The Composition of Private Capital Flows to Emerging Market Economies

Transcription

1 Michael W. Sket The Composition of Private Capital Flows to Emerging Market Economies Theory and Empirical Evidence 2008

2 CONTENTS List of Tables List of Figures List of Abbreviations List of Symbols IX XI XIII XVI 1. Introduction 1 2. The Evolution of Capital Flows to Emerging Market Economies: Booms and Busts The Emergence of World Financial Markets Aggregate Saving, Investment and Capital Flows to EMEs Recent Current Account Surpluses in EMEs and Trends in Global Imbalances Changing Patterns of Capital Flows to EMEs Evolution of International Debt Finance International Bank Lending International Bond Finance Shifting Forms of Equity Finance Trends in Portfolio Equity Foreign Direct Investment Derivative Securities International Migrant Remittances The Investment Environment in Emerging Market Economies: Institutional Quality and Economic Policies Corruption and Legal Foundations Corruption and Crony Capitalism Investor Protection: Shareholder and Creditor Rights Enforceability of Contracts 56

3 IV 3.2 Frictions in Emerging Financial Systems Informational Frictions on Financial Markets Agency Costs and the Separation of Ownership from Corporate Control Agency Costs and Capital Flows Corporate Control Issues in EMEs Financial Repression Regulation of Interest Rates Credit Controls Government Control of Financial Market Access Restrictions on Capital Flows: Efficacy, Costs and Biased Capital Flows Default, Expropriation and Sovereign Risk Repudiation: Sovereign Default and Expropriation The Logic of Sovereign Debt Default Expropriation of Foreign Direct and Portfolio Equity Investment Discriminatory Taxation and Seignorage Confiscation and Nationalization The Composition of Capital Flows in the Presence of Sovereign Risk Inability to Pay: Currency and Financial Crises The Standard Theory of Currency Crises: A Brief Review The Balance-Sheet Approach: Currency Crises and Contagion Exchange Rate Regimes, Moral Hazard and the Composition of Capital Flows Pegged Exchange Rates, Currency Risk and Capital Flows Investor and Borrower Moral Hazard in Emerging Financial Markets Explicit and Implicit Government Guarantees Do Credit Facilities provided by the IMF Bias the Composition of Capital Flows? Ill 3.6 Of Institutions and Policies: Recent Developments Corporate Policies and Capital Flows to Emerging Market Economies Does Corporate Finance in EMEs Matter at all? 119

4 4.2 Capital Structure and the Cost of Capital: The Trade-off Theory and Taxation in EMEs Corporate and Personal Income Taxes: The Tax Shield The Tax-Shelter-Bankruptcy-Cost Model A Dynamic Extension of the Trade-off Model: Covenants, Asset Value, and Bankruptcy Debt without Protective Covenants and Optimal Leverage Positive Net-Worth Covenants and Optimal Leverage Taxation and the Realities of EMEs Asymmetric Information, Corporate External Finance and Capital Flows Adverse Selection in Financial Markets and the Peckingorder of Corporate Finance The Lemons Problem and the Dilution Cost of Equity Finance An Equilibrium Model of Corporate Capital Structure in EMEs Adverse Selection and Foreign Investment Appraisal Types of Capital Inflows in the Light of Adverse Selection The Composition and Relevance of Capital Inflows Moral Hazard and Costly Bank Monitoring Borrowing with Costly Bankruptcy and Bank Monitoring FDI, Portfolio Equity and Monitoring Costs The Composition of International Corporate Financing Asymmetric Information between Foreign and Domestic Investors: A Qualified View of FDI The Choice between Greenfield Foreign Direct Investment and Mergers and Acquisitions (M&A) Foreign Direct Investors Facing Liquidity Shocks Impact of Asymmetric Information on International Capital Flows Corporate Agency Costs, Expropriation Risk and Cross-Border Capital Flows 167

5 VI The Agency Costs of Debt and Equity Conflicts between Equityholders and Managers: External Debt as a Means to Limit Managerial Entrenchment Firm Value, Liquidation and Expansion The Maturity Structure Reconsidered Conflicts between Equityholders and Debtholders: The Debt Agency Problem Default on Public Debt and Bank Debt The Optimal Quantity of Bank Debt and Public Debt The Dual Agency Problem and Capital Flows to EMEs Private Capital Flows to EMEs: Is There a Common Ground? Empirical Evidence A Survey of the Related Literature Estimating the Composition of Capital Flows Montiel and Reinhart (1999) Garibaldi, Mora, Sahay, and Zettelmeyer (2002) Carlson and Hernandez (2002) Ahmed, Arezki, and Funke (2005) Estimating the Structure of the Foreign Asset Position Kraay, Loayza, and Serven (2000) Lane and Milesi-Ferretti (2001a) Faria and Mauro (2004) An Assessment of the Empirical Literature What Determines the Composition of Capital Flows to EMEs?: Econometric Analysis Data Selection and Descriptive Statistics Econometric Methodology Static Panel Data Models Dynamic Panel Data Models A Note on Unit Roots in Panel Data Determinants of the Composition of Capital Flows to EMEs Conclusions and Policy Implications 235

6 VII Appendix 243 A. Tables 245 B. Data 255 Bibliography 261 Index 287