Collateral Quality and Loan Default Risk: The Case of Vietnam

In the transition economy of Vietnam, financial market is dominated by banking sector but commercial banks heavily rely on collateral-based lending. While the relationship between collateral and implied credit risk is still in debate, this paper provides additional empirical evidence regarding the heterogeneous effects and transmission channels of collateral characteristics on loan delinquency. Applying instrumental variable probit analysis on a unique dataset of 2295 internal loan accounts in Vietnam, we find the significantly negative impact of collateral quality on the probability of default of consumer loans, supporting the dominance of borrower selection and risk-shifting over lender selection effects. The finding implies that high-quality collateral not only signals more credible borrower but also fosters good behavior in using loan, enabling bank to mitigate adverse selection and moral hazard problems

Gender Differences in Russian Colour Naming

In the present study we explored Russian colour naming in a web-based psycholinguistic experiment (http://www.colournaming.com). Colour singletons representing the Munsell Color Solid (N=600 in total) were presented on a computer monitor and named using an unconstrained colour-naming method. Respondents were Russian speakers (N=713). For gender-split equal-size samples (NF=333, NM=333) we estimated and compared (i) location of centroids of 12 Russian basic colour terms (BCTs); (ii) the number of words in colour descriptors; (iii) occurrences of BCTs most frequent non-BCTs. We found a close correspondence between females’ and males’ BCT centroids. Among individual BCTs, the highest inter-gender agreement was for seryj ‘grey’ and goluboj ‘light blue’, while the lowest was for sinij ‘dark blue’ and krasnyj ‘red’. Females revealed a significantly richer repertory of distinct colour descriptors, with great variety of monolexemic non-BCTs and “fancy” colour names; in comparison, males offered relatively more BCTs or their compounds. Along with these measures, we gauged denotata of most frequent CTs, reflected by linguistic segmentation of colour space, by employing a synthetic observer trained by gender-specific responses. This psycholinguistic representation revealed females’ more refined linguistic segmentation, compared to males, with higher linguistic density predominantly along the redgreen axis of colour space

CEO Compensation

This paper surveys the recent literature on CEO compensation. The rapid rise in CEO pay over the past 30 years has sparked an intense debate about the nature of the pay-setting process. Many view the high level of CEO compensation as the result of powerful managers setting their own pay. Others interpret high pay as the result of optimal contracting in a competitive market for managerial talent. We describe and discuss the empirical evidence on the evolution of CEO pay and on the relationship between pay and firm performance since the 1930s. Our review suggests that both managerial power and competitive market forces are important determinants of CEO pay, but that neither approach is fully consistent with the available evidence. We briefly discuss promising directions for future research

Financial Development and Employment: Evidence from Transition Countries

This paper studies the association between a country's level of financial development and firms' employment growth. We employ an incomplete contract model for evaluating this association. The model proposes that a high level of financial development affects the employment of firms with low managerial capital negatively, while firms with high managerial capital benefit from a more developed financial system. We test this proposition with data from the Business Environment and Enterprise Performance Survey covering transition countries in Eastern Europe and Central Asia. We use firm size as a proxy for managerial capital. Our findings confirm a non-linear effect of financial development on firm employment. Specifically, the smallest firms' edge in employment growth over large firms is dampened when the level of financial development is higher, especially in countries at medium levels of financial development

Auctions Implemented by the Federal Reserve Bank of New York during the Great Recession

During the Great Recession, the Federal Reserve implemented several novel programs to address adverse conditions in financial markets. Three of these temporary programs relied on an auction mechanism: the Term Auction Facility, the Term Securities Lending Facility, and the disposition of the Maiden Lane II portfolio. These auctions differed from one another in several dimensions: their objectives, rules, and the financial asset being traded. The object of this paper is to document, compare, and provide a rationale for the mechanics of the different auctions implemented by the Federal Reserve during the Great Recession

No Exit? Withdrawal Rights and the Law of Corporate Reorganizations

Bankruptcy scholarship is largely a debate about the comparative merits of a mandatory regime on one hand and bankruptcy by free design on the other. By the standard account, the current law of corporate reorganization is mandatory. Various rules that cannot be avoided ensure that investors’ actions are limited and they do not exercise their rights against specialized assets in a way that destroys the value of a business as a whole. These rules solve collective action problems and reduce the risk of bargaining failure. But there are costs to a mandatory regime. In particular, investors cannot design their rights to achieve optimal monitoring as they could in a system of bankruptcy by free design. This Article suggests that the academic debate has missed a fundamental feature of the law. Bankruptcy operates on legal entities, not on firms in the economic sense. For this reason, sophisticated investors do not face a mandatory regime at all. The ability of investors to place assets in separate entities gives them the ability to create specific withdrawal rights in the event the firm encounters financial distress. There is nothing mandatory about rules like the automatic stay when assets can be partitioned off into legal entities that are beyond the reach of the bankruptcy judge. Thus, by partitioning assets of one economic enterprise into different legal entities, investors can create a tailored bankruptcy regime. In this way, legal entities serve as building blocks that can be combined to create specific and varied but transparent investor withdrawal rights. This regime of tailored bankruptcy has been unrecognized and underappreciated and may be preferable to both mandatory and free design regimes. By allowing a limited number of investors to opt out of bankruptcy in a particular, discrete, and visible way, investors as a group may be able to both limit the risk of bargaining failure and at the same time enjoy the disciplining effect that a withdrawal right brings with it

Individualism and stock price crash risk

Employing a sample of 26,473 firms across 42 countries from 1990 to 2013, we find that firms located in countries with higher individualism have higher stock price crash risk. Furthermore, individualism can be transmitted by foreign investors from overseas markets to influence local firms’ crash risk, and can exacerbate the impact of firm risk taking and earnings management on crash risk. Moreover, the positive relation between individualism and crash risk is amplified during the global financial crisis and attenuated by enhanced country-level financial information transparency and the adoption of International Financial Reporting Standards

Transaction costs: an empirical analysis of their relationship with investment and foreign direct investment

As stated by the New Institutional Economics theory, transaction costs play a relevant role in economics and, according to the extent of such costs, agents make investment decisions. Actually, transaction costs may represent a disincentive to entrepreneurship. This work aims to verify whether transaction costs are related to investment rate and foreign direct investment rate (FDI) in different business environments. The results suggest that foreign investors do not have precise information about other countries as domestic investors do; as it is observed, only the relation between transaction costs and investment rate is significant. Furthermore, there is evidence that the business environments of BRIC countries are less developed when compared to business environments of other countries in the studyDe acordo com a teoria desenvolvida pela Nova Economia Institucional, os custos de transação têm um papel relevante na economia e de acordo com a extensão desses custos os agentes tomam decisões de investimento. Dessa forma, os custos de transação também representam um desestímulo ao empreendedorismo. Este trabalho tem como objetivo verificar se os custos de transação têm relação com variáveis como a taxa de investimento e o investimento direto estrangeiro (IDE). Os resultados encontrados sugerem que os investidores estrangeiros não possuem informações acuradas sobre os outros países, ao contrário do que ocorre com os investidores nacionais. Dessa forma, os custos de transação só são significativos quando a variável dependente analisada é a taxa de investimento. Além disso, há evidência de que os ambientes de negócios observados nos países do grupo BRIC estão menos desenvolvidos em comparação com outros países presentes no estudoComo se ha señalado por la teoría de la Nueva Economía Institucional, los costos de transacción desempeñan un papel relevante en la economía y de acuerdo con la extensión de estos costos los agentes toman decisiones de inversión. Así pues, los costos de transacción también representan un desincentivo a la iniciativa empresarial. Este estudio pretende verificar si los costos de transacción tienen relación con variables como la tasa de inversión y la tasa de inversión extranjera directa (IED). Los resultados sugieren que los inversores extranjeros no tienen información precisa acerca de otros países, a diferencia de lo que sucede con los inversores nacionales. Por lo tanto, los costos de transacción son sólo significativos cuando la variable dependiente que se analiza es la tasa de inversión. Además, existe evidencia de que los entornos empresariales observados en los países BRIC están menos desarrollados en comparación con los entornos empresariales de otros países presentes en el estudi