This paper recognizes two main factors that cause the capital requirement to affect the weighted average cost of capital and hence the investment behavior ofbanks: underpriced debt resulting from the deposit insurance and information asymmetry between managers and the stock market. For a bank enjoying a low cost of debt (deposits), an increased proportion of equity financing raises the weighted...

This paper argues that occasionally binding borrowing limits and non-trivial equity trading costs signi cantly increase the probability of a Sudden Stop post nancial liberalization, which in turn, signi cantly alters the long run external capital structure of an emerging market economy. Upon opening the capital account, agents in the emerging market have an incentive to accumulate debt and sell...

The worldwide growth slowdown after 1975 was a major negative fiscal shock; lower growth lowers the present value of tax revenues and primary surpluses and thus makes a given level of debt more burdensome. Most countries failed to adjust to the negative fiscal consequences of the growth implosion and so public debt to GDP ratios exploded. The growth slowdown therefore played an important role i...

Indian capital controls impede foreign borrowing by corporations, and particularly short-term debt. In recent years, many Indian companies have become multinationals, which makes it possible for them to obtain short-term debt finance into offshore entities. This paper tests the extent to which Indian MNCs have greater exposure to global credit market conditions. The exposure of each firm to the...

We study the role of financial market development in the financing choice of firms in developing countries using a dynamic panel approach with aggregate firm-level data. The results suggest that equity market development favors firms’ equity financing over debt financing, while banking sector development favors debt financing over equity financing, as one would expect. However, surprisingly, eq...

Hong Kong Rachel Hardee +852 2263 9918 rachel.hardee @derivativefitch.com Introduction Constant proportion debt obligations (CPDOs) are one of the latest product innovations seen in the structured credit markets. Like other more recent structured credit products, the performance of the issued debt obligations is highly dependent on the mark-to-market (MtM) impact of changes in credit spreads. C...

I welcome the opportunity to express my views on Federal debt management. This subject was much discussed in the period immediately following World War II, but it has received only limited attention in recent years, even though important changes have occurred in the management of our Federal debt. It has b~:en subordinated in importance to other important official policy requirements. Many modi...

The paper explores the implications of different autonomous demands, with differing rates of growth, in a demand-led growth model where policy makers are concerned about the ratios of public sector debt to income and external debt to income. The actual growth rate is explained in terms of the growth rate of aggregate demand, with emphasis in the formation of expectations about growth in the lat...