China is an important counterexample to the findings in the law, institutions, finance, and growth literature: neither its legal nor financial system is well developed by existing standards, yet it has one of the fastest growing economies. We examine 3 sectors of the economy: the State Sector (state-owned firms), the Listed Sector (publicly listed firms), and the Private Sector (all other firms with various types of private and local government ownership). The law-finance-growth nexus established by existing literature applies to the State and Listed Sectors: with poor legal protections of minority and outside investors, external markets are weak, and the growth of these firms is slow or negative. However, with arguably poorer applicable legal and financial mechanisms, the Private Sector grows much faster than the State and Listed Sectors, and provides most of the economy's growth. This suggests that there exist effective alternative financing channels and governance mechanisms, such as those based on reputation and relationships, to support this growth.

Law, Finance, and Economic Growth in China

https://finance.wharton.upenn.edu/~allenf/download/Vita/finlaw-china-122402.pdf

Law, finance, and economic growth in China

When firms adjust their capital structures, they tend to move toward a target debt ratio that is consistent with theories based on tradeoffs between the costs and benefits of debt. In contrast to previous empirical work, out tests explicitly account for the fact that firms may face impediments to movements toward their target ratio, and that the target ratio may change over time as the firm's profitability and stock price change. A separate analysis of the size of the issue and repurchase transactions suggests that the deviation between the actual and the target ratios plays a more important role in the repurchase decision than in the issuance decision.

The debt-equity choice

We analyze the advantages and disadvantages of developing-country multinational enterprises (MNEs) in comparison with developed-country MNEs. Developing-country MNEs tend to be less competitive than their developed-country counterparts, partly because they suffer the disadvantage of operating in home countries with underdeveloped institutions. We argue that this disadvantage can become an advantage when both types of MNE operate in countries with “difficult” governance conditions, because developing-country MNEs are used to operating in such conditions. The empirical analysis shows that, although developing-country MNEs rarely appear among the largest MNEs in the world, they are more prevalent among the largest foreign firms in the least developed countries (LDCs), especially in LDCs with poorer regulatory quality and lower control of corruption.

/pdf/transforming-disadvantages-into-advantages-developing-2aw18a80p2.pdf

Transforming disadvantages into advantages: developing-country MNEs in the least developed countries

Financing patterns around the world: Are small firms different?

This study uses a new data set to assess whether capital structure theory is portable across countries with different institutional structures. We analyze capital structure choices of firms in 10 developing countries, and provide evidence that these decisions are affected by the same variables as in developed countries. However, there are persistent differences across countries, indicating that specific country factors are at work. Our findings suggest that although some of the insights from modern finance theory are portable across countries, much remains to be done to understand the impact of different institutional features on capital structure choices. OUR KNOWLEDGE OF CAPITAL STRUCTURES has mostly been derived from data from developed economies that have many institutional similarities. The purpose of this paper is to analyze the capital structure choices made by companies from developing countries that have different institutional structures. The prevailing view, for example Mayer ~1990!, seems to be that financial decisions in developing countries are somehow different. Mayer is the most recent researcher to use aggregate f low of funds data to differentiate between financial systems based on the “Anglo-Saxon” capital markets model and those based on a “Continental-German-Japanese” banking model. However, because Mayer’s data comes from aggregate f low of funds data and not from individual firms, there is a problem with this approach. The differences between private, public, and foreign ownership structures have a profound inf luence on such data, but the differences may tell us little about how profit-oriented firms make their individual financial decisions. This paper uses a new firm-level database to examine the financial structures of firms in a sample of 10 developing countries. Thus, this study helps determine whether the stylized facts we have learned from studies of developed countries apply only to these markets, or whether they have more general applicability. Our focus is on answering three questions:

Capital Structures in Developing Countries

This study uses a new date set to assess whether capital structure theory is portable across countries with different institutional framework. We analyze capital structure choices of firms in 10 developing countries, and provide evidence that these decisions are affected by the same variables as in developed countries.

Capital Structure in Developing Countries

We find that emerging market firms exhibit dividend behavior similar to U.S. firms, in the sense that dividends are explained by profitability, debt, and the market-to-book ratio. However, empirical dividend policy equations are structurally different, indicating different sensitivities to these variables. Additionally, emerging market firms seem to be more affected by asset mix, which seems to be due to their greater reliance on bank debt. Overall, country factors are as important in dividend policies as previous studies find them to be in capital structure decisions.

Do emerging market firms follow different dividend policies from u.s. firms

We find that firms that regularly access public debt (bond) markets are more likely to pay a dividend and subsequently follow a dividend smoothing policy than firms that rely exclusively on private (bank) debt. In particular, firms with bond ratings follow a traditional Lintner (1956) style dividend smoothing policy, where the influence of the prior dividend payment is very strong and the current dividend is relatively insensitive to current earnings. In contrast, firms without bond ratings flow through more of their earnings as dividends and display very little dividend smoothing behavior. In effect, they seem to follow a residual dividend policy.

Laurence Booth

Papers

Capital Structures in Developing Countries

Capital Structure in Developing Countries

Capital Structure in Developing Countries

Do emerging market firms follow different dividend policies from u.s. firms

Dividend Smoothing and Debt Ratings