Department of Finance

Firms in emerging markets fall to COVID-19

Economists associate the mass distress of firms during recessions with Joseph Schumpeter’s creative destruction theory, which says that during downturns small, less efficient, younger firms are the ones to exit the market. Their exit allows for more efficient firms to expand, lifting overall productivity. In a global pandemic like COVID, however, this theory may be on less certain grounds, […]

  • Permalink Gallery

    Las aceleradoras de negocios pueden ayudar a identificar y acelerar el crecimiento de “gacelas” en países en desarrollo (vídeo)

Las aceleradoras de negocios pueden ayudar a identificar y acelerar el crecimiento de “gacelas” en países en desarrollo (vídeo)

Durante las últimas décadas se ha evidenciado un aumento sin precedentes en el número de organizaciones que apoyan el crecimiento de emprendimientos innovadores. Estas aceleradoras de negocios buscan identificar y apoyar a emprendimientos con potencial trasformador que puedan escalar rápidamente y convertirse en líderes de su sector a nivel nacional o internacional.

Aunque se sabe de la importancia de esta […]

  • Permalink Gallery

    Business accelerators can help identify and boost “gazelles” in developing countries (video)

Business accelerators can help identify and boost “gazelles” in developing countries (video)

The last few decades have seen an unprecedented increase in the number of organisations supporting innovative ventures. These business accelerators seek to identify and boost high-potential startups that can rapidly scale up to become national or global leaders.

Although the importance of high-potential startups—also known as “gazelles”—for economic development is well-known, the evidence regarding the impacts that support organisations have […]

  • Permalink Gallery

    Less red tape, more local entrepreneurship and foreign direct investment: the path to recovery

Less red tape, more local entrepreneurship and foreign direct investment: the path to recovery

Fiscal crises such as the one spurred by the COVID-19 pandemic motivate regulatory reform, which in turn can speed up the economic recovery. Past evidence suggests that this acceleration takes place through two main channels: new local entrepreneurship and increased foreign direct investment (FDI).

Entrepreneurship is critical for the continued dynamism of the modern economy, as forcefully argued by Austrian […]

COVID-19: an opportunity to digitise property transactions

Private property rights facilitate greater access to credit. Using data on Russian businesses, a recent study finds that private land rights increase access to external financing by 40 per cent and promote larger investment by as much as 60 per cent.

When property rights are not secure, fear of expropriation may drive entrepreneurs to delay or rescind investment decisions. Researchers […]

Regulatory reforms: the silver lining after COVID-19

Governments resort to regulatory reform in difficult times, when their fiscal balances deteriorate. The COVID-19 crisis has already resulted in large fiscal deficits for 2020. These deficits are likely to worsen by the end of the year as social distancing rules stay into effect for a further period. Few firms can survive a protracted lockdown or collapsed revenues due […]

Why the UK needs a fund to support angel-backed startups

The Future Fund is the UK’s flagship programme aiming to support startups that are affected by Covid-19. The demand for the Fund has been staggering; on its first day of operation, the applications amounted to almost twice the capital committed (£250M) by the government. While the significant uptake may be construed as an indication of the fund’s success, questions […]

  • Permalink Gallery

    How governments can ease the entry of ‘recovery entrepreneurs’

How governments can ease the entry of ‘recovery entrepreneurs’

The focus of Covid-19 economic responses so far has been on assisting existing businesses and their employees with weathering the crisis. In particular, the priority of governments has rightly been on saving existing jobs. Little is done yet to help new companies and employment opportunities emerge. Yet we know from Joseph Schumpeter that crises are a period of creative […]

  • Permalink Gallery

    UK investment fund for high-growth firms is a step in the right direction

UK investment fund for high-growth firms is a step in the right direction

Support packages for innovative firms are emerging as second-wave policy tools during the Covid-19 crisis. Following similar efforts in France and Germany, the UK government unveiled a £1B support package for start-ups, scale-ups, and research and development firms on 20 April, after having launched its main business support programs in March.

The new UK support package includes a novel £250M […]

  • Permalink Gallery

    Large economic benefits justify small-firm loan guarantees in the Covid-19 crisis

Large economic benefits justify small-firm loan guarantees in the Covid-19 crisis

Loan guarantees are a main policy response during the Covid-19 crisis. These guarantees were also popular during the Great Recession, but their demand from businesses in this crisis is unprecedented. The relatively worse economic conditions undoubtedly explain much of current demand, but also possibly highlight the differences in the guarantees’ design for each crisis. Will the new guarantees be […]

How long can firms survive in the Covid-19 crisis?

In the Covid-19 crisis, many businesses are rapidly running out of cash. In our earlier blog we reported that in the United States half of small firms – those with less than 500 employees – have cash reserves for less than a month. Restaurants, for example, have only 16 days of cash on hand.

Firms in rich countries are not […]

It’s time for a recovery plan

Firms in every country are reeling from the inability to do business as usual. To make things worse, many sectors see collapsed demand and economic uncertainty stretching months, if not years. Governments rightly focus on dealing with the health crisis first, and only then on the recovery of the economy once the immediate danger of the pandemic is over.

In […]

How to restart the economy after Covid-19

The Covid-19 crisis has brought many sectors of the global economy to a halt. Firms in these sectors have no revenues while the lockdown is in place, yet they still pay salaries, rents, and debt interest. These expenditures are often deferred – including through government-sponsored programs – but rarely waived. The hiatus increases financial pressure on the firms, as […]

  • Permalink Gallery

    Comparing the coronavirus crisis to 2008 is inevitable, but they’re quite different

Comparing the coronavirus crisis to 2008 is inevitable, but they’re quite different

Coronavirus is having a strong impact on the world economy. What about the financial system? Is a systemic financial crisis likely, perhaps along the lines of the crisis 12 years ago in 2008, or even the Great Depression of the 1930s?

There are certainly similarities: widespread bankruptcies, liquidity shortages, large losses and some financial institutions may fail. Still, that in itself does […]

Fuelling procompetitive growth with foreign credit

The debate about the desirability of international financial flows is at the centre of the discussion of researchers and policy makers. This article focuses on one key aspect of capital controls: their impact on firms’ access to capital markets and their consequences for competition and aggregate productivity growth. Indeed, cross-country studies report that the deregulation of international capital flows […]

  • Permalink Gallery

    There is a ‘good’ reason for EU banks to hold their own country’s sovereign debt

There is a ‘good’ reason for EU banks to hold their own country’s sovereign debt

Is it possible to attribute the banks’ home bias in sovereign exposure to something beyond their externally-imposed (such as moral suasion) or internally-distorted (such as risk-shifting) incentives? Despite the so-called doom loop between the two, could the relationship of banks with their domestic governments have an underexplored silver lining?

These are the questions I pursue in a recent paper. By […]

  • Permalink Gallery

    Why investors should not attach too much meaning to daily changes in the stock market

Why investors should not attach too much meaning to daily changes in the stock market

The stock market moves a lot on a day-to-day basis. Today the S&P 500 index may be up 1 per cent, and tomorrow it may be down 1 per cent. And although news commentators may be forced to relate it to some news about the economy, it is rare to come across news that may add or destroy the […]

  • Permalink Gallery

    Blockchain governance: the system is not immune to capture by interest groups

Blockchain governance: the system is not immune to capture by interest groups

All blockchains have rules that govern their operations. As blockchains evolve, they may need to change their rules. Blockchain governance refers to the system in place through which decisions regarding the evolution of the blockchain are made. The question of blockchain governance is at the heart of a burgeoning debate in the blockchain community, where different governance systems are […]

  • Permalink Gallery

    Two corporate governance mechanisms: activism and hostile takeovers

Two corporate governance mechanisms: activism and hostile takeovers

Hostile takeovers have long been considered the quintessential disciplinary governance mechanism. A similarly confrontational strategy has lately come to prominence by way of activist hedge funds that buy into poorly run firms and use the threat of hostile tactics to pressure management into accepting specific proposals to improve shareholder value.

Our paper compares these two governance mechanisms within a unified framework where any outside investor […]

Brexit readiness score update: UK gets 22 out of 100

In the past three months the possibility of an orderly Brexit has increased markedly. In particular, the European Union and United Kingdom have negotiated a transition period lasting two years. And several thorny issues around the treatment of EU citizens in the United Kingdom have been clarified.

The inaugural Brexit Readiness Score gave low grades on the preparedness of the […]