Download 13 Law, finance, and growth

Law, finance, and
growth
Questions
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How to measure country’s financial
development?
How is it related to legal system?
How does it affect industrial growth?
What are typical financial systems?
How do they differ in vulnerability to crisis?
NES
FF 2005/06
2
Financial development:
stock market
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Size and liquidity of the domestic market
– Market equity cap to GDP
– # instruments (actively) traded locally
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Stocks / bonds / derivatives
# IPOs
Free float
Trading volume / turnover rate
Transaction costs / bid-ask spread
NES
FF 2005/06
3
Financial development:
stock market (2)
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Global integration
– Share of foreign currency denominated
obligations
– # IPOs / trading volume abroad
– Share of foreign investors in trading volume /
ownership
– Correlation (degree of co-integration) between
Russian and foreign indices
NES
FF 2005/06
4
Financial development:
stock market (3)
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Returns and risks
– Mean return / st.dev. / Sharpe coefficient
– Synchronicity of individual stock prices
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Fraction of variation explained by market factors
– Sensitivity to domestic / global risk factors
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Oil price / currency / inflation
– Duration / credit rating / YTM of bonds
– Default / term spread
NES
FF 2005/06
5
Financial development:
corporate sector
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Corporate governance
– #/share companies with IAS reporting / open
ownership structure / high (S&P) rating
– Share of the largest owner / state
– #/share of the independent directors
– #/share transactions with the affiliated parties
– Dividend yield / payout ratio
– Control premium
NES
FF 2005/06
6
Financial development:
corporate sector (2)
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Financial policy
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Debt ratio (financial leverage)
Share of bank credits in debt
Share of foreign currency obligations in debt
Share of investments financed via external
sources of capital
– Duration of debt
NES
FF 2005/06
7
Financial development:
banking system
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Bank credits to GDP
# banks / large banks / foreign banks
– # new / cancelled licenses
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Concentration
– Share of assets / deposits by top (5) banks
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Average # branches
Average credit / deposit rate / duration
Share of credits / deposits in foreign currency
NES
FF 2005/06
8
Finance vs growth: critique
of cross-country studies
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Endogeneity
Cross-correlation
– Regional effects
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Measurement error
Multicollinearity
NES
FF 2005/06
9
Finance vs growth:
causality
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Omitted variables
– Culture / propensity to save
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Anticipation
– Financial measures are forward-looking
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Solutions
– Using instruments
– From country to industry and firm level
NES
FF 2005/06
10