the price evolution trends are evaluated by the distribution dynamic analysis based on the method of Mobility Probability Plot (MPP). This newly developed method allows for better exploring housing price dynamics under home purchase restriction policy. There are four major findings: First, home purchase restriction has salient effect on curbing speculative investment demand in terms of lowering large sized housing price growth; Second, home purchase restriction has long run effect in bringing down housing prices if current price increase does not exceed 5 percent on a month-to-month basis; Third, small or large sized housing may face more downward pressure of housing prices than medium sized housing under home purchase restriction; Fourth, removal of home purchase restriction may saliently increase the housing price levels that had been contained.
  • Transitional Dynamics and the Evolution of Information Transparency

    22 May 2017

    Do institutions converge? Using a methodology first put forward by Quah (1993a), we examine the question of whether there has been a tendency for the institutional circumstances of countries to converge over time by observing the transitional dynamics of distributions of the countries in the world. Using the Information Transparency index constructed by Williams (2015) as a test case for this question, we find that whilst there is some evidence of unconditional convergence across countries, there is stronger evidence for convergence ‘clubs’ to emerge, at both a regional level, as well as at different income levels. Notably, the level of information transparency of the low-income and lower-middle-income countries and those situated in the Africa, Middle East regions are found to have a tendency of converging towards a level much lower than the global average. We also find that there is a strong relationship between income and the level of transparency. Going forward, this novel application of distributional dynamics to the economics of institutions shows considerable promise in opening up new avenues of research into this field.
  • Urbanization and Rural-Urban Consumption Disparity: Evidence from China

    21 May 2017

    The objective of this paper is to investigate the impacts of urbanization on narrowing the rural-urban consumption disparity in China. Adopting a provincial dataset from 1997 to 2014, a generalized method of moments (GMM) estimator is employed to reveal the impact of urbanization on the ratio of per capita consumption expenditure of the urban households to the rural households, along with other socioeconomic variables. Empirical results show salient relationship between increasing urbanization ratio and declining rural-urban inequality. Significant impact of education costs on increasing the rural-urban inequality is also observed. Other factors that increase the disparity include foreign investment and gross regional product indices. Industrial structure, costs of housing and health care are insignificant factors. The results of this study help better understand China’s new urbanization development strategy.
  • Examining Structural Cronyism and Organizational Performance

    21 May 2017

    It has been widely recognized that Chinese government officials and their associated firms practise cronyism with those companies regarded as insiders. Multi-national enterprise (MNE) managers are often at a disadvantage as Chinese competitors frequently are more flexible and governmental officials have preference for dealing with loyal insiders. MNE managers also tend to perceive cultural practices, such as gift giving as being unethical. This study advances our understanding of cronyism and loyalty in a Chinese context by developing and testing a relationship model for the benefit of MNEs to leverage organizational performance in China through nurturing insider relational status with Chinese government officials and business counterparts. Our findings reveal that MNE managers should practice the art of gift giving and building mianzi in order to obtain renqing with Chinese government officials and subsequent business counterparts. The reciprocity dynamics of renqing will enable MNE managers to accumulate ganqing and become good friends with their Chinese partners. The establishment of ganqing between MNE managers and their Chinese counterparts also engenders the development of xinyong between exchange parties and loyalty then emerges as a key for generating cronyism and subsequent organizational performance.