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ID: 134514

Bank regulation, macroeconomic management, and monetary incentives in OECD economies / Winecoff, W. Kindred

Winecoff, W. Kindred	Article
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This paper argues that banks operating in systems where monetary and regulatory authority are unified in a central bank expect and receive preferential monetary policies, and so act less prudently than do banks in non-unified systems. These incentives arise when the natural tension between counter-cyclical monetary policy and pro-cyclical regulatory policy is resolved in ways that benefit the banking sector. I test the hypothesis using time series cross-sectional regression models that exploit two types of policy interventions—accession to the European monetary union, and several reassignments of domestic regulatory authority—within OECD countries from 1992 to 2009, the period during which the international Basel accords harmonized key aspects of national regulatory standards. The results strongly support the claim that there is a relationship between risk behaviors of banks and the location of regulatory and monetary authority.

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ID: 134867

Financial distress of Chinese firms: microeconomic, macroeconomic and institutional influences / Bhattacharjee, Arnab; Han, Jie

Bhattacharjee, Arnab	Article
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We study the impact of both microeconomic factors and the macroeconomy on the financial distress of Chinese listed companies over a period of massive economic transition, 1995 to 2006. Based on an economic model of financial distress under the institutional setting of state protection against exit, and using our own firm-level measure of distress, we find important impacts of firm characteristics, macroeconomic instability and institutional factors on the hazard rate of financial distress. The results are robust to unobserved heterogeneity at the firm level, as well as those shared by firms in similar macroeconomic founding conditions. Comparison with related studies for China and other economies highlights important policy implications.

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