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Financial sector development

About: Financial sector development is a research topic. Over the lifetime, 1674 publications have been published within this topic receiving 90787 citations.


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TL;DR: The authors in this article showed that bank recapitalization without measures to improve performance incentives and bank skills is likely to fail and that solving the stock problem through bank re-capitalization is necessary but not sufficient.
Abstract: Poland's program tackled simultaneously bank and enterprise restructuring and dealt decisively with the bad debt stock and flow problem with measures to improve incentives and institutional skills. Among transition economies, Poland was a pioneer in bank and enterprise restructuring. The main tool it used to implement the restructuring program was the 1993 law on financial restructuring of enterprises and banks, in an approach that encouraged banks to play a central role in enterprise restructuring. Bank recapitalization was linked to improvements in the banks' operating systems aimed at increasing efficiency and loan recovery. Poland's program to restructure banks and enterprises was successful because it was comprehensive. It tackled banks and enterprises at the same time, dealing both with the bad debt stock problem and the associated flow problem. It made assistance on the stock problem contingent on concrete actions to improve lending practices, with the prospect of possible privatization or liquidation. The lesson Poland's experience offers is that solving the stock problem through bank recapitalization is necessary but not sufficient. Bank recapitalization without measures to improve performance incentives and bank skills is likely to fail. Poland was also realistic about isolating too important to fail enterprises, providing special temporary budget support (after progress in key areas) that gave the program political viability. Poland took steps to modernize bank supervision and adopted measures to privatize banks and set up workout units showing genuine interest in changing banking practices. Poland's banking sector now resembles a modern market economy in structure. Commercial banks have a more than adequate capital base. Banking competition has increased and the sector seems relatively efficient and profitable. The experience of the workout departments has strengthened the skills needed for credit allocation and monitoring. Some positive results in enterprising restructuring have been linked to the banks' central role in enterprise governance, maintaining incentives to avoid unloading debt on the government, resolving conflicts between creditors to avoid triggering unnecessary liquidations, and preventing unnecessary bankruptcies. But it is unclear whether enterprises are on a healthy path or whether a second wave of bad loans may emerge, especially after a downswing in the business cycle. This paper - a product of the Financial Sector Development Department - is based in part on the findings of a broader study for the Operations Evaluation Department.

27 citations

Journal ArticleDOI
TL;DR: This article found that innovation is crucial for firm performance as it directly and measurably increases productivity, and its effects on productivity are mediated through the financial sector; firms reap the maximum benefits from innovation in countries with well-developed financial sectors.
Abstract: How do firm-specific actions-in particular, innovation-affect firm productivity? And what is the role of the financial sector in facilitating higher productivity? Using a rich firm-level dataset, we find that innovation is crucial for firm performance as it directly and measurably increases productivity. Moreover, its effects on productivity are mediated through the financial sector; firms reap the maximum benefits from innovation in countries with well-developed financial sectors. This effect is particularly important for firms in high-tech sectors, which typically have higher external financing needs.

27 citations

Book ChapterDOI
01 Jan 2007
TL;DR: In Central, Eastern, and South-eastern Europe (CEE), credit growth has taken center stage in the policy arena in the past few years as mentioned in this paper, and stability issues related to strong credit growth have become a key policy challenge, with the 2004 Transition Report warning of financial and macroeconomic risks posed by the substantial increases in domestic bank lending witnessed in many transition countries.
Abstract: Credit growth has taken center stage in the policy arena in Central, Eastern, and South-eastern Europe (CEE).2 To some extent, this has not been a surprising development. Indeed, given the under-development of the financial sector at the beginning of the transition, and particularly with regard to lending to the private sector, financial deepening in the region was to be expected. In 1998, the EBRD Transition Report, with a special focus on the financial sector in transition, had already raised the question of whether financial sector development would be a stable process.3 Six years later, stability issues related to strong credit growth have become a key policy challenge, with the 2004 Transition Report warning of financial and macroeconomic “risks over the medium term” posed by the “substantial increases in domestic bank lending” witnessed in many transition countries.4

27 citations

Posted Content
TL;DR: In this article, the authors empirically examine the determinants of remittance flows at the cross-country level and find that the migration level is the main driver of the remittance flow, even after controlling for the endogeneity bias.
Abstract: The authors empirically examine the determinants of remittance flows at the cross-country level. They consider, among other things, the significance of the level of migration, the education level of migrants, and financial sector development in determining remittances. Given the potential endogeneity problems, the migration and financial development variables are instrumented in the estimation. They find that the migration level is the main driver of remittance flows, even after controlling for the endogeneity bias through instrumental variable estimation. The authors also find that the education level of migrants relative to the population in home countries, the size of the economy, and the level of economic development of recipient countries adversely affect remittance flows. While they find the effect of financial sector development to be positive, its significance is not strongly supported in their analysis.

27 citations

Journal ArticleDOI
TL;DR: In this paper, the authors explore the role of financial factors in corporate finance from the perspective of economic fundamentals and find that private firms make the most of all types of investment opportunities in China.

27 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
202357
202279
202155
202093
201991
201888