The role of the financial system to absorb and to intermediate commodity boom induced windfall gains efficiently presents one of the most pressing issues for developing economies. Using an exogenous increase in iron ore prices in March 2005, I analyse the role of regional bank branch networks in Brazil in reallocating capital from affected to non-affected regions. For the period from March 2004 to March 2006, I find that branches directly exposed to this shock by their geographical location experience an increase in deposit growth in the post-shock period relative to non-affected branches. Given that these deposits are not reinvested locally, I further show that branches located in the non-affected region increase lending growth depending on their indirect exposure to the booming regions via their branch network. Even tough, these results provide evidence against a Dutch Disease type crowding out of the non-iron ore sector, further evidence suggests that this capital reallocation is far from being optimal.

We examine the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. We examine these indicators jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once we subject the finance-growth regressions to model uncertainty, our results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from our global sample indicate that one newly developed indicator—the efficiency of financial intermediaries—is robustly related to long-term growth.

This study treats firm productivity as an accumulation of productive intangibles and posits that stakeholder engagement associated with better corporate social performance helps develop such intangibles. We hypothesize that because shareholders factor improved productive efficiency into stock price, productivity mediates the relationship between corporate social and financial performance. Furthermore, we argue that key stakeholders’ social considerations are more valuable for firms with higher levels of discretionary cash and income stream uncertainty. Therefore, we hypothesize that those two contingencies moderate the mediated process of corporate social performance with financial performance. Our analysis, based on a comprehensive longitudinal dataset of the U.S. manufacturing firms from 1992 to 2009, lends strong support for these hypotheses. In short, this paper uncovers a productivity-based, context-dependent mechanism underlying the relationship between corporate social performance and financial performance.

The adverse macroeconomic consequences of the Great Recession in 2009 spread well beyond the United States, highlighting the importance of financial stability and the housing market for real economic activity. Moreover, the vicious bank-sovereign cycle and the resulting sovereign-debt crisis of 2010-2012 posed a big threat to the survival of the Economic and Monetary Union (EMU) as a whole. While there is widespread consensus about the underlying causes of these crises, policy makers are still debating about what can be done to prevent future crises and, especially in the Euro area, deeply disagree on the direction of reforms. After all, most regulatory measures face not only the trade-off between financial resilience versus efficiency but also the fundamental choice between rule or discretion based interventions (Bénassy-Quéré et al., 2018).

In this paper, we empirically investigate the relationship between managerial stability induced by the legal enforcement of noncompetition agreements and the pricing of new equity issuances. Making use of the variation in the enforceability of noncompetition contracts across states in the U.S., we find that managerial stability is negatively related to underpricing and price revision for our sample of new equity issuing firms. Our results demonstrate that the stability of management is important for an issuing firm to convey its intrinsic value credibly to the market.

Financial institutions are key to allocate capital to its most productive uses. In order to examine the relationship between productivity and bank credit in the context of different financial market set-ups, we introduce a model of overlapping generations of entrepreneurs under complete and incomplete credit markets. Then, we exploit firm-level data for France, Germany and Italy to explore the relation between bank credit and productivity following the main derivations of the model. We estimate an extended set of elasticities of bank credit with respect to a series of productivity measures of firms. We focus not only on the elasticity between bank credit and productivity during the same year, but also on the elasticity between credit and future realised productivity. Our estimates show a clear Eurozone core-periphery divide, the elasticities between credit and productivity estimated in France and Germany are consistent with complete markets, whereas in Italy they are consistent with incomplete markets. The implication is that in Italy firms turn to be constrained in their long-term investments and bank credit is allocated less efficiently than in France and Germany. Hence capital misallocation by banks can be a key driver of the long-standing slow productivity growth that characterises Italy and other periphery countries. 

Global economic activity has revived since autumn, and equity markets have rallied at the end of the year. Apparently, some of the measures proposed during the US election campaign by the president elect, such as financial market deregulation, economic stimulus, tax cuts and infrastructure are expected to support the economy in the US and beyond. However, this stimulus bears considerable risks already for the near future: other economies could face considerable problems due to a further appreciation of the dollar, rising financing costs and the withdrawal of capital towards the US. In the euro area, as monetary policy continues its expansive course, financing costs will stay very low in 2017, and fiscal policy will be mildly expansive, although a bit less so than in 2016. Confidence of firms and private households has strengthened in recent months, as has the mood on financial markets. We expect that the recovery will continue at about the pace of 2016. GDP will, according to our forecast, increase by 1.6% in 2017 and by 1.7% in 2018. However, the crisis in the Italian banking sector has intensified. It might also trigger another crisis of confidence in European institutional arrangements: according to the Bank Recovery and Resolution Directive, banks may only be saved with public money if owners and creditors of these banks have contributed to the rescue. At present it seems doubtful whether it would be politically feasible to respect this rule. Regarding inflation, our forecast for 2017 is 1.2%. Although energy prices have risen significantly, price pressures are still low.