Carlos D. Ramirez

Singapore, Inc. Versus the Private Sector: Are Government-Linked Companies Different?

Government-linked companies (GLCs) have a significant presence in Singapores corporate sector. Unlike parastatals in many other countries, these companies are run on a competitive, commercial basis, ostensibly without government privileges. Based on data from publicly listed GLCs and non-GLCs, we indeed find no evidence that GLCs have easier access to credit. However, we do find that being a GLC is rewarded in financial markets with a positive premium, over and above what can be explained by the usual determinants of Tobins q.

Bank failures and the cost of systemic risk: Evidence from 1900 to 1930

We measure the effect of bank failures on economic growth using data from 1900 to 1930, a period without active government stabilization policies and several severe banking crises. VAR model estimates suggest bank failures have long-lasting negative effects on economic growth. A bank failure shock involving one percent of system liabilities leads to a 6.5% reduction in GNP growth within three quarters and a measurable reduction for 10 quarters. Panel VAR model estimates for the 48 states show bank failures aggravate commercial non-bank failures. Institutional and regulatory features affect the intensity of the bank failure effect. We find that bank failures have a larger impact in states with deposit insurance, in states more heavily concentrated in agriculture, and in states with fewer large firms. However, because a number of states exhibit all three characteristics, we are not able to clearly identify the true marginal effects of these factors independently.

Did branch banking restrictions increase bank failures? Evidence from Virginia and West Virginia in the late 1920s

Abstract This paper investigates the role of bank branching restrictions in explaining the likelihood of state bank failure during 1925–1929 by comparing the experiences of Virginia (which allowed bank branching) and West Virginia (which did not). The results indicate that branching restrictions were associated with a higher incidence of bank failures, even after controlling for banks’ financial health, market structure, regulatory environments, and economic conditions in the markets in which the banks operated. The relationship between the lower incidence of bank failures and branching appears to come from the fact that branching allowed banks to exploit cost advantages by becoming larger and better diversified institutions, and by extending their depository base. The results are consistent with the notion that bank branching restrictions were an important cause of the bank failure experience of the late 1920s.

Does bank affiliation mitigate liquidity constraints? Evidence from Germany's Universal banks in the pre-World War I period

This paper compares two similar samples of mining and steel corporations in pre–World War I Germany: one sample consists of corporations that were affiliated to one or more of the German “Universal Banks”, and the second sample consists of companies that had to rely on other sources of finance. Statistical analysis conducted in the framework of a linear fixed effects model indicates that the non-affiliated companies were liquidity constrained. The paper also sets out the corporate control structure as laid down in the trade law reform of 1884 and traces the origins of the current German dual board system, as well as the origins of several other aspects of the institutions that tied the German banking system to industrial concerns. (This abstract was borrowed from another version of this item.)

Did Glass-Steagall Increase the Cost of External Finance for Corporate Investment?: Evidence From Bank and Insurance Company Affiliations

The Glass-Steagall Act may have increased the cost for corporations of raising external funds for investment spending. Significant differences are found in the way financial institutions influenced corporate investment spending. Investment regressions for a sample of companies affiliated to fmancial institutions are estimated and compared to those for a control sample. Prior to Glass-Steagall, affiliated companies do not display any sensitivity between investment spending and internal measures of liquidity, whereas the control sample does. After Glass-Steagall, bank and trust-affiliated companies display the same large sensitivity of investment spending to internal measures of liquidity as the control sample does. ne of the most spectacular declines in economic activity in U.S. history took place between 1931 and 1933. During the Great Depression, almost one quarter of the labor force faced unemployment, a severe deflation plagued the goods market, and the stock market crash of 1929 precipitated a collapse of financial markets. The Great Depression also saw one of the most dramatic bank runs, which proved to be a devastating blow to the banking system. The economic and financial calamity of those years prompted a frustrated and dissatisfied Roosevelt administration to seek fast remedies partly by enacting the far-reaching New Deal reforms. One of the most important elements ofthe New Deal was the Banking Act of 1933, approved shortly after the election ofthe Roosevelt administration. The Glass-Steagall Act, as commonly known, became one ofthe most influential and far-reaching pieces of legislation on the American financial system. It essentially guaranteed the separation of commercial and investment banking activities, and established the creation of deposit insurance in the banking system. During those years, commercial bank involvement in the securities business was widely viewed as an important cause of bank failures and other

Is corruption in China “out of control”? A comparison with the US in historical perspective

This paper compares corruption in China over the past 15years with corruption in the US between 1870 and 1930, periods that are roughly comparable in terms of real income per capita. Corruption indicators for both countries and both periods are constructed by tracking corruption news in prominent US newspapers. Several robustness checks confirm the reliability of the constructed corruption indices for both countries. The comparison indicates that corruption in the US in the early 1870s, when its real income per capita was about

Are Foreclosures Contagious

2800 (in 2005 dollars), was 7–9 times higher than China’s corruption level in 1996, the corresponding year in terms of income per capita. By the time the US reached

Monetary policy and the credit channel in an open economy

7500 in 1928, approximately equivalent to China’s real income per capita in 2009, corruption was similar in both countries. The findings imply that, while corruption in China is an issue that merits attention, it is not at alarmingly high levels, compared to the US historical experience. In addition, the paper articulates a theoretical framework within which the relationship between corruption and economic development can be understood. The model is used to explain the “life-cycle” of corruption in the development process–rising at the early stages of development, and declining after modernization has taken place. Hence, as China continues its development process, corruption will likely decline.

Do Tasting Notes Add Value? Evidence from Napa Wines

Using a large sample of U.S. mortgages observed over the 2005-2009 period, we find that foreclosures are contagious. After controlling for major factors known to influence a borrower’s decision to default, including borrower and loan characteristics, local demographic and economic conditions, and changes in property values, the likelihood of a mortgage default increases by as much as 24% with a one standard deviation increase in the foreclosure rate of the borrower’s surrounding zip code. We find that foreclosure contagion is most prevalent among strategic defaulters: borrowers who are underwater on their mortgage but are not likely to be financially distressed. Taken together, the evidence supports the notion that foreclosures are contagious.

China Bashing: Does Trade Drive the 'Bad' News About China in the USA?

Abstract This paper extends Bernanke and Blinders [Am. Econ. Rev. 78 (1988) 435] “credit-channel” model to the open economy. In particular, it examines whether the monetary policy results predicted by the popular textbook Mundell–Fleming model [e.g., Can. J. Econ. Polit. Sci. 29 (1963) 475; IMF Staff Pap. 9 (1962) 369] change with the open-economy version of the Bernanke and Blinder credit-channel model. This examination is important to consider in light of the popularity of the Mundell–Fleming model at the policymaking level and in light of recent empirical findings giving strong support to the credit channel as a monetary policy transmission mechanism. The main conclusion is that monetary policy is much more potent under the open-economy version of the Bernanke and Blinder model than under the standard Mundell–Fleming model.