Financial Distress in Chinese Industry: Microeconomic, Macroeconomic and Institutional Infuences

We study the impact of both microeconomic factors and the macroeconomy on the financial distress of Chinese listed companies over a period of massive economic transition, 1995 to 2006. Based on an economic model of financial distress under the institutional setting of state protection against exit, and using our own firm-level measure of distress, we find important impacts of firm characteristics, macroeconomic instability and institutional factors on the hazard rate of financial distress. The results are robust to unobserved heterogeneity at the firm level, as well as those shared by firms in similar macroeconomic founding conditions. Comparison with related studies for other economies highlights important policy implications.

Understanding Liquidity and Credit Risks in the Financial Crisis

This paper develops a structured dynamic factor model for the spreads between London Interbank Offered Rate (LIBOR) and overnight index swap (OIS) rates for a panel of banks. Our model involves latent factors which reflect liquidity and credit risk. Our empirical results show that surges in the short term LIBOR-OIS spreads during the 2007-2009 fi nancial crisis were largely driven by liquidity risk. However, credit risk played a more signifi cant role in the longer term (twelve-month) LIBOR-OIS spread. The liquidity risk factors are more volatile than the credit risk factor. Most of the familiar events in the financial crisis are linked more to movements in liquidity risk than credit risk.

Transmission of macro-liquidity shocks to liquidity-sorted stock portfolios’ returns: The role of the financial crisis

This study examines the impact of macro-liquidity shocks on the returns of UK stock portfolios sorted on the basis of a series of micro-liquidity measures. The macro-liquidity shocks are extracted on the meeting days of the Bank of England Monetary Policy Committee relative to market expectations embedded in futures contracts on the 3-month LIBOR during the period June 1999- December 2009. We report definitive evidence that these shocks are transmitted to the cross-section of liquidity-sorted portfolios, with most liquid stocks playing a very active role. Our results emphatically document that the shocks-returns relationship has reversed its sign during the recent financial crisis; the standard inverse relationship between interest rate surprises and portfolios’ returns before the crisis has turned into positive during the crisis. This finding confirms the inability of interest rate cuts to boost returns in the shortrun during the crisis, because these were perceived by market participants as a signal of a deteriorating economic outlook.

The S. pombe cdc16 gene is required both for maintenance of p34cdc2 kinase activity and regulation of septum formation: a link between mitosis and cytokinesis?

In the fission yeast Schizosaccharomyces pombe, septum formation and cytokinesis are dependent upon the initiation, though not the completion of mitosis. A number of cell cycle mutants which show phenotypes consistent with a defect in the regulation of septum formation have been isolated. A mutation in the S. pombe cdc16 gene leads to the formation of multiple septa without cytokinesis, suggesting that the normal mechanisms that limit the cell to the formation of a single septum in each cycle do not operate. Mutations in the S. pombe early septation mutants cdc7, cdc11, cdc14 and cdc15 lead to the formation of elongated, multinucleate cells, as a result of S phase and mitosis continuing in the absence of cytokinesis. This suggests that in these cells, the normal mechanisms which initiate cytokinesis are defective and that they are unable to respond to this by preventing further nuclear cycles. Genetic analysis has implied that the products of some of these genes may interact with that of the cdc16 gene. To understand how the processes of septation and cytokinesis are regulated and coordinated with mitosis we are studying the early septation mutants and cdc16. In this paper, we present the cloning and analysis of the cdc16 gene. Deletion of the gene shows that it is essential for cell proliferation: spores lacking a functional cdc16 gene germinate, complete mitosis and form multiple septa without undergoing cell cleavage.(ABSTRACT TRUNCATED AT 250 WORDS)

Regulation of blood pressure and renal function by NCC and ENaC: lessons from genetically engineered mice.

The activity of the thiazide-sensitive Na(+)/Cl(-) cotransporter (NCC) and of the amiloride-sensitive epithelial Na(+) channel (ENaC) is pivotal for blood pressure regulation. NCC is responsible for Na(+) reabsorption in the distal convoluted tubule (DCT) of the nephron, while ENaC reabsorbs the filtered Na(+) in the late DCT and in the cortical collecting ducts (CCD) providing the final renal adjustment to Na(+) balance. Here, we aim to highlight the recent advances made using transgenic mouse models towards the understanding of the regulation of NCC and ENaC function relevant to the control of sodium balance and blood pressure. We thus like to pave the way for common mechanisms regulating these two sodium-transporting proteins and their potential implication in structural remodeling of the nephron segments and Na(+) and Cl(-) reabsorption.

Universal banking, competition and risk in a macro model

A stylized macroeconomic model is developed with an indebted, heterogeneous Investment Banking Sector funded by borrowing from a retail banking sector. The government guarantees retail deposits. Investment banks choose how risky their activities should be. We compared the benefits of separated vs. universal banking modelled as a vertical integration of the retail and investment banks. The incidence of banking default is considered under different constellations of shocks and degrees of competitiveness. The benefits of universal banking rise in the volatility of idiosyncratic shocks to trading strategies and are positive even for very bad common shocks, even though government bailouts, which are costly, are larger compared to the case of separated banking entities. The welfare assessment of the structure of banks may depend crucially on the kinds of shock hitting the economy as well as on the efficiency of government intervention.

Corruption and Financial Intermediation in a Panel of Regions: Cross-Border Effects of Corruption

The importance of financial market reforms in combating corruption has been highlighted in the theoretical literature but has not been systemically tested empirically. In this study we provide a first pass at testing this relationship using both linear and nonmonotonic forms of the relationship between corruption and financial intermediation. Our study finds a negative and statistically significant impact of financial intermediation on corruption. Specifically, the results imply that a one standard deviation increase in financial intermediation is associated with a decrease in corruption of 0.20 points, or 16 percent of the standard deviation in the corruption index and this relationship is shown to be robust to a variety of specification changes, including: (i) different sets of control variables; (ii) different econometrics techniques; (iii) different sample sizes; (iv) alternative corruption indices; (v) removal of outliers; (vi) different sets of panels; and (vii) allowing for cross country interdependence, contagion effects, of corruption.

NLRP3 inflammasome plays a key role in the regulation of intestinal homeostasis.

BACKGROUND:: Attenuated innate immune responses to the intestinal microbiota have been linked to the pathogenesis of Crohn's disease (CD). Recent genetic studies have revealed that hypofunctional mutations of NLRP3, a member of the NOD-like receptor (NLR) superfamily, are associated with an increased risk of developing CD. NLRP3 is a key component of the inflammasome, an intracellular danger sensor of the innate immune system. When activated, the inflammasome triggers caspase-1-dependent processing of inflammatory mediators, such as IL-1β and IL-18. METHODS:: In the current study we sought to assess the role of the NLRP3 inflammasome in the maintenance of intestinal homeostasis through its regulation of innate protective processes. To investigate this role, Nlrp3(-/-) and wildtype mice were assessed in the dextran sulfate sodium and 2,4,6-trinitrobenzenesulfonic acid models of experimental colitis. RESULTS:: Nlrp3(-/-) mice were found to be more susceptible to experimental colitis, an observation that was associated with reduced IL-1β, reduced antiinflammatory cytokine IL-10, and reduced protective growth factor TGF-β. Macrophages isolated from Nlrp3(-/-) mice failed to respond to bacterial muramyl dipeptide. Furthermore, Nlrp3-deficient neutrophils exhibited reduced chemotaxis and enhanced spontaneous apoptosis, but no change in oxidative burst. Lastly, Nlrp3(-/-) mice displayed altered colonic β-defensin expression, reduced colonic antimicrobial secretions, and a unique intestinal microbiota. CONCLUSIONS:: Our data confirm an essential role for the NLRP3 inflammasome in the regulation of intestinal homeostasis and provide biological insight into disease mechanisms associated with increased risk of CD in individuals with NLRP3 mutations. (Inflamm Bowel Dis 2010).

Financial health, exports, and rm survival: Evidence from UK and French firms

We use firm level data to assess the role of exporting in the link between financial health and rm survival. The data are for the UK and France. We examine whether fi rms at diff erent stages of export activity (starters, exiters, continuers, switchers) react di fferently to changes in financial variables. In general, export starters and exiters experience much stronger adverse e ffects of fi nancial constraints for their survival prospects. By contrast, the exit probability of continuous exporters and export switchers is less negatively a ffected by financial characteristics. These relationships between exporting, finance and survival are broadly similar in the British and French sub-samples.

Financial crisis and quantitative easing: can broad money tell us anything?

When Bank of England (and the Federal Reserve Board) introduced their quantitative easing (QE) operations they emphasised the effects on money and credit, but much of their empirical research on the effects of QE focuses on long-term interest rates. We use a flow of funds matrix with an independent central bank to show the implications of QE and other monetary developments, and argue that the financial crisis, the fiscal expansion and QE are likely to have constituted major exogenous shocks to money and credit in the UK which could not be digested immediately by the usual adjustment mechanisms. We present regressions of a reduced form model which considers the growth of nominal spending as determined by the growth of nominal money and other variables. These results suggest that money was not important during the Great Moderation but has had a much larger role in the period of the crisis and QE. We then use these estimates to illustrate the effects of the financial crisis and QE. We conclude that it would be useful to incorporate money and/or credit in wider macroeconometric models of the UK economy.

Stock Market Reaction to Fed Funds Rate Surprises: State Dependence and the Financial Crisis

This paper examines the impact of Federal Funds rate (FFR) surprises on stock returns in the United States over the period 1989-2009, focusing on the impact of the recent financial crisis. We find that prior to the crisis, stock prices increased as a response to unexpected FFR cuts. State dependence is also identified with stocks exhibiting larger increases when interest rate easing coincided with recessions, bear stock markets, and tightening credit market conditions. However, an important structural shift took place during the financial crisis, which changed the stock market response to FFR shocks, as well as the nature of state dependence. Specifically, during the crisis period stock market participants did not react positively to unexpected FFR cuts. Our results highlight the severity of the recent financial turmoil episode and the ineffectiveness of conventional monetary policy close to the zero lower bound for nominal interest rates.

A New Index of Financial Conditions

We use factor augmented vector autoregressive models with time-varying coefficients to construct a financial conditions index. The time-variation in the parameters allows for the weights attached to each financial variable in the index to evolve over time. Furthermore, we develop methods for dynamic model averaging or selection which allow the financial variables entering into the FCI to change over time. We discuss why such extensions of the existing literature are important and show them to be so in an empirical application involving a wide range of financial variables.

Stock Market Liquidity and Macro-Liquidity Shocks: Evidence from the 2007-2009 Financial Crisis

We develop an empirical framework that links micro-liquidity, macro-liquidity and stock prices. We provide evidence of a strong link between macro-liquidity shocks and the returns of UK stock portfolios constructed on the basis of micro-liquidity measures between 1999-2012. Specifically, macro-liquidity shocks, which are extracted on the meeting days of the Bank of England Monetary Policy Committee relative to market expectations embedded in 3-month LIBOR futures prices, are transmitted in a differential manner to the cross-section of liquidity-sorted portfolios, with liquid stocks playing the most active role. We also find that there is a significant increase in shares’ trading activity and a rather small increase in their trading cost on MPC meeting days. Finally, our results emphatically document that during the recent financial crisis the shocks-returns relationship has reversed its sign. Interest rate cuts during the crisis were perceived by market participants as a signal of deteriorating economic prospects and reinforced “flight to safety” trading.

Nominal Stability and Financial Globalization

Over the past four decades, advanced economies experienced a large growth in gross external portfolio positions. This phenomenon has been described as Financial Globalization. Over roughly the same time frame, most of these countries also saw a substantial fall in the level and variability of inflation. Many economists have conjectured that financial globalization contributed to the improved performance in the level and predictability of inflation. In this paper, we explore the causal link running in the opposite direction. We show that a monetary policy rule which reduces inflation variability leads to an increase in the size of gross external positions, both in equity and bond portfolios. This appears to be a robust prediction of open economy macro models with endogenous portfolio choice. It holds across different modeling specifications and parameterizations. We also present preliminary empirical evidence which shows a negative relationship between inflation volatility and the size of gross external positions.

On the real effects of financial pressure: Evidence from euro area firm-level employment during the recent financial crisis.

Using a large panel of unquoted euro-area firms over the period 2003-11, this paper examines the impact of financial pressure on firms’ employment. The analysis finds evidence that financial pressure negatively affects firms’ employment decisions. This effect is stronger during the 2007-2009 financial crisis, especially for firms in the periphery area compared to their counterparts in the core European economies. We also find that impact of financial pressure on employment is more potent for firms classified as financially constrained and operating in periphery economies during the financial crisis.