Finance

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    Venture capital increases a startup’s chances of issuing stocks or finding a buyer

Venture capital increases a startup’s chances of issuing stocks or finding a buyer

An ultimate challenge for technology entrepreneurs is the need for capital to continue to innovate, sustain, and commercialise their innovation. The considerable risks associated with the technological feasibility, business model credibility, and product or service viability severely limits access to capital, yet angel investors and venture capitalists fill this need by investing in startups in exchange for an equity […]

Socially connected fund managers share investment ideas

Despite the important role professional money managers play in financial markets, and decades of academic study, relatively little is known about how they generate investment ideas. Some choices are likely driven by information gathered through connections to particular firms. Previous research has shown that managers invest in companies headquartered nearby and in companies to which they are linked through […]

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    When firms increase advertising spending, their stock prices climb in tandem

When firms increase advertising spending, their stock prices climb in tandem

Recent research has found that advertising has an important impact on the liquidity and breadth of ownership of stocks. This is intriguing as advertising is intended to increase the awareness of a firm’s products rather than its securities. Nevertheless, there appears to be a spillover effect. In a recent paper, I start by providing evidence of the spillover effect […]

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    The individual style of audit partners influences how firms are rated

The individual style of audit partners influences how firms are rated

We examine the persistence and economic consequences of variations in reporting style across audit partners in individual engagements. Based on an analysis of audits performed over a six-year period by the Swedish subsidiaries of the Big 4 accounting firms (Deloitte, Ernst & Young, KPMG, and PwC), we find that:

aggressive or conservative reporting is associated with the particular engagement partners […]

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    In search of greater regulatory freedom, some banks resort to cross-border acquisitions

In search of greater regulatory freedom, some banks resort to cross-border acquisitions

The recent global financial crisis, caused in part by systemic failures in bank regulation, has sparked, among other things, a strong push for both stricter capital requirements and greater international coordination in regulation. For example, seven of the 10 recommendations of the 2011 Report of the Cross-Border Bank Resolution Group of the Basel Committee for Banking Supervision (BCBS) propose […]

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    Investment in life sciences leads the growth of the UK start-up market

Investment in life sciences leads the growth of the UK start-up market

As large investors in the UK become more willing to inject capital in less liquid assets, the investment in the UK’s fast-growth company sector has been growing at increasing speed. It has now become obsolete to talk about recovery – we should now be talking about growth in unqualified terms.

In our study of the UK equity investment market, we […]

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    The less economic freedom a state has, the more political connections local firms need

The less economic freedom a state has, the more political connections local firms need

The linkages between firm performance, the economic environment and influential political connections have long been of interest across the spectrum of business and politics. These links can be particularly important for banks and other firms in heavily regulated industries where a simple change in law or regulatory policy can result in significant costs, open new profitable opportunities, or otherwise […]

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    Lower restrictions for start-ups to list on stock exchanges have mixed results

Lower restrictions for start-ups to list on stock exchanges have mixed results

Firms can finance their activities by selling their stocks in public equity markets, thus becoming public companies. An initial public offering (IPO) is the first time a company issues stocks to raise capital. In general, since these companies have limited access to external finance, it is expected that raising capital through an IPO will help them invest in growth […]

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    How can countries protect their banks against international contagion?

How can countries protect their banks against international contagion?

Financial crises which turn global pose risks for domestic banking sectors, sometimes escalating to fully-fledged domestic banking crises. Regulatory policy aims to reduce the probability of the spread of risk to the domestic financial sector and to prevent banking crises during periods of stress. Doing this effectively requires an understanding of how crises spread — what are the transmission mechanisms, […]

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    Mutual funds that concentrate on a specific industry earn superior returns

Mutual funds that concentrate on a specific industry earn superior returns

International investment has gained popularity in the past two decades. Both the number of international mutual funds and assets under management have increased dramatically. These funds enable households to enjoy the diversification benefits and return opportunities provided by international markets. However, despite their increasing popularity, little is known about their investment behaviours in international financial markets: How do they allocate […]

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    We need to address the role private debt and real estate play in our economies

We need to address the role private debt and real estate play in our economies

Almost no economist or financial commentator saw the 2008 crisis coming: next to no one anticipated in early 2009 that recovery would prove so difficult and slow: nobody foresaw that seven years after the crisis, interest rates today would be close to zero in all major advanced economies.

I became chair of the UK Financial Services Authority in September 2008, […]

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    Large EU banks have remained undercapitalised for long stretches of time

Large EU banks have remained undercapitalised for long stretches of time

The Basel Committee on Banking Supervision (BCBS) has designed complex rules for defining sufficient capital at internationally active financial institutions. Pillar II of the Basel Accord requires national supervisors to assure continuous compliance with capital standards, which require a minimum ratio of the book value of equity capital to a bank’s risky assets. An adequate Tier 1 capital ratio […]

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    Independent central banks are here to control inflation, but they help maintain fiscal discipline too

Independent central banks are here to control inflation, but they help maintain fiscal discipline too

In the 1990s, countries worldwide reformed their central bank laws, removing monetary policy from government control. While central banks can have other legal tasks, including balanced economic growth and financial stability, more independent banks focus principally on price stability. These newly independent central banks can change interest rates and target the exchange rate or money supply to ensure price […]

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    As sovereign wealth funds come of age, they grow rapidly but face a number of challenges

As sovereign wealth funds come of age, they grow rapidly but face a number of challenges

The global economy has witnessed the emergence of a new set of key actors over the last two decades. Sovereign wealth funds (SWFs) and pension funds (PFs) – or sovereign investors – have become pivotal players in global financial markets thanks to their liquidity, and continue to grow rapidly in number and in size. This group of highly heterogeneous […]

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    When even central banks use Twitter to communicate, the markets turn to social media

When even central banks use Twitter to communicate, the markets turn to social media

Not long ago, any conversation about social media on trading floors was mere curiosity. That started to change when on April of 2013 the U.S. Securities and Exchange Commission issued guidance permitting companies to use social media to communicate their announcements. If investors were still shaking their heads about this development, four months later billionaire investor Carl Icahn refocused […]

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    As venture capitalists cross borders, they look for institutional trust

As venture capitalists cross borders, they look for institutional trust

Venture capitalists (VCs) are increasingly investing across jurisdictions, with the vast majority of these cross-border investments being carried out in a syndicate of two or more VCs. This paradigm shift is of interest to governments seeking to further develop local immature venture capital markets by attracting both foreign funds and expertise. Researchers, such as my co-authors Daniel Hain, Daojuan […]

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    EU countries’ shadow economy should be included in credit rating calculations

EU countries’ shadow economy should be included in credit rating calculations

Few are those economists or politicians who could have imagined in advance the macroeconomic changes that have been taking place since the beginning of the last global economic crisis. In the early 2000s, it was unthinkable that some EU countries would come close to the economic, social and political collapse they have recently been experiencing. The public debt of […]

Why are commodity markets behaving like stock markets?

Ten years ago, a course on commodity markets would teach students that commodity returns are uncorrelated with the returns of other financial assets. Commodities were praised as excellent portfolio diversifiers, providing financial protection when it is needed most. Since the early 2000s, however, the behaviour of commodity prices has changed in fundamental ways. Popular investment commodities such as crude […]

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    Intra-industry competition informs stock markets investment decisions

Intra-industry competition informs stock markets investment decisions

There is a large and growing body of research on peer effects in social sciences.  For instance, the economics literature on education has dealt extensively with peer effects in the classroom.  One of the hypotheses in this literature is that students who are exposed to unusually low achieving cohorts tend to score lower themselves.  While it is hard for […]

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    Hollywood studios appear to plan sequels before they produce the original movie

Hollywood studios appear to plan sequels before they produce the original movie

The recent box office success of Jurassic World, the latest Jurassic Park sequel, reminded me of my study about the use of real options in the motion picture industry*, which examined the application of this accounting tool to movie sequels.

A real option is the right, but not the obligation, to undertake a business decision. More importantly, a real-options approach to […]