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1 – 10 of over 118000Meng-Ting Chen and Richard J. Nugent
The authors evaluate financial stability and capital flows management objectives of capital controls in the context of four capital control events: removing or imposing controls…
Abstract
The authors evaluate financial stability and capital flows management objectives of capital controls in the context of four capital control events: removing or imposing controls on capital inflows and removing or imposing controls on capital outflows. The authors use synthetic control method to solve the endogeneity problem stemmed from the timing of capital control implementation. The authors find new evidence that capital controls are not consistently effective in reaching financial stability outcomes but are consistent in reaching capital flows management outcomes. The authors compare our results to estimates using difference-in-difference (DID) and carry out placebo analysis. Finally, we use synthetic DID to correct for the parallel trend bias and show that the results still hold.
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By reinforcing monetary policy independence, reducing international financing pressures and avoiding high-risk takings, capital controls strengthen the stability of the financial…
Abstract
Purpose
By reinforcing monetary policy independence, reducing international financing pressures and avoiding high-risk takings, capital controls strengthen the stability of the financial system and then reduce the volatility of capital inflows. The objective of this study was to conduct an empirical examination of this hypothesis. This topic has received strong support in the theoretical literature; however, empirical work has been quite limited, with few empirical studies that provide direct empirical support to this hypothesis.
Design/methodology/approach
This study analyzed quarterly data of 32 emerging economies over the period between 2000 and 2015 and proposes two methods to identify capital control actions. Using panel analysis, Autoregressive Distributed Lag and local projections approaches.
Findings
This study found that tighter capital controls may diminish monetary and exchange rate shocks and reduce capital inflows volatility. Furthermore, capital controls respond counter-cyclically to monetary shocks. Under capital controls, countries with floating exchange rate regimes have more potential to buffer monetary shocks. We also found that capital controls on inflows are more effective for reducing the volatility of capital inflows compared to capital controls on outflows.
Originality/value
This study contributes to the question of the effectiveness of capital controls in attenuating the effects of international shocks and reducing the volatility of capital flows. Previous studies have mostly focused on the role of macroprudential regulation; however, there is a lack of systematic effects of capital controls on monetary and exchange rate policies. To our knowledge, this is the first preliminary study to suggest that capital controls may buffer monetary and exchange rate shocks and reduce the volatility of capital inflows. This study investigates the novel notion that capital controls allow for a notable counter-cyclical response of monetary and exchange rate policies to international financial shocks.
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Biplab Kumar Guru and Inder Sekhar Yadav
This study empirically examines the effect of capital controls on the volume and composition of capital flows at aggregated as well as at disaggregated level by different asset…
Abstract
Purpose
This study empirically examines the effect of capital controls on the volume and composition of capital flows at aggregated as well as at disaggregated level by different asset classes such as debt, FDI, equity, and derivatives.
Design/methodology/approach
Several dynamic panel SYS-GMM models are employed on two sets of unique data on cross-border capital flows and capital control index along with control variables at aggregated and disaggregated level by different asset classes during 1995–2015 for a sample of 31 Asian economies.
Findings
Econometric findings suggest that higher capital controls effectively reduce gross capital flows. The reduction in gross capital flows is largely found to be on account of effectiveness of controls on equity flows. However, the impact of controls on overall debt and derivative flows is found to be insignificant. Further, it was found that an increase in direct capital controls disaggregated by inflow and outflow categories significantly reduced the inflow of debt and equity + FDI flows and outflow of equity + FDI and derivative flows. Finally, the study did not find any substitution effect (due to indirect controls) and net effect on capital flows.
Practical implications
Results of such empirical examination may enable governments in respective countries to pursue prudent and rational capital controls as a shield against capital flight and shock transmission.
Social implications
Preventing capital flight through effective controls has macroeconomic benefits such as maintaining stability in income, growth, interest rate, exchange rate, and employment levels for the society.
Originality/value
The primary contribution of the study is the analysis of effectiveness of capital controls disaggregated by different asset categories such as debt, equity, FDI, and derivatives using two unique recent data sets for a large sample of Asian economies.
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The purpose of this paper is to review the practicality and implications of capital controls in emerging economies in the international financial landscape subsequent to the 1997…
Abstract
Purpose
The purpose of this paper is to review the practicality and implications of capital controls in emerging economies in the international financial landscape subsequent to the 1997 Asian financial crisis (AFC) and the 2008 global financial crisis (GFC).
Design/methodology/approach
The doctrinal approach used in this study relies primarily on primary data from relevant statutes and regulations in the capital and financial markets, and secondary data from research findings of published sources available in the public domain. It also makes concurrent use of the case study approach.
Findings
The disdain over the use of capital controls by emerging economies such as Malaysia in the 1997 AFC by multilateral agencies like the International Monetary Fund (IMF) since then and particularly after the 2008 GFC and the 2011/2012 European financial crisis (EFC) has been quietly and gradually transformed into a viable policy option under defined circumstances, especially at the IMF and global forums like the G20. The 1997 AFC in particular induced East Asian economies and others to strengthen the macroeconomic and financial positions, such that they were not only able to withstand the impacts of the 2008 GFC and the 2011/2012 EFC but also contributed to their gradual recoveries through their participation as net lenders to the IMF. The enhanced confidence of these emerging economies to use various capital controls without seeking IMF support spawned new thinking at the IMF to result in the introduction of policy guidelines sanctioning the use of capital controls under particular circumstances.
Research limitations/implications
The paper is constrained by the usual limitations connected with qualitative studies, but this is generally mitigated by triangulation of perspectives and so on.
Originality/value
This paper provides a critical overview of the pros and cons of capital controls. In particular, it analyses the implications of capital controls as a policy option for emerging economies when facing severe financial crisis. It also critically discusses how and why flowing from the aftermath of its application by Malaysia in the 1997 AFC and subsequent employment by other successful emerging economies in response to the 2008 GFC and 2011/2012 EFC, multilateral institutions such as the IMF and international forum like the G20 developed a more positive approach toward the use of capital controls.
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The 1997‐1998 Asian financial crises underscored the dangers of open capital accounts in developing nations that have weak macroeconomic policies or poorly regulated financial…
Abstract
The 1997‐1998 Asian financial crises underscored the dangers of open capital accounts in developing nations that have weak macroeconomic policies or poorly regulated financial systems. Most developing Asian countries responded to the crisis by adopting the orthodox remedies prescribed by the International Monetary Fund. These included liberalised capital accounts, floating exchange rates and tighter fiscal and monetary policies designed to restore investor confidence. Malaysia departed from this orthodoxy. In September 1998 it imposed controls on capital account transactions, pegged its currency to the US dollar, cut interest rates and reflated its economy. The literature suggests that even temporary capital account controls entail serious economic risks for developing countries. However, the undue hardships imposed by the IMF regimen suggest that it is time to re‐evaluate the role of currency controls in mitigating the destabilising effects of unfettered capital flows in developing countries that have poorly regulated financial systems. This article analyses the effectiveness of Malaysia’s 1998 capital controls by evaluating Malaysia’s post‐1998 economic progress. Its goal is to inform the debate concerning the benefit‐risk tradeoffs of currency controls in developing countries.
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Fouzia Amin and Sanmugam Annamalah
This research has been carried out to look into the long run impact of the controls on capital inflows imposed during the years 1998‐2001 in Malaysia. The paper intends to capture…
Abstract
Purpose
This research has been carried out to look into the long run impact of the controls on capital inflows imposed during the years 1998‐2001 in Malaysia. The paper intends to capture the long‐term impact of capital controls in changing the composition of capital flows into Malaysia and to examine whether the controls have been able to divert the short‐term capital inflows to longer‐term investments.
Design/methodology/approach
The autoregressive first differenced ordinary least square models have been used to examine whether the controls have been able to divert the short‐term capital inflows to longer‐term investments.
Findings
The capital controls have been successful in the short run in switching some of the short‐term capital inflows into longer‐term portfolio investments, without jeopardizing the Malaysian investment environment in the longer‐term. Such controls did not have an impact on the decisions of foreign investors in the long run even if the rating agencies downgraded the Malaysian investments immediately after the controls were imposed. This paper suggests that capital flows into Malaysia were more a result of interest rate differentials between the domestic and the US interest rates and hardly depended on the Malaysian risk adjusted returns.
Research limitations/implications
One of the limitations of this research is the ephemeral nature of the econometric analysis. All the variables, except government spending, are first differenced, in order to overcome the problem of spurious regression. However, while taking the first difference, there is a possibility of losing valuable long‐term relationship between the capital flows and the explanatory variables. Further, the analysis was carried out without much reference to the derivative market, which might have disguised some of the capital flows.
Social implications
Capital controls are adopted to prevent the volatility in domestic markets caused due to capital flight. The capital flight has huge macroeconomic implications on a society, including unemployment, interest rate volatility and subsequent economic slowdown and recession. If adopted with an intention to provide a temporary breathing space, it might help the countries manage their domestic imbalances.
Originality/value
This paper provides a fresh look at the implications of capital controls with longer‐term data that also include the period after the controls were withdrawn. The study is expected to be independent of market distortions, which might arise with narrow time frames that cover periods during and/or immediately after the crisis.
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Athanasios Patsiotis, Ioannis Krasonikolakis and Jing Lyu
Capital controls restrict cash withdrawals and international transfers, among other restrictions. The purpose of the study is to explore how capital controls have influenced…
Abstract
Purpose
Capital controls restrict cash withdrawals and international transfers, among other restrictions. The purpose of the study is to explore how capital controls have influenced m-banking usage and disclose the underlying factors that explain m-banking usage intentions.
Design/methodology/approach
Grounded on the Technology Acceptance Model (TAM), this study assumes that usage behavior may be different from intentions to adopt. In-depth interviews (study 1) were employed with both consumers and bank employees to explore the factors of m-banking adoption under capital controls, followed by an online survey (study 2) pertaining to examine the relationships between underlying factors.
Findings
Study 1 reveals that the growth of m-banking usage is strongly associated with capital controls that perceived ease of use, usefulness, risk, technology anxiety and decision comfort are significant attributes in influencing usage intention. Study 2 verifies that most underlying factors are important predictors of m-banking usage intention, except technology anxiety does not impact m-banking usage.
Research limitations/implications
The respective effects on usage intentions may be different in the absence of capital controls. A similar study could examine the importance of the respective constructs in conditions of no forced use. The case of forcing consumers to adopt a technological innovation could be further explored.
Practical implications
Retail banking consumers have changed their banking and financing behaviors because of capital controls. Forced usage may cause customers to cultivate positive attitudes towards the technology and consider it for continuous usage.
Originality/value
Capital controls were found to impact positively customer behavior towards m-banking. It is revealed that capital controls have forced bank customers to adopt and use m-banking for their financial needs.
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Mahdi Salehi, Raha Rajaeei, Ehsan Khansalar and Samane Edalati Shakib
This paper aims to determine whether there is a relationship between intellectual capital and social capital and internal control weaknesses and assess the relationship between…
Abstract
Purpose
This paper aims to determine whether there is a relationship between intellectual capital and social capital and internal control weaknesses and assess the relationship between the variables of intellectual capital and social capital and internal control weaknesses.
Design/methodology/approach
The statistical population consists of 1,309 firm-year observations from 2014 to 2020. The research hypothesis is tested using statistical methods, including multivariate, least-squares and fixed-effects regression.
Findings
The results demonstrate a negative and significant relationship between intellectual capital, social capital and internal control weaknesses. The study also finds that increased intellectual and social capital quality improves human resource utilization, control mechanism, creativity and firm performance. The results also show that intellectual capital and social capital enhancement will reduce internal control weaknesses in the upcoming years.
Originality/value
This paper is the pioneer study on the relationship between intellectual capital and social capital and internal control weaknesses in Iran, carried out separately and in exploratory factor analysis. This paper considers intellectual capital components for theoretical factor analysis, including human capital, structural capital and customer capital. Internal control weakness is assessed based on financial, non-financial and information technology (IT) weaknesses.
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Arash Arianpoor, Milad Valirouh and Cumhur Sahin
The present study aims to investigate the impact of internal control effectiveness on supply chain management efficiency (SCME) and capital allocation efficiency for companies…
Abstract
Purpose
The present study aims to investigate the impact of internal control effectiveness on supply chain management efficiency (SCME) and capital allocation efficiency for companies listed in the Tehran Stock Exchange (TSE). In addition, it investigates the mediating role of supply chain management efficiency in the relationship between internal controls and capital allocation efficiency.
Design/methodology/approach
The data about 191 companies in 2014–2022 were examined. The sales per inventory ratio was used to calculate SCME. The present study also applied the Generalized Method of Moments (GMM) for endogeneity concerns.
Findings
The results showed that internal control effectiveness has a significant positive effect on SCME. Moreover, internal control effectiveness and SCME significantly positively affect capital allocation efficiency. SCME has a mediating role in the relationship between internal control effectiveness and capital allocation efficiency. These findings remained robust even after several robustness tests. In addition, this study tested the results' robustness by dividing data into the pre-COVID-19 and post-COVID-19 years. The previous results were also confirmed according to the robustness test of COVID-19.
Originality/value
Challenges in the supply chain often hinder capital allocation efficiency. In addition, enterprises should try to establish strong internal controls to ensure SCME. Therefore, the relationship between internal control effectiveness, SCME and capital allocation efficiency is complex and underscores the importance of robust internal controls in optimizing resource allocation within organizations. Interestingly, this topic has not been extensively researched in accounting and business research, and there is a lack of empirical evidence on these effects. Consequently, this study aims to fill the gap and identify potential opportunities for new research directions.
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Babu G. Baradwaj, Yingying Shao and Michaël Dewally
The purpose of this study is to conduct an empirical investigation on how country-specific characteristics such as the quality of the institutional environment and the…
Abstract
Purpose
The purpose of this study is to conduct an empirical investigation on how country-specific characteristics such as the quality of the institutional environment and the restrictiveness of capital control policy affect domestic financial sector’s ability to provide liquidity to the economy.
Design/methodology/approach
This study uses panel regressions on international banking data across 102 countries from Bankscope.
Findings
The results show that strong institutions and looser capital control in a country enhance the banks’ role as the liquidity provider to the economy. The study also finds that institutional quality and capital control have a dynamic effect that influences the creation of liquidity. Better institutions benefit the creation of liquidity in either under normal economic conditions or during economic downturn. Loosened capital control, as a result of financial openness, facilitates liquidity creation under normal economic conditions.
Originality/value
This study complements the research on the role of country-level institutions in financial and economic development and suggests a liquidity channel through which a country’s institutions can further economic growth. The study also provides evidence on the impact of a country’s control of capital flows on the role of banking sector in domestic economy.
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