Search results

1 – 4 of 4
Per page
102050
Citations:
Loading...
Access Restricted. View access options
Article
Publication date: 8 January 2019

Swee-Sum Lam, Tao Li and Weina Zhang

The purpose of this paper is to reveal the economic impact of policy reversals related to market liberalization reforms in China.

243

Abstract

Purpose

The purpose of this paper is to reveal the economic impact of policy reversals related to market liberalization reforms in China.

Design/methodology/approach

To perform the analysis, the authors hand-collect 59 financial market liberalization policy reversals from 1999 to 2017. These reversals are related to the liberalization of the stock market, bond market, derivatives market, forex market, lending market, and real estate market etc. The authors employ a stylized equilibrium interest rate model from Li et al. (2013) to deduce the impact of policy reversals on economic growth and the associated volatility after the announcement of each policy reversal.

Findings

First, the authors discover that about half of reversals are related to some tradeoff between the economic growth and the volatility associated with growth. Second, the authors also find that about a quarter of the reversals are detrimental to both the growth and the stability. These reversals, if known to policymakers, should be entirely avoided or corrected. Third, using a simple diagnostic test, the authors can identify detrimental reversals at the intra-day frequency by computing the change of the term spread and the volatility before and after the reversals.

Practical implications

The findings are useful for identifying effective policymaking in developing countries where mature democratic and rigorous policymaking processes are often lacking and formulating economic policies is challenging. The findings suggest that policy reversals serve China well by improving the quality of the policy made without posing destructive consequences to the existing economic infrastructure. This empirical evidence is important for a better understanding of the benefits of policy reversals on economic growth.

Social implications

The empirical procedure provides a timely and objective evaluation of policy shifts, allowing for the general public to discern the rationale behind the policy decisions. Consequently, stakeholders’ trust and confidence in policymakers is enhanced so that the probability of the successful implementation of structural reforms may increase in these developing countries.

Originality/value

First, the results reveal some successful examples of Chinese policymaking in the path of liberalizing financial market. The authors find that the Chinese liberalization policy flip-flops have resulted in a more balanced growth on some occasions with reduced growth rate and volatility. Second, the proposed methodology provides an objective evaluation of policy shifts, allowing for the public to infer the general direction of the impact generated by policy shifts. Subsequently, stakeholders’ trust and confidence in policymakers can be enhanced and/or restored if the process of finding a successful path of structural reforms is unambiguous. Finally, the interest rate model also provides a timely method to evaluate the impact of policy shifts at an intra-day frequency, whereas most macroeconomic indicators are available at longer frequencies such as monthly or quarterly. The timeliness in understanding the economic consequences of policy reversals can be critical to prevent the destructive consequences of bad ones.

Details

China Finance Review International, vol. 10 no. 1
Type: Research Article
ISSN: 2044-1398

Keywords

Access Restricted. View access options
Article
Publication date: 17 August 2015

Swee-Sum Lam and Weina Zhang

The purpose of this paper is to examine how policy instability is priced in interest rates. Policy instability refers to the likelihood that the current policy will be changed in…

260

Abstract

Purpose

The purpose of this paper is to examine how policy instability is priced in interest rates. Policy instability refers to the likelihood that the current policy will be changed in the future in the absence of political power shifts.

Design/methodology/approach

Chinese government’s experimental policy-making approach provides an ideal set of frequent policy flip-flops which allows us to identify the effect of policy changes.

Findings

Conditional on the bureaucratic quality of policymaking, a good-quality policy reversal is related to reductions in interest rate term spread and volatility; a bad-quality policy reversal is related to increases in the spread and volatility. The bureaucratic quality is multi-dimensional and the moderating effect is stronger on interest rates when it is measured more precisely.

Originality/value

First, we can use the interest rate dynamics to infer the policy risk premium, which is a more objective market indicator of the bureaucratic quality of the policy change. Second, the study is among the first that documents the pricing of policy instability can be moderated by the bureaucratic quality. The results indicate that it is important for a government to be responsive and consistent in liberalizing the financial market. It will lead to reduced cost of capital and volatility for investors and firms in the economy. Third, given that the bureaucratic quality is multi-dimensional and produces stronger impact jointly, a country shall continue to improve on different aspects of the bureaucratic quality. Although the study is based on the empirical evidence from Chinese policy environment, the results can be broadly applied to any developing economies that intend to liberalize the market to spur economic growth.

Details

China Finance Review International, vol. 5 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

Access Restricted. View access options
Article
Publication date: 1 September 1992

Malcolm J. Morgan

Entrepreneurs can sometimes come to feel that they are not so much working for themselves as they are for a banker who is taking a smaller risk and enjoying a higher return…

150

Abstract

Entrepreneurs can sometimes come to feel that they are not so much working for themselves as they are for a banker who is taking a smaller risk and enjoying a higher return. However, many such companies may not realise that their problem is not lack of money in the sense of debt, but a shortage of equity (Smitham, 1990). Depending on the nature of the small business this problem can be overcome‐a venture capital company could subscribe for part of the equity of their organisation. Venture capital is defined as an investment in an instrument that is not traded on a recognised stock exchange. Venture capital is not a modern phenomenon, although over the last 150 years, it has become more institutionalised within the international financial framework (Tulloch and Walsh, 1991).

Details

Management Research News, vol. 15 no. 9
Type: Research Article
ISSN: 0140-9174

Access Restricted. View access options
Book part
Publication date: 9 October 2020

Chiraz Ben Ali

Abstract

Details

Corporate Fraud Exposed
Type: Book
ISBN: 978-1-78973-418-8

1 – 4 of 4
Per page
102050