Stijn Claessens

The Separation of Ownership and Control in East Asian Corporations

We examine the separation of ownership and control for 2,980 corporations in nine East Asian countries. In all countries, voting rights frequently exceed cash-flow rights via pyramid structures and cross-holdings. The separation of ownership and control is most pronounced among family-controlled firms and small firms. More than two-thirds of firms are controlled by a single shareholder. Managers of closely held firms tend to be relatives of the controlling shareholders family. Older firms are generally family-controlled, dispelling the notion that ownership becomes dispersed over time. Finally, significant corporate wealth in East Asia is concentrated among a few families.

Disentangling the Incentive and Entrenchment Effects of Large Shareholdings

This article disentangles the incentive and entrenchment effects of large ownership. Using data for 1,301 publicly traded corporations in eight East Asian economies, we find that firm value increases with the cash-flow ownership of the largest shareholder, consistent with a positive incentive effect. But firm value falls when the control rights of the largest shareholder exceed its cash-flow ownership, consistent with an entrenchment effect. Given that concentrated corporate ownership is predominant in most countries, these findings have relevance for corporate governance across the world.

How Does Foreign Entry Affect the Domestic Banking Market

Banking markets are becoming increasingly international through financial liberalization and general economic integration. Using bank-level data for 80 countries for 1988-95, the authors examine the extent of foreign ownership in national banking markets. They compare net interest margins, overhead, taxes paid, and profitability of foreign and domestic banks. The comparative functions of foreign banks and domestic banks is very different in developing and industrial countries, possibly because of a different customer base, different bank procedures, and different regulatory and tax regimes. In developing countries foreign banks tend to have greater profits, higher interest margins, and higher tax payments than do domestic banks. In industrial countries it is the domestic banks that have greater profits, higher interest margins, and higher tax payments. It is common to read, in the literature on foreign banking, that the entry of foreign banks can make national banking markets more competitive, thereby forcing domestic banks to operate more efficiently. The authors show that increasing the foreign share of bank ownership does indeed reduce profitability and overhead expenses in domestically owned banks - so the general effect of foreign bank entry may be positive. Interestingly, the number of foreign entrants matters more than their market share, suggesting that they affect local bank competition more on entry rather than after gaining a substantial market share. These effects hold even when controlling for the fact that foreign banks may be attracted to markets with certain characteristics, such as low banking costs.

Corporate Governance in Asia: A Survey

An extractive distillation agent consisting essentially of 2-methyl-2,4-pentanediol is fed to an extractive distillation column used for the distillation of propylene oxide contaminated with water, acetone and methanol to obtain an overhead distillate fraction consisting of essentially anhydrous propylene oxide contaminated with reduced quantities of acetone and methanol, and a heavier bottoms distillation fraction containing substantially all of the 2-methyl-2,4-pentanediol, water and acetone and some of the methanol introduced into the distillation column.

What Happens During Recessions, Crunches, and Busts?

We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the period 1960–2007. In particular, we analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of recessions. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions.

Equity and bond flows to Latin America and Asia: the role of global and country factors

Abstract This paper investigates the factors motivating the large capital flows to a number of developing countries in recent years. We use monthly US capital flows to nine Latin American and nine Asian countries to analyze the behavior of bond and equity flows. Employing a panel data approach, we find that although global factors—the drop in US interest rates and the slowdown in US industrial production—are important in explaining capital inflows, country-specific developments are at least as important, especially for Asia. We also find that equity flows are more sensitive than bond flows to global factors, but that bond flows are generally more sensitive to a countrys credit rating and secondary market debt price.

Finance and inequality: Channels and evidence

We provide a framework to interpret the recent literature on financial development and inequality. In many developing countries, access to funding and financial services by firms and households is still very skewed. Recent evidence suggests that poor access does not only reflect economic constraints but also barriers erected by insiders. Inequality affects the distribution of political influence, so financial regulation often is easily captured by established interests in unequal countries. Captured reforms deepen rather than broaden access, as small elites obtain most of the benefits while risks are socialized. Financial liberalization motivated to increase access may in practice increase fragility and inequality, and lead to political backlash against reforms. Thus financial reforms may succeed only if matched by a buildup in oversight institutions.

The Internationalization of Financial Services in Asia

The internationalization of financial services -- eliminating discrimination between the treatment of foreign and domestic providers of financial services and removing barriers to the cross-border provision of financial services -- is of global interest, especially in Asia. Most of Asia limits the entry of foreign financial firms much more than otherwise comparable countries do. Empirical evidence for Asia and elsewhere suggests that this slows down institutional development and that, as a result, it costs more to provide financial services. Asian countries could benefit from accelerating the opening of the financial services sector, in conjunction with the further liberalization of capital accounts and domestic deregulation of financial markets. Apart from other benefits, internationalization helps build more robust, efficient financial systems by introducing international practices and standards; by improving the quality, efficiency, and breadth of financial services; and by allowing more stable sources of funds. The ongoing WTO (World Trade Organization) negotiation of financial services under GATS (General Agreement on Trade in Services) gives countries the opportunity to commit to opening their financial sectors. Safeguards can be built into the process, and the liberalization can be phased in gradually.

Financial Cycles; What? How? When?

This paper provides a comprehensive analysis of financial cycles using a large database covering 21 advanced countries over the period 1960:1-2007:4. Specifically, we analyze cycles in credit, house prices, and equity prices. We report three main results. First, financial cycles tend to be long and severe, especially those in housing and equity markets. Second, they are highly synchronized within countries, particularly credit and house price cycles. The extent of synchronization of financial cycles across countries is high as well, mainly for credit and equity cycles, and has been increasing over time. Third financial cycles accentuate each other and become magnified, especially during coincident downturns in credit and housing markets. Moreover, globally synchronized downturns tend to be associated with more prolonged and costly episodes, especially for credit and equity cycles. We discuss how these findings can guide future research on various aspects of financial market developments.

Ownership and corporate governance : evidence from the Czech Republic

The Czech Republics mass-privatization scheme changed the governance of many firms in a short time. The authors show that mass privatization was effective in improving firm management because of the concentrated ownership structure that resulted. For a cross section of 706 firms for the period 1992-95, they find that the more concentrated the firms ownership, the higher the firms market valuation and profitability. Large ownership through bank-sponsored investment funds and strategic investors appears to be particularly important in improving corporate governance and turning firms around. They find no evidence that market valuation or profitability were lower for firms in which investment funds sponsored by a firms main bank represented a large ownership stake. It is often argued that the firms main bank having (indirect) ownership control could represent a conflict of interest. The empirical analysis here shows, quite the contrary, that such indirect ownership control has a significant positive influence. On balance, banks that had an (indirect) equity stake in a firm have a positive influence on the firms corporate governance.