Globalization should be what states make of it

<p>A significant factor that prevented the Global Financial Crisis (GFC) from becoming as calamitous as the Great Depression of 1929, is the fact that states reacted swiftly to inject massive sums of public money to save the banks and the global financial system. This massive state intervention highlighted the limits of the progressive deregulation of the international system which characterized the process of globalization. It showed that states had huge responsibilities in keeping the global economy afloat, albeit without a clear compass or direction. The apparent ‘anarchy’ of the global market system makes conceivable that, to paraphrase A. Wendt, “globalization should be what states make of it”. Limiting the scope of study to the postmodern state, and looking at the discourse surrounding the globalization process that promotes de-regulation and limited government within a ‘neo-liberal paradigm’ it looks at the ‘democratic deficit’ which weakens the political decision-making process. If not yet a ‘paradigm shift’, the GFC has many ingredients of a crisis of capitalism which needs to re-invent itself, and political action is crucial to curb the excesses of finance. Looking at France, and the election of Francois Hollande on a strong ‘anti-finance’ platform in 2012 and its European Union dimension, it remains to be seen if that kind of shift will actually be able to operate and be successful to set the tone for global reforms. In conclusion, the core argument is that the global ‘trial’ of the neoliberal paradigm and the concept of financial deregulation should now enter a new phase. It is historically and symbolically the defeat of the self-regulating markets as a blueprint for global prosperity. The present structures are inadequate, and states have to find new ways for cooperation in order to steer this integrated world towards greater cohesion.</p>

Globalization should be what states make of it

<p>A significant factor that prevented the Global Financial Crisis (GFC) from becoming as calamitous as the Great Depression of 1929, is the fact that states reacted swiftly to inject massive sums of public money to save the banks and the global financial system. This massive state intervention highlighted the limits of the progressive deregulation of the international system which characterized the process of globalization. It showed that states had huge responsibilities in keeping the global economy afloat, albeit without a clear compass or direction. The apparent ‘anarchy’ of the global market system makes conceivable that, to paraphrase A. Wendt, “globalization should be what states make of it”. Limiting the scope of study to the postmodern state, and looking at the discourse surrounding the globalization process that promotes de-regulation and limited government within a ‘neo-liberal paradigm’ it looks at the ‘democratic deficit’ which weakens the political decision-making process. If not yet a ‘paradigm shift’, the GFC has many ingredients of a crisis of capitalism which needs to re-invent itself, and political action is crucial to curb the excesses of finance. Looking at France, and the election of Francois Hollande on a strong ‘anti-finance’ platform in 2012 and its European Union dimension, it remains to be seen if that kind of shift will actually be able to operate and be successful to set the tone for global reforms. In conclusion, the core argument is that the global ‘trial’ of the neoliberal paradigm and the concept of financial deregulation should now enter a new phase. It is historically and symbolically the defeat of the self-regulating markets as a blueprint for global prosperity. The present structures are inadequate, and states have to find new ways for cooperation in order to steer this integrated world towards greater cohesion.</p>

Three Essays on Corporate Financial Constraints

<p><b>This thesis is composed of three self-contained empirical essays in corporate finance, with the first two exploring the financial policy and credit risk implications of data breaches, and the third examining whether financing influences the sensitivity of cash and investment to asset tangibility. In the first essay, we contribute to the growing debate on cybersecurity risks and how firms can insulate themselves, at least partially, from the adverse effects of data breach risks. Specifically, we examine the effects of data breach disclosure laws and the subsequent disclosure of data breaches on the cash policies of corporations in the United States (U.S.). Exploiting a series of natural experiments regarding staggered state-level data breach disclosure laws, we find that the passage of mandatory disclosure laws leads to an increase in cash holdings. Our finding suggests that mandatory data breach disclosure laws increase the ex ante risks related to data breaches, hence, firms hold on to more cash as a precautionary motive. Further, we find firms that suffer data breaches adjust their financial policies by holding more cash as well as decreasing external finance and investment.</b></p> <p>The second essay examines the impact of data breaches on firm credit risk. Using firm-level credit ratings and credit default swap (CDS) spreads to proxy for credit risk, we find that data breaches lead to increases in firm credit risk. Firms exposed to data breaches are more likely to experience credit rating downgrades and an increase in the CDS spread of traded bonds. Also, firms who suffer data breaches report lower sales and ROA, experience an increase in financial distress, and conditional on a data breach incident, the likelihood of a future data breach increases. Lastly, these effects are magnified for firms with low-interest coverage ratios.</p> <p>In the third essay, using the financial deregulation of seasoned equity issuance in the U.S. as an exogenous shock to access to equity markets, I investigate the influence of financing on the sensitivity of cash and investment to asset tangibility. I show that financing dampens the sensitivity of cash and investment to asset tangibility and promotes investment and firm growth. This provides evidence that public firms even in well-developed financial markets such as the U.S., benefit from financial deregulation that removes barriers to external equity financing, shedding light on the role of financial markets in fostering growth.</p>

Three Essays on Corporate Financial Constraints

<p><b>This thesis is composed of three self-contained empirical essays in corporate finance, with the first two exploring the financial policy and credit risk implications of data breaches, and the third examining whether financing influences the sensitivity of cash and investment to asset tangibility. In the first essay, we contribute to the growing debate on cybersecurity risks and how firms can insulate themselves, at least partially, from the adverse effects of data breach risks. Specifically, we examine the effects of data breach disclosure laws and the subsequent disclosure of data breaches on the cash policies of corporations in the United States (U.S.). Exploiting a series of natural experiments regarding staggered state-level data breach disclosure laws, we find that the passage of mandatory disclosure laws leads to an increase in cash holdings. Our finding suggests that mandatory data breach disclosure laws increase the ex ante risks related to data breaches, hence, firms hold on to more cash as a precautionary motive. Further, we find firms that suffer data breaches adjust their financial policies by holding more cash as well as decreasing external finance and investment.</b></p> <p>The second essay examines the impact of data breaches on firm credit risk. Using firm-level credit ratings and credit default swap (CDS) spreads to proxy for credit risk, we find that data breaches lead to increases in firm credit risk. Firms exposed to data breaches are more likely to experience credit rating downgrades and an increase in the CDS spread of traded bonds. Also, firms who suffer data breaches report lower sales and ROA, experience an increase in financial distress, and conditional on a data breach incident, the likelihood of a future data breach increases. Lastly, these effects are magnified for firms with low-interest coverage ratios.</p> <p>In the third essay, using the financial deregulation of seasoned equity issuance in the U.S. as an exogenous shock to access to equity markets, I investigate the influence of financing on the sensitivity of cash and investment to asset tangibility. I show that financing dampens the sensitivity of cash and investment to asset tangibility and promotes investment and firm growth. This provides evidence that public firms even in well-developed financial markets such as the U.S., benefit from financial deregulation that removes barriers to external equity financing, shedding light on the role of financial markets in fostering growth.</p>

Financial Deregulation

A wave of liberalization swept the end of the twentieth century. From the 1970s and 1980s onwards, most developed countries have passed various measures to liberalize and ‘modernize’ the financial markets. Each country had its agenda, but most of them have experienced, to a different extent, a change in regulatory regime. This change, often labelled deregulation and associated with the advent of neoliberalism, was sharply contrasting with the previous era, the Bretton Woods system, which has sometimes been portrayed as an era of ‘financial repression’. On the other hand, a quick glance at financial regulation today, at the amount of paper it produces, at its complexity, at the number of people involved, and at the resources invested in it, is enough to say that, somehow, there is more regulation today than ever before. In the new system, financial regulation has taken unprecedented importance. As more archival material is becoming available, a better understanding of the fundamental changes in the regulatory environment towards the end of the twentieth century is now possible. What kind of change exactly was deregulation? Did competition between financial regulators lead to a ‘race to the bottom’ in regulation? Is deregulation responsible for the recurring financial crises which seem to have characterized the international financial system since the 1980s? The movement towards a more liberal regulatory regime was neither linear nor simple. This book—a collection of chapters studying deregulation in various countries and contexts—examines the national and international pathways of deregulation by providing an in-depth analysis of a short but crucial period in a few major countries.

Financial Deregulation in France

The deregulation of the financial system in France in the 1980s and the French commitment to the freedom of capital, as recently pointed out by Rawi Abdelal, is ‘quite curious’ and even doubly paradoxical: how to understand, first, that the financial liberalization has occurred while the left was in power? Second, how to explain that Colbertist France took the lead for financial deregulation at a world scale feeding the hypothesis of a so-called ‘Paris Consensus’? Based on the primary archives of the French Treasury and of the Banque of France this contribution aims to demonstrate that the financial deregulation in France is managed by the State in order to facilitate its increasing indebtedness on a globalizing money market.

Drivers of Financial Deregulation in Japan

This chapter aims to identify the real drivers of financial deregulation in Japan. Japan’s financial deregulation drivers clearly changed over time. In the late 1960s and the early 1970s, the liberalization of capital movement in Japan caused an administrative shift from its conventional rigid regulatory regime. From the mid-1970s, a rapid increase of Japanese government bonds issuances, as well as financial innovation, acted to remove the barriers between the banking and the securities businesses. From the mid-1980s, the pressure from the United States, as well as from domestic depositors and banks, urged the Japanese financial authorities to liberalize the financial market. It is evident that the drivers of financial deregulation in Japan in the 1980s were not only the pressure from abroad (as generally accepted), but that the deregulation was also driven by domestic interests including fiscal reasons.

Deregulation, Regulatory Convergence, or Escaping from Inefficiency?

This chapter focuses on the rationale and objectives of financial deregulation in Italy from the late 1970s to the early 1990s. Deregulation appears as a complex adjustment process to major changes, within the domestic economy and in the international environment, more than the result of a clear-cut plan. In fact, Italy had to cope with difficulties in the manufacturing sector, an exogenous, anti-inflationary, change in monetary policies and a new European legal framework. Her adjustment process largely depended upon the ability of the Bank of Italy, the central bank, to provide sounding analyses and promote reforms in accordance with the emerging European regulatory framework. In the long regulatory cycle started in the mid-1970s the Bank of Italy acted as the main actor, whilst lawmakers had a minor part until 1990, when a new banking law eventually abolished the Banking Law of 1936 catching up with the second European Banking Directive.

The Advent of a New Banking System in the US

The 1980s was one of the most eventful and consequential decades in the development of the US financial system. During this decade, the regulatory framework established in response to the Great Depression started to be dismantled. These regulatory changes were a key driving force behind the transformation of the banking sector. Moreover, the end of the decade saw the most serious banking crisis since the Great Depression. This pattern of deregulation and crises, which started in the 1980s, has continued until the present. Thus, it is worth study this period in greater detail and the consequences it has had for the US banking and financial system. The chapter argues that the deregulatory process that started in the 1980s in the banking industry in the United States has changed the profile of this sector. Between the Great Depression and the 1980s, the banking sector in the United States was a stable, yet not competitive sector. The financial deregulation of the 1980s changed this sector to a competitive, yet unstable one. This deregulatory process occurred mostly as a response to the economic conditions of the 1970s.

Financial Deregulation in the United Kingdom

Was there financial deregulation in the United Kingdom in the late twentieth century? There had been several episodes of financial regulation and deregulation in British financial history. Deregulation from the 1820s to the 1870s was followed by a long period of stable and light regulation. That lasted until WWII. After that the trend was upwards. The first statutory banking regulations in more than 150 years were introduced in 1979 and then in 1987. These Acts were accompanied or followed by Basel rules. In the 1990s the Financial Services Authority was established and regulation increased steeply thereafter. The compliance burden rose steadily throughout. Deregulation in these years is hard to find.