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Business and Economics > Investments: Stocks

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Cover IMF Working Papers
Macroeconomic Effects of Dividend Taxation with Investment Credit Limits
Matteo Ghilardi
and
Roy Zilberman
We analyze the effects of dividend taxation in a general equilibrium business cycle model with an occasionally-binding investment credit limit. Permanent dividend tax reforms distort capital investment decisions in the binding long-run equilibrium, but are neutral otherwise. Temporary unexpected tax cuts stimulate shortterm real activity in the credit-constrained economy, yet produce contractionary macroeconomic outcomes in the slack regime. The occasionally-binding constraint reconciles the `traditional' and `new' views of dividend taxation, and highlights the importance of measuring the firm's initial borrowing position before enacting tax reforms. Finally, permanently lower dividend taxes dampen financial business cycles, and help to explain macroeconomic asymmetries.
Keywords:
Dividend Taxation; Occasionally-Binding Borrowing Constraints; Investment; Business Cycles.; borrowing position; tax relief; dividend distribution; dividend tax rate; dividend tax adjustment; tax environment; benchmark system; dividend tax shock; dividend tax cut; tax adjustment; dividend tax system; Dividend tax; Credit; Corporate income tax; Collateral; Stocks
Cover IMF Working Papers
Investor Information and Bank Instability During the Euro Crisis
Silvia Iorgova
Outside of financial crises, investors have little incentive to produce private information on banks’ short-term liabilities held as information-insensitive safe assets. The same does not hold true during crises. We measure daily information production using data from credit default swap spreads during the global financial crisis and the subsequent European debt crisis. We study abnormal information production around major events and interventions during these crises and find that, on average, capital injections reduced abnormal information production while early European stress tests increased it. We also link information production to outcomes: high levels of information production predict bank balance sheet contraction and higher government expenditures to support financial institutions. In an addendum, we show information production on nonfinancials dramatically increased relative to financials at the height of the COVID-19 crisis, reflecting the nonfinancial nature of the initial shock.
Keywords:
information production; safe asset; WP; reference securities; information-production ratio; banking system; debt crisis; rate of change; reference security model; unsecured debt
Cover IMF Working Papers
Digitalization to Improve Tax Compliance: Evidence from VAT e-Invoicing in Peru
Mr. Matthieu Bellon
,
Jillie Chang
,
Ms. Era Dabla-Norris
,
Salma Khalid
,
Frederico Lima
,
Enrique Rojas
, and
Pilar Villena
This paper examines the impact of e-invoicing on firm tax compliance and performance using administrative tax data and quasi-experimental variation in the rollout of VAT electronic invoicing in Peru. We find that e-invoicing increases reported firm sales, purchases and value-added by over 5 percent in the first year after adoption. The impact is concentrated among smaller firms and sectors with higher rates of non-compliance, suggesting that e-invoicing enhances compliance by lowering compliance costs and strengthening deterrence. The reform’s positive effects on tax collection are hindered by shortcomings in the VAT refund mechanism in Peru, suggesting that digital tools such as e-invoicing should be complemented by other reforms to improve revenue mobilization.
Keywords:
WP; firm; VAT; authority; electronic invoicing; tax compliance; digitalization; VAT collection; firm size interaction term; VAT liability; VAT credit; construction firm; VAT payment; Value-added tax; Credit; Tax administration core functions; Tax return filing compliance; Stocks; Caribbean
Cover IMF Working Papers
Internal Capital Markets in Business Groups and the Propagation of Credit Supply Shocks
Ms. Yu Shi
,
Robert M. Townsend
, and
Wu Zhu
Using business registry data from China, we show that internal capital markets in business groups can propagate corporate shareholders’ credit supply shocks to their subsidiaries. An average of 16.7% local bank credit growth where corporate shareholders are located would increase subsidiaries investment by 1% of their tangible fixed asset value, which accounts for 71% (7%) of the median (average) investment rate among these firms. We argue that equity exchanges is one channel through which corporate shareholders transmit bank credit supply shocks to the subsidiaries and provide empirical evidence to support the channel.
Keywords:
WP; subsidiary firm; trade credit; bank financing condition; profit margin; Internal capital markets; business groups; bank lending; China; credit supply shocks; business group; Credit; Supply shocks; Bank credit; Stocks; Asset valuation
Cover IMF Working Papers
Determinants of U.S. Business Investment
Emanuel Kopp
U.S. business investment has taken a serious toll during the global financial crisis and also in the recovery phase investment did not pick up as expected. What is surprising is that the alleged investment slowdown happened at a time of record corporate profits and retained earnings, highly supportive financial conditions, improved sentiment, rising equity valuations, and strong labor markets—factors established in supporting business investment. Applying accelerator models and Bayesian Model Averaging, this paper discusses the extent to which U.S. business investment has been unusual. Results suggest that cautious expectations of future aggregate demand growth explain most of the weakness in investment, and that the oil and gas sector accounts for a considerable portion of the investment slump. Consequently, the behavior of U.S. business investment in recent years has not been unusual once these factors are taken into account. Also, there is very little evidence for uncertainty holding back investment, or that firms’ financial measures "crowded out" capital expenditure.
Keywords:
WP; business investment; firm; investment growth; private fixed investment; accelerator models; Bayesian Model Averaging; investment gap; growth outcome; accelerator model; investment activity; equipment investment; consumption deflator; Private investment; Oil prices; Stocks; Bank credit; Global financial crisis of 2008-2009; Global
Cover IMF Working Papers
Bank Consolidation, Efficiency, and Profitability in Italy
This paper examines the case for efficiency-driven banking sector consolidation in Italy, evaluates its potential effects on profitability, and discusses policy options to facilitate a consolidation process that is as effective as possible. A bottom-up analysis of 386 Italian banks suggests that while profitability is expected to improve as the economy gradually recovers, operational efficiency gains are nonetheless needed to restore large parts of the banking system to healthy profitability. Banking system consolidation can play a role in facilitating such efficiency gains, but its effectiveness is likely to be most as part of a comprehensive strategy that includes complementary reforms to clean up bank balance sheets. Cross-country experience indicates that efficiency gains are more likely to follow consolidations where careful viability analyses are conducted of the synergies and operational improvements that can be achieved.
Keywords:
WP; bank consolidation; banking system; joint stock; popolare bank; bank reform; banks; profitability; return on equity; Commercial banks; Nonperforming loans; Credit; Cooperative banks; Stocks; Global
Cover IMF Working Papers
Bank Balance Sheets and the Value of Lending
Mr. Jiaqian Chen
and
Giuseppe Vera
We study 1,400 UK syndicated loans, together with the financial history of the lead bank and the borrowing firm. We interpret abnormal equity returns around loan announcements as the value of the lending relationship to the firm. We find that: (i) Consistent with previous evidence, the value of lending is higher when the firm is riskier or more opaque, suggesting that it primarily reflects the lead bank’s screening and monitoring activities. (ii) As a bank becomes larger, more profitable or more capitalized, the value of its loans first increases and then decreases. The largest, most capitalised or most profitable banks do not give the most valuable loans. (iii) Firms which receive low-value loans are more likely to experience low profitability and financial distress during the lending relationship. By relating the state of bank balance sheets to borrower performance, we offer a new angle to evaluate the impact of financial conditions on the real economy.
Keywords:
WP; announcement effect; return on assets; syndicated loan; asset growth; borrower performance; loan origination; Bank balance sheets; loan announcement effect; bank monitoring; loan announcement; lending relationship; lead bank balance sheet; monitoring intensity; capitalized bank; Loans; Financial statements; Bank credit; Stocks; Syndicated loans
Cover IMF Working Papers
An Empirical Investigation of Oil-Macro-Financial Linkages in Saudi Arabia
Mr. Ken Miyajima
Oil-macro-financial linkages in Saudi Arabia are analyzed by applying panel econometric frameworks (multivariate and vector autoregression) to maceoeconomic and bank-level balance sheet data for 9 banks spanning 1999–2014. Lower growth of oil prices and non-oil private sector output leads to slower credit and deposit growth and higher nonperforming loan ratios, with feedback loops within bank balance sheets which in turn dampens economic activity. U.S. interest rates are not found to be a key determinant.
Keywords:
WP; price; bank; private sector; NPL ratio; Macro-financial linkages; nonperforming loans; panel vector autoregression; oil price; price growth; Brent crude; bank npls; solvency risk; equity price; Oil prices; Credit; Financial statements; Stocks; Middle East; North Africa; East Africa; Eastern Europe; Global
Cover IMF Staff Country Reports
Norway: Financial Sector Assessment Program-Technical Note-Linkages and Interconnectedness in the Norwegian Financial System
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note reviews linkages and interconnectedness in the Norwegian financial system for Norway. Norway’s banks have important connections with global financial centers, but regional links are also important. Norwegian banks are very dependent on global financial centers as sources of funding and to hedge currency risks. Cross-sectoral exposures of Norway’s banks, insurance companies, and real estate companies are significant and extend beyond the Nordic region. The authorities are encouraged to expand their current monitoring efforts of crossborder and cross-sectoral exposures of the Norwegian financial sector, and to conduct regional stress tests. For this effect, the authorities can resort to market data and, if available, to balance sheet data of exposures at the individual financial institution level.
Keywords:
ISCR; CR; bank; covered bond; stock index; market; bank stress; funding model; crossborder bank claim; funding structure; banks probability; market data; bank level; Norway's bank; Commercial banks; Covered bonds; Credit; Stocks; Spillovers; Global
Cover IMF Working Papers
What Slice of the Pie? The Corporate Bond Market Boom in Emerging Economies
Ms. Diana B Ayala Pena
,
Milan Nedeljkovic
, and
Christian Saborowski
This paper studies the determinants of shifts in debt composition among EM non-financial corporates. We show that institutions and macro fundamentals create an enabling environment for bond market development. During the recent boom episode, however, global cyclical factors accounted for most of the variation of bond shares in total corporate debt. The sensitivity to global factors appears to vary with relative bond market size—which we interpret to be associated with liquidity and easy entry and exit—rather than local fundamentals. Foreign bank linkages help explain why bond markets increasingly substituted for banks in channeling liquidity to EMs. Our results highlight the risk of capital flow reversal in EMs that benefited from the upturn in the global financial cycle mostly due to their liquid markets rather than strong fundamentals.
Keywords:
WP; bond market development; bond market market concentration; global bond market boom; debt stock; development benefit; disadvantages bond market investor; Bond markets; Capital flows; Emerging Markets; NFC debt; bond market boom; bond market access; Securities markets; Bonds; Bank credit; Stocks; Loans; Global; Asia and Pacific