The COVID-19 episode provided a unique quasi-experimental setting to revisit the relative roles of domestic policies and global factors in shaping capital flows. Using high-frequency portfolio flows data, this paper examines the effects of pandemic severity, containment measures, and fiscal and monetary policy responses during the initial phase of the pandemic, while shedding light on the associated transmission channels. We find that domestic conditions and policies explained a large share of cross-country heterogeneity in flows, particularly for emerging markets and bond flows. Higher domestic COVID-19 cases and tighter lockdown measures led to significantly larger portfolio inflows, on account of higher financing needs and de-risking effects of containment measures. Fiscal stimulus supported foreign inflows on average but amplified the adverse impact of the global shock. By contrast, expansionary monetary policy reduced flows in developed markets but had no significant effect in emerging markets, pointing to the role of the global financial cycle in constraining monetary policy effectiveness in emerging markets.
This study investigates controlling shareholders' share pledging motivations in China, focusing on alignment with firms' future development needs. Using the LDA model on annual reports, we find that pledging intensity in topics like Primary Business and New Energy positively correlates with subsequent pledging. Moderation analysis reveals that government subsidies mitigate this relationship, while financing constraints exacerbate it. Further analysis shows that pledging-funded strategic investments enhance return on assets. Heterogeneity tests indicate these effects are more pronounced in non-state-owned firms and during the COVID-19 pandemic. Our findings support the 'propping' motive, suggesting share pledging serves as a vital internal financing bridge. Policy implications emphasise that regulators should shift from simple pledging caps to information-based oversight, encouraging transparent disclosure of funds' use to mitigate adverse selection risks and support corporate resilience.
This study examines the evolution of Turkey's monetary policy during the period from Turkey's implementation of an implicit inflation-targeting regime in 2002 to Turkey's last presidential election in May 2023. Unlike previous studies, this study found insignificant evidence for a weakening in Turkey's monetary policy during the 2010s. However, the tug-of-war between government officials and the central bank over a rise in short-term interest rates seems to have resulted in a significant violation of Taylor's principle in the post-COVID period. Turkey's ever-weakening monetary policy during the COVID period marks a divergence from monetary policy in other emerging market economies (EMEs). This study shows that such a lax monetary policy has had two major adverse consequences. First, Turkey had one of the highest inflation rates in the world owing to its excessively loose monetary policy stance. Second, Turkey's borrowing terms on dollar-denominated external debt worsened relative to those of other EMEs.
ABSTRACT This study examines how institutional distance shapes the effectiveness of institutional investors' monitoring of corporate earnings quality. Using a sample of 3125 firm‐year observations for non‐US firms cross‐listed on US exchanges from 2001 to 2017, we distinguish between two forms of proximity: geographic proximity, which captures the informational advantages of home‐country institutions (IO_Home), and market proximity, which reflects US institutions' familiarity with the listing market (IO_US). We employ panel regressions with firm and year fixed effects and double‐clustered standard errors and find a significant and positive association between IO_Home and all three earnings attributes: persistence, value relevance and timeliness. In contrast, IO_US shows no significant monitoring effect. These findings support the geographic proximity advantage over the market proximity advantage. Moreover, geographic advantage exerts a stronger effect in firms with greater information opacity (proxied by research and development intensity) and remains robust in instrumental variable estimation that addresses selection endogeneity. Our results highlight the critical role of geographic closeness, rather than market familiarity, in determining institutional monitoring effectiveness on earnings quality.
To examine if one machine-learning model can consistently elucidate financial vulnerabilities, both over time and across levels of development, this paper applies 13 machine-learning algorithms to evaluate comparative forecasting performance across several banking crises. The study concurrently contributes to the literature on early warning signals, in general, and modelling frameworks, in particular. Four decades of banking crises are appraised through a vector of 12 leading indicators encompassing real, banking and external sectors, and accounting for a representative sample of 19 emerging markets and developed economies. Through quarterly time series supporting expedient policy responses, findings suggest that bank deposits, capital output ratio, exchange rates, gross domestic product, consumption expenditure, and interest rates represent the most prominent leading indicators. Evaluated by applying root mean squared error, mean absolute error, and receiver operating characteristics with area under curve estimates, random forests exhibit highest predictive strength in minimising the prediction error across a panel format, individual country format and out-of-time format, and outperform all models in recursively predicting banking crises out-of-sample and out-of-time. On aggregate, one algorithm consistently fits most crises, which is advantageous for a global policymaker, however results from the individual country dimension highlight a more nuanced approach to algorithmic selection.
This paper analyses the impact of macro-prudential policies on bank systemic risk worldwide. Using data from 63 countries over 2001-2017, I find strong evidence that macro-prudential policies are effective in reducing systemic risk at the country level. The effectiveness of macro-prudential policies differs across countries in the sample. Macro-prudential policies are more effective in reducing systemic risk in countries with more advanced economic development, with a higher degree of concentration in the banking sector, and with less stringent micro-prudential regulations. Bank-level evidence suggests that bank size matters. The impact of macro-prudential policies on constraining bank systemic risk is more pronounced for large banks. Results are robust to the use of instrumental variables to address potential concerns, and to the inclusion of additional controls to account for the impact of alternate tools that might be used to foster financial stability. These results have policy implications for effective conduct of macro-prudential policies.
This article examines whether real-time social media monitoring could have provided early warning signals for recent bank runs by analysing sentiments and emotions in 160,000 tweets regarding Silicon Valley Bank (SVB), Signature Bank (SBNY) and a control group of banks that did not experience runs. The results show statistically significant negative deviations in sentiment and emotions prior to the bank run for both SVB- and SBNY-related tweets, with sharp increases being visually evident for SVB. The control group indicates that similar strong negative co-movements across multiple sentiments and emotions do not usually occur in other banks. However, the analysis also shows that potential social media signals are prone to false positives within expectable fluctuations, making them unfavourable for practical applications as a standalone warning system. Furthermore, the findings highlight significant heterogeneity between social media reactions to different banks, emphasising that reliable thresholds for social media monitoring require bank-specific calibration.
This study investigates the nexus between digital technology adoption and corporate carbon performance. Results indicate that the breadth and depth of digital technology adoption enhance corporate carbon performance by promoting digital technology innovation and green technology innovation. Moreover, the implementation of green finance policy strengthens the beneficial effect of digital technology adoption on carbon performance, while executives' green experience reinforces the effect of technological innovation on carbon performance. Further analysis reveals that the positive impact of digital technology adoption is more evident in manufacturing and low-carbon-intensity industries, as well as firms located in eastern and western regions. Foreign ownership also amplifies the effect of depth of digital technology adoption in enhancing carbon performance. This study highlights the pivotal role of the breadth and depth of digital technology adoption in accelerating green and low-carbon transition, while also revealing its mechanisms and boundary conditions.
This study investigates the impact of the Russo-Ukrainian war on stock market connectedness across 24 European economies. Using a framework based on Clayton copulas, we identify changes in the left-tail dependence of stock market returns during the war period relative to a pre-pandemic benchmark period and explore their determinants through limited-dependent variable models. We find that war-induced shifts in market connectedness are significant but not uniform across markets, involving both elevated left-tail linkages (financial contagion) and instances of increased market resilience. Such diverse changes can be attributed not only to cross-country differences in stock market volatility, macroeconomic stability, and countries' proximity to the war zone but also to their reliance on fossil fuel imports. Our results highlight the need to consider these vulnerabilities in portfolio diversification strategies and financial stability policies.
This paper dives into the Fund's historical coverage of cross-border spillovers in its surveillance. We use a deep learning model to analyze the discussion of spillovers in all IMF Article IV staff reports between 2010 and 2019. We find that overall, while the discussion of spillovers decreased over time, it was pronounced in the staff reports of some systemically important economies and during periods of global spillover events. Spillover discussions were more prominent in staff reports covering advanced and emerging market economies, possibly reflecting their role as sources of global spillovers. The coverage of spillovers was higher in the context of the real, financial, and external sectors. Also, countries with larger economies, higher trade and capital account openness, a history of financial crises, and lower inflation are more likely to discuss spillovers in their Article IV staff reports.
Our study aims to explore the potential impact of natural disasters on corporate dividend policies. This research encompasses 128 global countries from 1990 to 2023. We demonstrate a significant positive correlation between natural disasters and corporate dividends. To mitigate endogeneity concerns, we apply ITCV, Oster (2019), Two-Stage Least Squares (2SLS), Lewbel (2012) methodology, and Entropy Balance (EB), and difference-in-differences (DID), which yielded consistent results. Our analysis also reveals that cash holdings and leverages are crucial channels that mediated natural disasters on dividend policies. Further investigation reveals that the positive relationship between natural disasters and increased corporate dividends is more amplified during non-crisis periods but becomes negligible during financial crises. This effect is stronger in Asia and the Americas than in other regions and is more evident in BRICS countries than in OECD countries.
Through the variation of exploitation in ideological distance between U.S. investors and foreign governments and the combination of investor-level ideology measures proposed by Kempf et al. with foreign-party ideology extracted from electoral manifesto data from 2000 to 2018 of 23 different nations, the study explores how changes in political ideology impact domestic currency values relative to the U.S. dollar. The findings show that an increase in ideological distance following elections is associated with a statistically significant 2% appreciation of the domestic currency against the U.S. dollar, which can be interpreted as causal. The potential mechanism operates through country origin and state-history legacies, which capture differences in institutional quality.
This study investigates the impact of the U.S.-China trade shock on intra-firm pay inequality in China. Using a sample of Chinese A-share listed firms from 2015 to 2021, we employ a multi-period difference-in-differences framework that exploits industry-level tariff exposure as a quasi-natural experiment. Our results reveal that the trade shock significantly suppresses both average wages and the vertical wage dispersion between executives and rank-and-file employees. This risk-sharing effect is more pronounced in state-owned enterprises and high-R&D-intensive firms. Mechanism analysis indicates that the trade friction narrowed wage disparities primarily by tightening firms' financing constraints and reducing internal cash flows. These findings suggest that in response to major external shocks, internal compensation structures may be shaped more by considerations of organizational stability and cohesion than by managerial power alone.
This paper examines the drivers and impacts of extreme capital flow events in emerging markets, with a focus on distinguishing among flow types (portfolio, bank and FDI) and event categories (surge vs. stop). We find that the global financial cycle drives extreme events in portfolio and bank flows, while FDI is more sensitive to domestic factors. Notably, sudden stops in cross-border capital flows, particularly in bank and FDI flows, have a greater impact on the overall risk interconnectedness of domestic financial submarkets compared to surge events. We also identify the transmission channels: extreme bank flow events increase credit market net risk spillovers, while concurrent extreme capital flow events heighten foreign exchange market net risk spillovers. Further discussion shows that foreign exchange sales and macroprudential policies mitigate the adverse effects of negative global financial cycle shocks, with macroprudential measures demonstrating stronger effectiveness in the medium term.
This paper investigates the effect of US-China tension relationship on Chinese firm innovation. Using a sample of Chinese A-share companies from 2003 to 2023, we find robust evidence that US-China tension relationship, which is measured by US-China tension index, significantly encourages firms' patent application, particularly substantive patents. Meanwhile, this positive relationship can continue for 3 years. Specifically, we also show that this positive effect is more profound for state-owned enterprises and enterprises with lower financial constraint. Moreover, increased government subsidy is plausible channel that allows US-China tension relationship to promote innovation. Overall, these results shed light on the real effects of US-China relationship and the determinants of firm innovation.
We show that changes in global liquidity have an influence on bank lending interest rates across emerging market economies. Specifically, global liquidity has a negative effect on mortgage interest rates and on business interest rates with mortgage rates showing a more pronounced response. Country characteristics also play a role. The negative relationship between global liquidity and domestic interest rates is particularly strong in countries with more foreign banks and greater bank concentration as well as in countries with fewer capital controls. Conversely, countries with greater financial and institutional development experience a reduced impact of global liquidity on lending interest rates.
The Feldstein-Horioka puzzle hypothesizes that when there is complete capital mobility, domestic savings and investment should be weakly correlated. However, empirical data frequently challenge this. This study analyzes the dynamics between gross capital formation and gross savings across 102 countries. The results reveal that some nations (e.g., Albania, Bangladesh, India) have strong positive correlations indicating limited international capital mobility (supporting the hypothesis); whereas others (e.g., Argentina, Germany, Iceland) display weak or negative correlations, suggesting greater capital fluidity. Significance testing reveals that similar to 66% of the countries demonstrate positive correlations at 5% significance, whereas 34% show non-significant relationships. Incorporating normalized mutual information captures nonlinear dependencies that traditional correlation measures may overlook. Continental analysis reveals substantial heterogeneity; North American countries exhibit the strongest average correlations (0.50) and Asian nations the lowest (0.35), with the highest variability. The findings underscore the need to explore country-specific global economic intricacies and region-specific policy formulation.
Escalating geopolitical conflicts and great power games have posed severe challenges to cross-border trade and global economic stability. However, the literature inadequately addresses the nexus between geopolitical risk (GPR) and China's foreign trade, particularly the heterogeneous import and export effects across regions. To fill this gap, this study adopts the asymmetric Granger causality test to explore the causal link between the China GPR Index (CGPR) and its import and export volume with eight major trading regions (the US, Japan, South Korea, Australia, India, Russia, ASEAN and the EU), using monthly data from January 2014 to June 2025. The empirical results reveal significant asymmetric Granger causality between China's GPR and foreign trade, with notable differences in causal intensity and direction during the upward/downward trends of the CGPR and trade expansion/contraction. Distinct regional heterogeneities are also identified, and the two-way causal interaction features long-term persistence, with GPR exerting sustained effects on medium- to long-term trade growth rather than short-term fluctuations. Notably, asymmetry implies that policymakers should formulate asymmetric risk response policies, such as reinforcing trade resilience during GPR surges and seizing trade growth opportunities during GPR downturns, while adopting regionally differentiated strategies. Accordingly, this study provides concrete empirical support for targeted foreign trade and GPR policies that are critical to stabilizing China's trade growth amid a complex international landscape.
This paper identifies three indicators of monetary policy surprises-unexpected changes in the federal funds rate, forward guidance and large-scale asset purchases-and examines their effects on international stock prices using an intraday event study approach. Both US and international equity indexes respond significantly to all three types of monetary surprises, with international stock returns more sensitive than US stocks. Announcement drifts ahead of Federal Open Market Committee (FOMC) meetings are also stronger internationally. While international stocks are more volatile, adjusting for volatility or beta does not fully explain their excess sensitivity. FOMC announcement effects become mostly insignificant when measuring stock returns in local currency and including S&P 500 exposure, highlighting the role of exchange rate passthrough and US market linkages in global monetary transmission.
We estimate the demand for transactional and non-transactional cash balances (banknotes and coins) in Canada, Denmark, Iceland, Sweden and Norway over the last decades exploiting the seasonality of cash demand. These countries share many features that are relevant for cash demand, but nevertheless show large differences in terms of aggregate cash balances. While Canada, Iceland and Denmark have seen increased aggregate cash balances, Norway and especially Sweden have seen a dramatic decline. We find that transactional balances have decreased somewhat in all of the countries and the differences in aggregated cash balances is due to differences in the development of non-transactional cash balances. We argue that different de facto legal tender status, crisis exposures, foreign demand and cash supply-side policies help explain these findings.
