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Introduction: The Political and Institutional Deficits of European Monetary Union

Colin Crouch

in After the Euro: Shaping Institutions for Governance in the Wake of European Monetary Union

The introduction of the single European currency, the euro, draws attention to the institutional deficit of the European Union: the organizational structures and forms of governance within which ... More

The introduction of the single European currency, the euro, draws attention to the institutional deficit of the European Union: the organizational structures and forms of governance within which central banks and other monetary authorities are embedded within individual states, are lacking at the European level. This gives unusual prominence to financial structures.Less

Politics and the Extension of Equity Finance to Emerging Markets

Kathryn C. Lavelle

in The Politics of Equity Finance in Emerging Markets

This chapter sets forth an explanation for international convergence in state behavior in creating and promoting emerging stock markets. Focusing on the commanding heights of privatized industry, it ... More

This chapter sets forth an explanation for international convergence in state behavior in creating and promoting emerging stock markets. Focusing on the commanding heights of privatized industry, it uses the metaphor of a two-level game from international relations theory to argue that when political leaders privatize large enterprise, they must negotiate with individuals outside the state to seek outcomes that are acceptable to structural international necessity, and they must negotiate with domestic constituencies to seek outcomes that are politically acceptable at home. To do so, policymakers create the specific financial instruments, with specific ownership and control characteristics. Since the new offerings joined whatever shares may or may not have already been listed on a given exchange, the resulting financial institutional structures fail to converge on one “model” of corporate governance or another, as Western financial institutions have converged over time. This theoretical premise would thus predict a large number of new exchanges appearing, at least in name, yet having vastly different volumes and types of listings, relative to the size of the local economy.Less

Financial Development: Empirical Evidence

T.A. Bhavani and N.R. Bhanumurthy

in Financial Access in Post-Reform India

Chapter 4 analyses the changes in the financial sector development along the dimensions of structure, size, reach, technology, efficiency, soundness of the sector. The structure of the sector has ... More

Chapter 4 analyses the changes in the financial sector development along the dimensions of structure, size, reach, technology, efficiency, soundness of the sector. The structure of the sector has undergone substantial change in terms of new institutions and instruments, although most of them pertain to the private corporate sector. Reforms enabled the sector to grow along the dimensions of size, reach, and to enhance its productivity through the adoption of technological advancements. All the indicators show that the Indian financial sector, particularly banking sector has come a long way from fully regulated, less competitive, and high cost to more efficient and profitable industry. To make the sector more competitive in the international markets, lot more needs to be done.Less

Italian elites and the Centralization of Creditworthiness

Simone Polillo

in Conservatives Versus Wildcats: A Sociology of Financial Conflict

This chapter looks at the political foundations of creditworthiness in the case of 19th century Italy. Here, just like in the United States, economic and political communities commanded strong, local ... More

This chapter looks at the political foundations of creditworthiness in the case of 19th century Italy. Here, just like in the United States, economic and political communities commanded strong, local loyalties; however, the political authorities that administered them were infrastructurally weak, and their lack of administrative capacity impaired the regional elites’ ability to enforce law, stability and order on the territories they governed. The chapter discusses the positions of elite political movements that, with such administrative concerns in mind, debated whether Italy’s financial structure should be centralized, or decentralized, with the right to issue money distributed among several institutions, or, in the argument of certain liberals, rendered completely free (mimicking the US model). Given the lack of strong, legitimate local institutions, the Italian central state was eventually forced to play a directive role in the national financial system.Less

Regulatory Structure and Reform: The Purpose Should Guide the Outcome

David G. Nason

in New Directions in Financial Services Regulation

This chapter introduces the first signs that the United States is emerging from a period of failure of liquid markets such as markets for money-market mutual funds, for asset-backed commercial paper, ... More

This chapter introduces the first signs that the United States is emerging from a period of failure of liquid markets such as markets for money-market mutual funds, for asset-backed commercial paper, and for auction-rate securities. It is the chapter’s view that this crisis and all its problems could not have been prevented by regulation alone. Instead, a more robust regulatory framework with oversight responsibility for cross-market activities and a focus on systemic risk is what could have discovered and pre-empted the dangers on the economy. The chapter goes on to discuss a blueprint for a modernized financial regulatory structure that could help improve the mortgage-origination process and establish some federal presence in the insurance markets. This blueprint is aimed to address the regulatory problems of market stability, prudential supervision, and oversight of business conduct and consumer protection. It focuses on systemic risk in order to improve regulatory efficiency and allow competition on an economic basis.Less

Measuring Macroeconomic Exposure: The Case of Volvo Cars 1

Lars Oxelheim and Clas Wihlborg

in Corporate Decision-Making with Macroeconomic Uncertainty: Performance and Risk Management

Volvo cars exposure have been measured for this chapter by means of time series regression analysis. The required data include quarterly actual cash flow figures for a substantial number of years, ... More

Volvo cars exposure have been measured for this chapter by means of time series regression analysis. The required data include quarterly actual cash flow figures for a substantial number of years, macroeconomic data, as well as proxies for industry- or firm-specific conditions. Issues of implementation are emphasized here and the interpretation of coefficients is discussed from the perspective of risk management. The coefficients for commercial cash flow exposures can easily be translated into financial positions that would provide hedges against macroeconomic exposures. The coefficients can also be helpful in decisions with respect to pricing strategy that affect exposures. Finally, the use of the coefficients for ex post analysis of what hedging has achieved and for performance filtering is illustrated.Less

The Morning After: A Road Map for Financial Regulatory Reform

R. Glenn Hubbard

in New Directions in Financial Services Regulation

This chapter begins mapping out a path towards financial regulatory reform. Using the belief that the financial crisis is the result of a lack of effective regulation, the chapter examines several ... More

This chapter begins mapping out a path towards financial regulatory reform. Using the belief that the financial crisis is the result of a lack of effective regulation, the chapter examines several themes that have emerged: one is more effective regulation, second is an increase in transparency in the financial system, and a final one is the formation of a financial regulatory structure that will be capable of achieving these goals. The chapter tackles the severity of the crisis, citing the International Monetary Fund’s estimate of total near-term global losses on U.S. credit-related debt to be $2.7 trillion. The origin of this financial crisis is believed to have its foundations in risk, particularly the mispricing of risk. The chapter then states that a rapid response is important to sustaining economic recovery, and the harmonization of economies is important when seeking to resolve financial crises.Less

Towards Optimal Risk Management for Profit-Sharing Finance

Seif I. Tag El-Din

in Islamic Perspectives on Wealth Creation

This chapter addresses the question of efficient financial structuring in relation to profit-sharing muārabah, which is typically characterised by two parties contracting for any profitable project a ... More

This chapter addresses the question of efficient financial structuring in relation to profit-sharing muārabah, which is typically characterised by two parties contracting for any profitable project a capital provider (rabb al-māl) and a manager or entrepreneur (muārib). Its focus is on the profit-sharing muārabah, since it is particularly relevant to the demand for banking finance. In principle, banks's clients are assumed to be a ‘deficit’ group with little funds to participate with banks, which explains why the basic theory of an Islamic bank has been developed along the principles of muārabah. The chapter elaborates the economic appeal of profit sharing, as opposed to fixed interest rate financing, in the current Islamic literature.Less

Introduction

Jack M. Mintz and Alfons J. Weichenrieder

in The Indirect Side of Direct Investment: Multinational Company Finance and Taxation

This introductory chapter first sets out the book’s purpose, which is to expand our knowledge of multinational finance and tax research by exploring multinational financial structures, especially ... More

This introductory chapter first sets out the book’s purpose, which is to expand our knowledge of multinational finance and tax research by exploring multinational financial structures, especially with respect to leverage and so-called “indirect financing structures.” The book spells out in more detail how different types of multinational financial planning and tax policy affect the choice of financing structures. It not only discusses these ideas in theory but also tests empirically effects on financial and ownership structures, using a unique data set (MiDi) on German multinationals provided by the Deutsche Bundesbank in Frankfurt. The chapter also discusses multinational direct and indirect financial structures and the role of conduit holding companies, followed by an overview of the subsequent chapters.Less

Indirect Financing Structures

Jack M. Mintz and Alfons J. Weichenrieder

in The Indirect Side of Direct Investment: Multinational Company Finance and Taxation

This chapter analyzes the financing opportunities that derive from using an intermediate corporation in a third country. Such an intermediate company is referred to as a conduit entity or conduit ... More

This chapter analyzes the financing opportunities that derive from using an intermediate corporation in a third country. Such an intermediate company is referred to as a conduit entity or conduit company. It begins with a discussion of direct versus indirect financing structures. It then uses pairwise comparisons of financial instruments and draws conclusions regarding the tax advantage of indirect holding structures.Less

International Corporate Tax Systems at a Glance

Jack M. Mintz and Alfons J. Weichenrieder

in The Indirect Side of Direct Investment: Multinational Company Finance and Taxation

This chapter focuses on those aspects of the international tax system that influence foreign direct investment, particularly with respect to direct and indirect financing structures that are highly ... More

This chapter focuses on those aspects of the international tax system that influence foreign direct investment, particularly with respect to direct and indirect financing structures that are highly affected by the interaction of worldwide corporate tax systems. It begins by discussing the concept of residency and double taxation treaties. This is followed by a discussion of taxing outbound investment from Germany and other major capital-exporting countries in relation to the taxation of foreign-source income and the allocation of costs between domestic and foreign activities. It then turns to inbound issues related to withholding taxes and the allocation of costs between domestic affiliates and foreign related parties. The chapter concludes with a discussion of conduit entities and implications for German outbound and inbound investment.Less

Monetary Transformation

Hubert Gabrisch

in The Handbook of Political, Social, and Economic Transformation

Monetary transformation means the conceptual restoration of the functions of money in a former quasi-barter economy, in which the use of legal money and foreign currency was limited and financial ... More

Monetary transformation means the conceptual restoration of the functions of money in a former quasi-barter economy, in which the use of legal money and foreign currency was limited and financial markets were widely non-existent. Therefore, the chapter throws special light on the development of a market-based credit system, consisting of commercial banks, a central bank, and other financial institutions. As with any other range of the transformation process, monetary transformation is not free of frictions, crises, and challenges. The chapter discusses the typical challenges at the start of the transformation, such as the problem of non-performing loans, and the frequent banking and currency crises. The new central banks face specific challenges in the stabilization of the domestic and external value of their currencies, and in supervising and guiding monetary/financial intermediation in the transition period.Less

Basic Financial Structure of Public Universities

in Public No More: A New Path to Excellence for America's Public Universities

This chapter describes the financial structure of public universities in the U.S. It analyzes the implications of the changing sources of revenue and the increasing competitive pressures facing ... More

This chapter describes the financial structure of public universities in the U.S. It analyzes the implications of the changing sources of revenue and the increasing competitive pressures facing public higher education and suggests that the shifts in demand and financing sources negatively affect current funding patterns and threaten research. This chapter highlights the need for public universities to adopt a fully supportive financial model and to narrow their scope of activities and focus on programs and research activities that provide selective differentiation and distinction.Less

Capital Flows or Capital Flaws?

Guillermo A. Calvo

in International Financial Markets: The Challenge of Globalization

This chapter presents an overview of recent financial crises in emerging market economies (EMs) with the goal of understanding their nature, find effective solution and prevent their future ... More

This chapter presents an overview of recent financial crises in emerging market economies (EMs) with the goal of understanding their nature, find effective solution and prevent their future occurrence. It proposes the hypothesis that EMs suffer from serious credibility problems and highly incomplete financial structures. This chapter provides examples of how capital flows could lead to socially costly crises and explains that some its flaws stem from imperfect information and incomplete markets. It also examines the role of the banking system, maturity of public-sector debt, exchange rates and controls on capital mobility.Less

The Financial Structure of German Outbound FDI

Jack M. Mintz and Alfons J. Weichenrieder

in The Indirect Side of Direct Investment: Multinational Company Finance and Taxation

This chapter analyzes the effect of company taxes on complex multinational financial decisions, using firms selected from the database of the Deutsche Bundesbank (MiDi). It shows that the ... More

This chapter analyzes the effect of company taxes on complex multinational financial decisions, using firms selected from the database of the Deutsche Bundesbank (MiDi). It shows that the debt-to-asset ratios of German outbound investment significantly depend on the host country tax rates. Intracompany loans react in a slight elastic way to tax rate changes, while third-party debt appears less flexible.Less

The ‘Problems’ of Finance for Smaller Businesses

Alan Hughes

in Capital Markets and Corporate Governance

This chapter considers arguments and evidence for and against the view that smaller businesses in the UK have been constrained by equity or loan gaps in the past decade. It begins with an analysis of ... More

This chapter considers arguments and evidence for and against the view that smaller businesses in the UK have been constrained by equity or loan gaps in the past decade. It begins with an analysis of the comparative financial structure of large and small UK companies in the late 1980s, and of trends in their relative profitability since the late 1970s. This is followed by a review of theoretical arguments which might account for the differences in financial structure as observed in the data. On the basis of these reviews and similar information, the chapter argues that there is no compelling evidence of an overall failure in the supply of funds for smaller firms. However, there may be problems in the terms on which finance is available.Less