Martin Strieborny

Suppliers, Investors, and Equity Market Liberalizations

Martin Strieborny — Fri, 21 Oct 2011 13:51:34 PDT

There is a well-established case for equity liberalizations helping firms dependent on external investors by providing access to foreign capital and improving public and corporate governance. This paper stresses the impact of foreign equity flows on firms' relationship with another crucial stakeholder -- the suppliers. A buyer backed by foreign capital means smaller probability of contract failure due to default. Improved public and corporate governance lowers the risk of possible breach of contract. Foreign equity flows can thus reassure upstream firms, disproportionately promoting industries dependent on the full trust of their suppliers. Results from panel data and event-study approach confirm this hypothesis, establishing a novel channel from financial globalization to real economy.

Finance, Comparative Advantage, and Resource Allocation

Melise Jaud et al. — Sat, 19 Jun 2010 08:59:31 PDT

We show that exported products exit the US market sooner if they violate the Heckscher-Ohlin notion of comparative advantage. Crucially, this pattern is stronger in case of exporting countries with a well-developed banking system. External debtholders thus push firms away from exports that are facing an uphill battle on a competitive foreign market due to a suboptimal use of the domestic factor endowment. These results imply a disciplining role for external debt in terminating inefficient trade flows. Our paper thus constitutes a new channel through which finance improves resource allocation in the real economy.

Inequality and Growth: The Role of Beliefs and Culture

Martin Strieborny — Sat, 31 Jan 2009 08:20:24 PST

Governments perpetually align their policies to satisfy shifts in voters' relative demand for economic growth versus social equality. Following such shifts, increases (decreases) in government interventions lower (raise) both inequality and growth. This mechanism generates a positive co-movement between inequality and growth. The pattern is weaker in countries where a culturally determined belief that the rich are deserving renders equality a less important objective in the first place. I develop this analytical result in the theoretical framework of Alesina and Angeletos (2005), and provide robust empirical support for it in a panel of 38 countries over the period 1964-2004.

Investment in Relationship-Specific Assets: Does Finance Matter?

Martin Strieborny et al. — Sat, 31 Jan 2009 08:01:06 PST

Existing literature sees opportunistic behaviour of contractual partners as the main reason why rational agents underinvest in relationship-specific assets. We look beyond this well-know holdup problem and argue that financial vulnerability and short-term planning horizon can also lead to such underinvestment. Subsequently, banks can stimulate growth-enhancing investment in relationship-specific assets by signalling creditworthiness and long-term planning horizon of their borrowers. We empirically confirm this hypothesis by showing that industries dependent on relationship-specific investment from their suppliers grow disproportionately faster in countries with a strong banking sector. Our work establishes a novel channel through which finance affects the real economy. It also complements the literature that has stressed legally binding contracts as a standard way to promote investment in relationship-specific assets.