What causes the downward trend of real interest rates in major developed economies since the 1980s? What are the challenges of the near-zero interest and inflation rates for…
Abstract
Purpose
What causes the downward trend of real interest rates in major developed economies since the 1980s? What are the challenges of the near-zero interest and inflation rates for monetary policy? What can the policymakers learn from the latest developments in the monetary and interest rate theory? This paper aims to answer these questions by reviewing both basic principles of interest rate determination and recent academic and policy debates.
Design/methodology/approach
The paper critically reviews the explanations for the downward trend of real interest rates in recent decades and monetary policy options in a near-zero interest rate environment.
Findings
The decline of real interest rates is likely an outcome of multiple technological, social and economic factors including diminished productivity growth, changing demographics, elevated tail-risk concerns, time-varying convenience yields of safe assets, increased global demand for safe assets, rising wealth and income inequality, falling relative price of capital, accommodative monetary policies, and changes in industry structure that alter the investment and saving behaviors of the corporate sector. The near-zero interest rate limits the space of central banks' response to economic crises. It also challenges some conventional wisdoms of monetary theory and sparks radically new ideas about monetary policy.
Originality/value
This survey differs from the existing work by taking a broader view of both economics and finance literature. It critically assesses the economic forces driving the global decline of real interest rates through the lens of basic principles and empirical evidence and discusses the merits and limitations of each proposed explanation. The study emphasizes the importance of a better understanding of economic forces driving diverging trends of corporate investment and saving behaviors. It also discusses the implications of the neo-Fisherism and the fiscal theory of price level for monetary policy in a low interest rate environment.
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Keywords
Jianjun Jia, Lili Shao, Zhenzhen Sun and Fang Zhao
This paper assesses how discretionary accruals (DAs) affect corporate cash savings policies and the motivation behind this cash saving behavior and, also whether the linkage…
Abstract
Purpose
This paper assesses how discretionary accruals (DAs) affect corporate cash savings policies and the motivation behind this cash saving behavior and, also whether the linkage between DAs and cash saving affect the market-perceived cash value.
Design/methodology/approach
We construct the measure of DAs using the previous five-year average information to investigate the association of DAs with the change in cash. Moreover, the Faulkender and Wang (2006) methodology is utilized to examine the market-perceived cash value in DAs.
Findings
The key finding is that firms with high DAs save significantly more cash. A one standard deviation increase in DAs saves cash by 12.59%. Furthermore, the value of cash is low for these firms. The effect is stronger in firms with poor governance but not present in financially constrained firms.
Research limitations/implications
The empirical evidence highlights DAs have negative effect on market-perceived cash value, which underscores the insight that managers manage earnings opportunistically using DAs.
Originality/value
Taken together, we provide more evidence on the literature of accruals in earnings manipulation.
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Yang Ji, Erhua Zhou and Wenbo Guo
Anchored in the role of a social arbiter, the purpose of this study is to examine whether and how media coverage has an impact on CEO overconfidence and further explore how media…
Abstract
Purpose
Anchored in the role of a social arbiter, the purpose of this study is to examine whether and how media coverage has an impact on CEO overconfidence and further explore how media ownership and Confucianism affect the relationship in the Chinese context.
Design/methodology/approach
Using a sample of 1,492 Chinese listed companies from 2010 to 2015, the study adopts random effects models to empirically analyze the effect of media coverage on CEO overconfidence and the roles of media ownership and Confucianism.
Findings
The paper finds that media coverage is significantly and positively associated with CEO overconfidence, and the positive relationship between media coverage and CEO overconfidence becomes stronger for state-controlled media. What is more, the influence of media coverage on CEO overconfidence is attenuated for those firms located in stronger Confucianism atmosphere. A further analysis reveals that different tenors of media coverage yield asymmetric effects.
Originality/value
The paper provides a new and solid support for the argument that media praise stimulates CEO overconfidence and increases the knowledge about under what conditions CEO overconfidence varies, broadly speaking which fosters the development of upper echelons theory (UET). Meanwhile, the results extend the literature on media effect and information processing. The findings are also beneficial to improve corporate decisions and government regulation on Chinese media systems.