The Euro as a Foreign Currency for Greece Friday, 19 June 2015

In contrast to his contribution just a month ago, which examined how a Greek parallel currency to the euro could allow the Greek government to gain some room for manoeuver in fiscal policy while at the same time continuing the adjustment programme demanded by the country’s creditors, Thomas Mayer explores in the present note the question of how the Greek population could still keep the euro after a default of its government. Contrary to general belief, he finds that Grexit and the reintroduction of the euro as a foreign currency would probably be positive for the Greek economy, although its creditors would be hard hit. It is therefore primarily in their interest that default and Grexit are avoided.

Post-Summit Commentary – Greece on the brink. EPC Commentary, 29 June 2015

The developments of recent days have been dramatic – the saga of the Greek crisis has probably opened its decisive chapter. Negotiations between Athens and its creditors failed after the Greek government decided to leave the negotiating table and hold a referendum on 5 July. The future of the country in the common currency and the potential consequences for the EU and the euro are uncertain. There are clear signs of fatigue, everywhere. But there is still time to avert the worst, if there is the political will on all sides to work on a new perspective for Greece and for the future of the Economic and Monetary Union (EMU).

A ship run aground Deepening problems in the Ukrainian economy. OSW Commentary Number 173, 16 June 2015

The drop in Ukraine’s GDP by nearly 18% in the first three months of 2015 (versus the corresponding period in 2014) has confirmed the decline of the country’s economy. Over the last 14 months, the Ukrainian currency was subject to an almost threefold devaluation against the US dollar, and in April 2015 the inflation rate was 61% (year-on-year), which exacerbated the impoverishment of the general public and weakened domestic demand. The main reason behind the crisis has been the destruction of heavy industry and infrastructure in the war-torn Donbas region, over which Kyiv no longer has control, as well as a sharp decline in foreign trade (by 24% in 2014 and by 34% in the first quarter of 2015), recorded primarily in trading volume with Ukraine’s major trade partner, i.e. Russia (a drop of 43%). The conflict has also had a negative impact on the production figures for the two key sectors of the Ukrainian economy: agriculture and metallurgy, which account for approximately 50% of Ukrainian exports. The government’s response to the crisis has primarily been a reduction in the costs of financing the Donbas and an increase in the financial burden placed on the citizens and companies of Ukraine. No radical reforms which would encompass the entire system, including anti-corruption reforms, have been carried out to stop the embezzlement of state funds and to facilitate business activity. The reasons for not initiating reforms have included the lack of will to launch them, Ukraine’s traditionally slow pace of bureaucratic action and growing dissonance among the parties making up the parliamentary coalition. The few positive changes, including marketisation of energy prices and sustaining budgetary discipline (in the first quarter of 2015, budgetary revenues grew by 25%, though partly as a result of currency devaluation), are being carried out under pressure from the International Monetary Fund, which is making the payment of further loan instalments to the tune of US$ 17.5 billion conditional upon reforms. Despite assistance granted by Western institutional donors and by individual states, the risk of Ukraine going bankrupt remains real. The issue of restructuring foreign debt worth US$ 15 billion has not been resolved, as foreign creditors who hold Ukrainian bonds have not consented to any partial cancellation of the debt. Whether Ukraine’s public finances can be stabilised will depend mainly on the situation in the east of the country and on the possible renewal of military action. It seems that the only way to rescue Ukraine’s public finances from deteriorating further is to continue to ‘freeze’ the conflict, to gradually implement wide-ranging reforms and to reach a consensus in negotiations with lenders.

Restructuring the Greek banking sector with an empty purse. CEPS Commentary, 13 July 2015

Greek banks are close to collapse, even if a new bail-out programme is agreed soon. The deterioration of the economy means that their fragile capital position is deteriorating further. In this CEPS Commentary, Daniel Gros observes that any new programme needs to include recapitalisation, comprising possibly a bail-in and restructuring to get the banking system working again. With only a small part of the assets unencumbered and a government with empty pockets, the depositors might have to take a large part of the burden. As private investors are unlikely to participate in a recapitalisation, foreign official funds will be needed. A direct equity investment by the EIB or the EBRD could be used to transfer control rights, and special ESM bonds could be used to provide additional capital without entailing additional risk to the creditors

Addressing the immediate needs of the Greek banks. CEPS Commentary, 31 July 2015

Based on a detailed calculation of the recapitalisation requirements of the Greek banks, we find that the sector needs an infusion of capital, but that the level largely depends on the stringency of the capital requirements applied. An expedient quick fix to comply with the minimum capital requirements could be achieved by a bail-in of existing creditors under the EU Bank Recovery and Resolution Directive of around €5 billion, leaving only €6 billion needed for re-capitalisation. If the ‘Cypriot’ standard is applied, however, the required re-capitalisation would be €15 billion. A ‘generous’ approach, which takes into account the phasing in of the new more-stringent capital requirements until 2018, would imply a re-capitalisation of €29 billion (or more bailing-in of creditors). The re-capitalisation should be undertaken preferably by the EIB, the EBRD or the new Greek investment fund, rather than via loans from the ESM to the Greek government.

Flashlight Europe N°3–April 2015. Greece – What else?

The first hundred days in office have become a benchmark for every new government. Early in May, the Tsipras coalition government will reach this date. Given the difficult financial, economic and social situation in Greece, there was no such thing as a closed season for Alexis Tsipras from day one on, and he himself could not have expected one. After all, his new government acceded office with a political agenda demanding nothing less than an end to austerity and the submission to a reform programme seen as unduly imposed on Greece by its creditors, the EU and the IMF.

Journals of the House of Commons of the Dominion of Canada.

Appendices of List of appendices in each volume, except volumes: 50, 63, 68, 78, 79, 85, 93, 101.

Amendment of Bankruptcy Laws -- Bankruptcy of Municipalities : hearings before the United States Senate Committee on the Judiciary, Subcommittee on S. 1868 and H.R. 5950, Seventy-Third Congress, second session, on Jan. 24, 30, 1934.

Considers (73) H.R. 5267, (73) H.R. 3083, (73) S. 1868, (73) H.R. 5950.

Inflation expectations, interest rates and arbitrary income transfers

Unexpected inflation, disinflation or deflation cause arbitrary income transfers between an economy's borrowers and lenders. This redistribution results from distorted real interest rates that are too high when price level changes are over-predicted and too low when they are under-predicted. This article shows that in Australia's case, inflation expectations were mostly biased upwards throughout the 1990s, according to the Melbourne Institute of Applied Economic and Social Research series and to a new derived series based on bond yields, implying that real interest rates were too high over this time. In turn, this caused substantial arbitrary income transfers from debtors to creditors, estimated to have averaged up to 3 per cent of gross domestic product over the period.

Myths and Truths: The "Law and Finance Theory" Revisited

The law and finance theory identifies two dominating legal traditions, a common law tradition inherited from England, and a civil law tradition that is going back to 19th century codifications in France, Germany and Scandinavia. Another key notion of the theory is the distinction between insiders (stakeholders, "the State") and outsiders (shareholders as well as creditors). The micro foundation of this approach is the willingness to invest. The innovative addition of the law and finance theory to these ideas lies in the way it combines them with its peculiar view on legal history. The innovative addition of the law and finance theory to these ideas lies in the way it combines them with its peculiar view on legal history. The major conclusion of this theory is that the common law system provides the best basis for financial development and economic growth, followed by Scandinavian and German origin civil law and finally French origin civil law.

Capital markets and the market structure of foreign investments

Contrary to the long-received theory of FDI, interest rates or rates of return can motivate foreign direct investment (FDI) in concert with the benefits of direct ownership. Thus, access to investor capital and capital markets is a vital component of the multinational’s competitive market structure. Moreover, multinationals can use their superior financial capacity as a competitive advantage in exploiting FDI opportunities in dynamic markets. They can also mitigate higher levels of foreign business risks under dynamic conditions by shifting more financial risk to creditors in the host economy. Furthermore, the investor’s expectation of foreign business risk necessarily commands a risk premium for exposing their equity to foreign market risk. Multinationals can modify the profit maximization strategy of their foreign subsidiaries to maximize growth or profits to generate this risk premium. In this context, we investigate how foreign subsidiaries manage their capital funding, business risk, and profit strategies with a diverse sample of 8,000 matched parents and foreign subsidiary accounts from multiple industries in 38 countries.We find that interest rates, asset prices, and expectations in capital markets have a significant effect on the capital movements of foreign subsidiaries. We also find that foreign subsidiaries mitigate their exposure to foreign business risk by modifying their capital structure and debt maturity. Further, we show how the operating strategy of foreign subsidiaries affects their preference for growth or profit maximization. We further show that superior shareholder value, which is a vital link for access to capital for funding foreign expansion in open market economies, is achieved through maintaining stability in the rate of growth and good asset utilization.

CEO power, government monitoring, and bank dividends

We investigate the role of CEO power and government monitoring on bank dividend policy for a sample of 109 European listed banks for the period 2005-2013. We employ three main proxies for CEO power: CEO ownership, CEO tenure, and unforced CEO turnover. We show that CEO power has a negative impact on dividend payout ratios and on performance, suggesting that entrenched CEOs do not have the incentive to increase payout ratios to discourage monitoring from minority shareholders. Stronger internal monitoring by board of directors, as proxied by larger ownership stakes of the board members, increases performance but decreases payout ratios. These findings are contrary to those from the entrenchment literature for non-financial firms. Government ownership and the presence of a government official on the board of directors of the bank, also reduces payout ratios, in line with the view that government is incentivized to favor the interest of bank creditors before the interest of minority shareholders. These results show that government regulators are mainly concerned about bank safety and this allows powerful CEOs to distribute low payouts at the expense of minority shareholders.

The political economy of inequality and growth: Essays on sovereign debt, democracy and saving

This dissertation addresses three issues in the political economy of growth literature. The first study empirically tests the hypothesis that income inequality influences the size of a country's sovereign debt for a sample of developing countries for the period 1970–1990. The argument examined is that governments tend to yield to popular pressures to engage in redistributive policies, partially financed by foreign borrowing. Facing increased risk of default, international creditors limit the credit they extend, with the result that borrowing countries invest less and grow at a slower pace. The findings do not seem to support the negative relationship between inequality and sovereign debt, as there is evidence of increases in multilateral, countercyclical flows until the mid 1980s in Latin America. The hypothesis would hold for the period 1983–1990. Debt flows and levels seem to be positively correlated with growth as expected. ^ The second study empirically investigates the hypothesis that pronounced levels of inequality lead to unconsolidated democracies. We test the existence of a nonmonotonic relationship between inequality and democracy for a sample of Latin American countries for the period 1970–2000, where democracy appears to consolidate at some intermediate level of inequality. We find that the nonmonotonic relationship holds using instrumental variables methods. Bolivia seems to be a case of unconsolidated democracy. The positive relationship between per capita income and democracy disappears once fixed effects are introduced. ^ The third study explores the nonlinear relationship between per capita income and private saving levels in Latin America. Several estimation methods are presented; however, only the estimation of a dynamic specification through a state-of-the-art general method of moments estimator yields consistent estimates with increased efficiency. Results support the hypothesis that income positively affects private saving, while system GMM reveals nonlinear effects at income levels that exceed the ones included in this sample for the period 1960–1994. We also find that growth, government dissaving, and tightening of credit constraints have a highly significant and positive effect on private saving. ^

Essays on corporate reputation: Antecedents and consequences

This dissertation studied the determinants and consequences of corporate reputation. It explored how firm-, industry-, and country-level factors influence the general public’s assessment of a firm’s reputation and how this reputation assessment impacted the firm’s strategic actions and organizational outcomes. The three empirical essays are grounded on separate theoretical paradigms in strategy, organizational theory, and corporate governance. The first essay used signaling theory to investigate firm-, industry-, and country-level determinants of individual-level corporate reputation assessments. Using a hierarchical linear model, it tested the theory based on individual evaluations of the largest companies across countries. Results indicated that variables at multiple analysis levels simultaneously impact individual level reputation assessments. Interactions were also found between industry- and country-level factors. Results confirmed the multi-level nature of signaling influences on reputation assessments. Building on a stakeholder-power approach to corporate governance, the second essay studied how differences in the power and preferences of three stakeholder groups—shareholders, creditors, and workers—across countries influence the general public’s reputation assessments of corporations. Examining the largest companies across countries, the study found that while the influence of stock market return is stronger in societies where shareholders have more power, social performance has a more significant role in shaping reputation evaluations in societies with stronger labor rights. Unexpectedly, when creditors have greater power, the influence of financial stability on reputation assessment becomes weaker. Exploring the consequences of reputation, the third essay investigated the specific effects of intangible assets on strategic actions and organizational outcomes. Particularly, it individually studied the impacts of acquirer acquisition experience, corporate reputation, and approach toward social responsibilities as well as their combined effect on market reactions to acquisition announcements. Using an event study of acquisition announcements, it confirmed the significant impacts of both action-specific (acquisition experience) and general (reputation and social performance) intangible assets on market expectations of acquisition outcomes. Moreover, the analysis demonstrated that reputation magnifies the impact of acquisition experience on market response to acquisition announcements. In conclusion, this dissertation tried to advance and extend the application of management and organizational theories by explaining the mechanisms underlying antecedents and consequences of corporate reputation.

Understanding Annual Reports of Hospitality Firms

In her discussion - Understanding Annual Reports of Hospitality Firms - by Elisa S. Moncarz, Associate Professor, School of Hospitality Management, Florida International University, Associate Professor Moncarz initially offers: “Management bears full responsibility for the reporting function of annual reports prepared by publicly-held companies designed to provide interested parties with information that is useful in making business and economic decisions. In Part I the author reviews the content of annual reports of firms in the hospitality industry, while looking at recent developments affecting annual reports. Part 11, in a subsequent issue, will comprise an in-depth examination of the annual report of an actual firm in the hospitality industry, focusing on suggested guidelines and recommendations for how to use annual reports as an aid to the decision-making process in the hospitality industry.” This article is to be considered a primer on reading and understanding annual reports, as well as a glimpse into the dynamics that affect them. In defining what an annual report is, Associate Professor Moncarz informs you with citation, “Annual reports are required by the Securities Exchange Commission (SEC) ¹ for all companies with securities sold to the general public. These reports, which must be issued within 90 days after the close of the calendar (or fiscal) year, comprise a primary source of information about these companies,” she further reports. “Indeed, the official version of the company's history is summed up yearly in its annual report by providing full information of the company's operations over the period as well as what the company is gearing up to accomplish in the next year,” Professor Moncarz closes the definition. Why should thus happen over and above SEC requirements? The financial component is an important one; the author offers her informed view: “The major objective of financial statement reporting is to provide information that is useful to present and potential investors, creditors, and other financial statement users in making rational investment, credit, and similar decisions. Thus, financial statements represent the primary (and most reliable) source of knowledge about a particular firm in the hospitality industry.” The above two paragraphs crystallize the requirement and the objective of annual reports. “A typical annual report of a hospitality firm contains a number of standard features which may be broken down into the following three sections…” General, financial data, and supplementary data are variously bounded and circumscribed for you. As a marketing device and feel-good initiative, the annual report is a useful tool for a hospitality corporation that is in-the-black, and focused on the future, says the author. She cites the Marriott Corporation’s 1985 annual report as an example. Of course, an annual report can also be a harbinger of bad news for shareholders as well. Notes/footnotes and disclosure are key elements to the credibility of any annual report; Professor Moncarz discusses these concepts at length. “Given the likelihood that the hospitality industry will continue to face an uncertain economic environment for some time, financial statement users should become more demanding in their need for information that will help assure the firm's survival and evaluate its ability to generate earnings, increase the firm's investment value, and provide for its future growth,” Professor Moncarz says. “Accordingly, understanding annual reports in the hospitality industry should become even more critical.”