Review of Pacific Basin Financial Markets and Policies

Small business owners use a variety of bootstrap financing methods to acquire the needed resources necessary to survive and eventually grow their businesses. One such method is to lease equipment and/or machinery. Leasing is a viable alternative to bank financing and for small businesses, leasing is a flexible strategy to preserve cash. In this study, we analyze the impact of asset specificity and growth opportunities on leasing decisions of a large cohort of startup businesses. To test our hypotheses, we use a unique dataset provided by the Kauffman Foundation. Our longitudinal analyses show that startups with unique/specific assets have a lower propensity to lease whereas startups with high growth opportunities are more likely to lease their assets. We also argue that the owners’ demographic and socioeconomic characteristics are likely to impact their individual risk-taking behavior. Thus, factors such as owners’ experience, education, age, gender, and race are likely to impact the decision to lease assets. Our results show that owners’ characteristics do have a significant impact on these decisions. The findings reveal that female and older entrepreneurs as well as highly educated owners are less likely to lease. Our work advances prior research on the determinants of leasing in large, publicly traded firms and provides additional insights on entrepreneurial bootstrapping.

Largely ignored, empirical evidence is mixed regarding the sign of the relationships between exchange rate exposure and its determinants. Employing quantile regressions, we resolve the conflicting findings for S&P 500 firms by demonstrating that the culprit is the inherent limitations of the ordinary least squares (OLS) approach used in previous studies. Instead of the conflicting partial views of the picture of the mean depicted in previous OLS results, we present a clearer fuller picture of the spectrum of the relationships. Specifically, across the range of exchange rate exposure — extremely negative to extremely positive — the sign of the relationships change systematically for foreign sales, size, and debt ratio, while it remains consistently negative for quick ratio and positive for book-to-market. Test results further show significant differences in the coefficient estimates between high and low quantiles, indicating an asymmetric effect of the determinants on the exposure.

Among the economies in the Eastern coastal area of mainland China, Jiangsu has stood out in terms of its rapid and sustained economic growth since 2000. The province has done exceptionally well in terms of competitiveness indicators, catching up quickly with the leading Greater China economy of Taiwan. Such convergence has triggered much academic and policy interest in terms of understanding the driving factors that have enabled Jiangsu to catch up with Taiwan. In this context, this paper empirically analyzes the factors that have caused the convergence between the two economies from 2000 to 2011 by employing Geweke Causality analysis. By decomposing and examining the linear feedback between economic growth and vectors of variables capturing investments in infrastructure, human capital, science, technology and innovation activities, this paper confirms the important role played by those factors in the convergence between Jiangsu and Taiwan in recent years.

This paper investigates the announcement effect of cash dividend changes on share prices listed on the Dhaka Stock Exchange (DSE). Standard event study methodology is used to investigate the effect of an event window of $-$3 to $+$3 days relative to dividend announcement date. Cumulative abnormal returns (CAR) have also been measured for a 41-day window around announcement date. This study finds that shareholders earn only normal return on the announcement of dividend increases and no changes. However, a significant positive abnormal return (AR) is observed in the preannouncement period for a dividend increase which indicates some kind of information leakage before the announcement is actually made. The announcement of dividend decrease results in a significant negative AR on the announcement day and persists even 20 days after the announcement. Significant ARs following dividend decrease announcement reveal DSE is not a semi-strong form of efficient market.

To find a substitute vehicle for a direct investment in currencies, we study the behaviors of six major currency exchange-traded funds (ETFs) and their respective spot and futures markets prior to and during the financial crisis of 2008. Our findings indicate that currency ETFs are near-perfect substitutes for a direct investment in currencies. We observe statistically significant differences in market behavior from the non-crisis subperiod to the crisis subperiod. Notwithstanding these differences, the price discovery of both the spot and the futures currency markets relative to their associated ETFs is overwhelming, consistent, and, to a large extent, similar. Under more stable conditions, the spot and the futures currency markets possess more dominant informational positions relative to their corresponding ETF markets.

This study examines derivative practices of Australian and Canadian firms from 2009 to 2013 in a post-global financial crisis environment. Our results show significant differences in the level of derivative usage between both countries, in contrast to earlier hedging studies. We also observe that Canadian firms have a higher propensity to use financial derivatives. We find similarities in derivative usage for firms operating in the industrials, materials, consumer discretionary, and healthcare industries. However, corporate derivative practices seem to be significantly different for energy and IT firms during the sample period.

Using panel data estimation, we evaluate the effects of financial soundness indicators, financial openness and bank liquidity on financial development across 40 countries. According to our dynamic panel estimates, the following variables are found to significantly affect financial development: capital to asset ratio, nonperforming loans and direct foreign investment. Our result indicated that the change in capitalization ratio was the main driver of financial development. Moreover, nonperforming loan shock has a negative and significant influence on financial development. This study emphasizes the important role of financial soundness and financial openness in maintaining financial stability and development of banking system.