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Interregional inequality of public services is accompanied by their combined supply by government and market. This study investigates whether the spatial allocation of regional investment influences inequality and explores the differentiated source of such influence, distinguishing between government investment and private investment in China. Results suggest that the interregional inequality of public services is spatialised by the distorted spatial allocation of investment, which manifests itself as capital market segmentation, and it is aggravated by government investment but relieved by private investment. Such effects derive from differences in local protectionism, interregional competition and capital flow between government investment and private investment. [ABSTRACT FROM AUTHOR]

Using a panel regression approach across 13 developing Asian economies from 1996Q1 to 2019Q4, this paper examines the extent of financial development as a transmission channel for mediating the "allocation puzzle" in capital flows. This puzzle pertains to why capital seems to flow to economies with lower rather than higher productivity growth. We find that while portfolio equity and debt investment flows are negatively related to total factor productivity (TFP) in developing Asia, thereby contradicting the predictions of traditional neoclassical growth models, financial development significantly mitigates this effect. This is particularly the case at earlier stages of financial development and convergence towards a frontier. For foreign direct investment, although we find that there is no direct allocation puzzle in developing Asia, financial development can hamper the stimulatory effect of TFP for highly financially developed economies given diminishing marginal returns. [ABSTRACT FROM AUTHOR]

Capital allocation plays a pivotal role in production factor inputs and technology selection within the production process, exerting a profound influence on technological innovation. Leveraging panel data encompassing 284 prefecture-level cities in China from 2001 to 2019, this paper delves into the impact and underlying mechanisms of interregional capital misallocation on technological innovation. The findings are as follows: (1) The astern coastal regions are experiencing capital overallocation, whereas inland developing areas are prone to undercapitalised. This uneven distribution uncovers a notable ‘Lucas Paradox’ within China's regional capital allocation. (2) Interregional capital misallocation hampers technological innovation. This discernible inhibitory effect persists even after a series of robustness checks. From 2001 to 2019, interregional capital misallocation resulted in an average loss of 2.35 patents per 10,000 people in China. (3) In cities with excessive capital allocation, lower administrative level, insufficient financial development, and non-innovative pilots, this inhibitory effect is more pronounced. (4) Institutional environment destruction, fiscal expenditure bias and enterprise innovation inertia are the main channels through which interregional capital misallocation hindering technological innovation. [ABSTRACT FROM AUTHOR]

Much attention has been devoted to the economic benefits of emission trading systems (ETSs), but research concerning the SO2 ETS in China is scarce. We examine China's SO2 ETS in 2007 from the perspective of industrial sub-sectors and employ the difference-in-difference-in-difference (DDD) model to test whether the SO2 ETS can promote industrial total factor productivity (TFP). We identify whether it is the average effect or the dynamic effect of the SO2 ETS that can improve industrial TFP. The heterogeneity test results indicate that this policy has diverse influence in different regions and industries, and the effect is better in pollution-intensive industries. We also find that the policy enhances industrial TFP by promoting efficient technological innovation and capital allocation. Our findings provide evidence that supports the Porter Hypothesis and a guide for the industrialization of developing countries. Chinese policymakers should strengthen environmental enforcement, set quotas accordingly, and encourage technological innovation to improve industrial TFP. [ABSTRACT FROM AUTHOR]

The functions of the stock market such as investment exit mechanism (IPO), interest incentive and capital allocation are beneficial for corporate to engage in innovation activities with higher risk and longer cycle, but IPO underpricing will hinder the realization of such functions. This paper uses the fixed effect model for empirical analysis and finds that the long-term innovation performance of corporate s with IPO underpricing is poor. Mechanism analysis shows that IPO underpricing corporates will have management myopia, lack of R&D enthusiasm that inhibit corporate innovation. Further analysis shows that the improvement of corporate information transparency and institutional investor field research can alleviate this negative impact can alleviate this negative impact. The conclusion of this paper aims to improve efficiency of the capital market, promote the effective pricing of the capital market, and provide certain reference significance for the relevant policies of the capital market to support the high-quality development of the real economy. [ABSTRACT FROM AUTHOR]

The puzzling relationship between foreign private capital flows and productivity remains unresolved. We attempt to resolve the puzzle by extending the literature to investigate the effects of the flows across heterogeneous recipient sectors, using a unique hand-collected database of 18 African countries for 2006–2015. We uncover a new interesting finding that the effects of the flows on productivity growth depend on recipient sectors. The results suggest that the negative relationship between foreign private capital flows and economic growth documented in the existing literature, particularly in developing countries, is related to the fact that most of the flows went into sectors, such as extractives and infrastructure, which have less potential for productivity growth. Overall, our findings suggest that the capital allocation puzzle is a sectoral capital allocation puzzle. [ABSTRACT FROM AUTHOR]

Developing China's high-tech industry is important to make the country innovation-oriented. This requires optimising the allocation of innovation resources and improving innovation efficiency. However, few studies have investigated this topic and the realisation path for the high-tech industry. This study develops an input-oriented inverse data envelopment analysis (DEA) model with frontier changes to analyse the optimisation of resource allocation in China's high-tech industry during 2019–2025. With this method, decision makers can scientifically analyse the specific amount of resource investment. We also construct an analysis framework from short- and long-term perspectives. The results show that the excessive input of research and development (R&D) personnel and unbalanced allocation of capital resources are the main barriers to the development of high-tech industries in the short term, and in the mid- and long terms, the demands for investment in talent and capital will continue to increase. Improvement directions for promoting the development of China's high-tech industry are discussed. Finally, we present valuable information for policymaking to promote progress in high-tech industries in different regions. [ABSTRACT FROM AUTHOR]

In order to save transaction costs, a sparse portfolio that consists of a small subset of the constituent stocks is commonly requested especially when the target index has a large number of assets. To the best of our knowledge, a large body of literature on sparse index tracking are mainly focus on the penalized least squares estimation under the no-short selling constraint. Accordingly, these procedures are highly sensitive to outliers and their efficiency may be significantly decreased when the noise distribution is unknown and possibly heavy-tailed. As promising alternatives, robust loss functions such as L1 loss and Huber's loss have been well characterized in penalized M-estimation techniques. This paper considers robust sparse portfolios to simultaneously perform stock selection and capital allocation for high-dimensional index tracking. Through the simulation, we show that newly proposed approach is resistant to heavy-tailed errors or outliers in the response. Finally, we illustrate the superior performance of the proposed method through tracking the Standard & Poor's 500 Index. [ABSTRACT FROM AUTHOR]

Exploring enterprise carbon performance (ECP) via green capital allocation is important for achieving the dual carbon goal. In this article, the impact of the green credit policy (GCP) on ECP is empirically examined using a difference-in-differences model. The results show that GCP significantly improves ECP, and this conclusion remains valid after a series of robustness tests. Low-carbon technology and carbon information disclosure are central transmission mechanisms that are positively adjusted by green consumption, environmental regulation, and marketisation degree. Furthermore, state-owned and declining enterprises are affected more strongly by GCP than non-state-owned, growing, and mature enterprises. The impact of GCP on ECP increases over the enterprise life cycle. [ABSTRACT FROM AUTHOR]

This paper investigates the effect of China's accelerated depreciation policy on within-firm pay gap. We exploit a firm-level panel data from China's A-share listed companies and estimate the policy effects by constructing a difference-in-differences model. Results show that the accelerated depreciation policy significantly increases the within-firm pay gap of firms of pilot industries than those of non-pilot industries, and this finding continues to hold after accounting for other contemporaneous shocks and is robust to a battery of robustness checks. Our mechanism tests demonstrate that, the rank-and-file employees replaced by the use of capital rather than executives, dominates the positive nexus between within-firm pay gap and accelerated depreciation policy. This effect is more pronounced for firms with higher tax burden, stronger financing constraint and higher capital intensity. We also find that China's accelerated depreciation policy improves overall capital allocation efficiency and labor allocation efficiency. Our findings provide a deep understanding of the link between tax incentives and within-firm pay gap, especially from the perspective of factor allocation. [ABSTRACT FROM AUTHOR]

Using the green finance policies (GFPs) in China as a shock to capital allocation, we find that the implementation of GFPs improves audit quality for green firms. Specifically, green firms are likely to receive favorable audit opinions, pay lower audit fees, and generate higher-quality financial reports after the implementation of GFPs. When examining the mechanisms through which GFPs affect audit risk for green firms, we find that green firms are likely to experience lower financial risks and have access to more bank loans at a lower cost after the implementation of GFPs. Further analysis shows that the main results are more pronounced when GFPs are better enforced, where auditors face more government intervention, and where firms are financially constrained. Overall, we document that GFPs decrease financial risk for green firms and have a positive spillover to auditors by mitigating audit risk. [ABSTRACT FROM AUTHOR]

Policymakers in Europe have embraced the notion that they can and should drive economic growth by promoting digital technology. Efforts to do so, known as 'digital transformation', involve reallocating labour and capital to more efficient uses, especially those that produce technological innovation. Recent research has shed light on the politics of updating institutions for education and skills training, but we know little about the politics of reallocating capital in the current episode of economic upgrading, despite the specific and sizable costs of producing technological innovation. What strategies are policymakers implementing to finance technological innovation, especially in Europe's periphery, where states lack fiscal resources? Focusing on the case of Portugal, this article illustrates the centrality of development financial institutions to financing technological innovation, identifying a distinct type of digital transformation in Europe's periphery, where the state plays a marginal role in governing key aspects of economic upgrading. Instead, private finance allocates capital, and international organisations like the European Commission design policies to govern capital allocation. This article develops a framework for analysing the politics of digital transformation in Europe's periphery that centres transnational actors and institutions, rather than the state, in directing the path of technological and structural change. [ABSTRACT FROM AUTHOR]

This study discusses the relationship between income inequality and human capital allocation in China. We categorise income inequality into intersectoral (state- versus non-state owned) and intergenerational income inequality. Based on relevant theoretical assumptions and empirical tests using existing regional data, we find that income inequality influences regional human capital allocation in China in three ways. First, intersectoral income inequality has a negative impact on regional human capital mismatch (i.e., inconsistency between job skill requirements and workers' actual skills). Second, intergenerational income inequality positively affects regional human capital mismatch. Third, the interaction of intersectoral and intergenerational income inequality has a negative impact on human capital mismatch. Thus, we observe differences in the net impact of intersectoral and intergenerational income inequality on human capital mismatch in China. The net impact of intersectoral income inequality on human capital mismatch is persistently negative, while the impact of intergenerational income inequality on human capital mismatch is contingent upon the degree of regional intersectoral income inequality. However, the imbalance in China's regional development creates discrepancies in the relationship between improvement in income equality across regions and optimisation of human capital allocation. Thus, the process of formulating relevant policies must be regional, long-term based, and phased. [ABSTRACT FROM AUTHOR]

The rise in firm-level cash asset ratios has become a prominent trend in countries around the world which may further influence the capital allocation efficiency. This study analysed the inefficient effect of cash holdings on the capital allocation by combining the internal capital market theory with principal–agent theory and asymmetric information theory. The theoretical hypotheses were tested using linear panel regression models based on financial data from Chinese listed enterprises. We found that corporations holding more cash assets had lower capital allocation efficiency than those with fewer cash assets, which is consistent with agency theory and asymmetric information theory. Internal capital markets exacerbated this adverse effect. Additional testing was conducted to examine the heterogeneity of this effect between different types of ownership and strategy; the findings showed that an increase in cash holdings had a greater marginal impact on overinvestment among privately owned enterprises and underinvestment among state-owned enterprises. Internal capital market operation alleviated the problem of overinvestment but exacerbated the problem of underinvestment in privately owned enterprises, whereas it increased overinvestment in state-owned enterprises. The results suggested that different types of enterprises should deal with the inefficient effect of cash assets based on the causes of inefficient investment. [ABSTRACT FROM AUTHOR]

This study is among the first to use household survey data from 1988 to 2019 to demonstrate how human capital misallocation between China's state and non-state sectors has evolved and to estimate efficiency gains from reallocation over time. Our results show that human capital allocation between sectors has been converging to, diverging from, and re-converging to an optimal level, implying that the Chinese labour market has been gradually approaching efficiency during its market-oriented transition. Lower-educated labours had been more misallocated between the two sectors than higher-educated ones. Efficiency gains from reallocating human capital between sectors depend on the degree of misallocation at each stage and the gains are comparable to contemporaneous domestic gross research and development expenditures. [ABSTRACT FROM AUTHOR]

Several studies have considered factors influencing capital output differences among countries and reported that factors such as education of the workforce, capital allocation, taxes, and business profits partly explain capital-output differences. We disaggregate capital investment into six categories for nine major industrialized nations during the 1998 to 2016 period. The regression estimates of capital-output against several production factors show that capital-output ratios are a positive function of the education level of the workforce and R&D intensity, and a decreasing function of the tax burden on business profits. Among the countries studied, China, the UK, Italy, and India appear to be the most efficient in terms of capital-output ratios for the several capital investment categories examined. [ABSTRACT FROM AUTHOR]

In this paper, we aim to discuss an axiom system for capital allocation with multivariate risk statistics. First, we introduce a class of multivariate risk statistics satisfying the properties of positive homogeneity and subadditivity, and provide the representations. Second, the axiom system of capital allocation with multivariate risk statistics are discussed. Specifically, the existence and the uniqueness of the capital allocation principles with positively homogeneous and subadditive risk statistics are studied. Finally, examples are also given to illustrate the proposed axioms for capital allocation with multivariate risk statistics, where the explicit capital allocation principles are derived for two kinds of multivariate risk statistics based on mean and standard deviation. The proposed capital allocations with multivariate risk statistics directly base on the samples of the random vectors, and thus they are more tractable than those with multivariate risk measures. [ABSTRACT FROM AUTHOR]

From the perspective of credit constraints and heterogeneous financing costs, this paper aims to enrich our understanding on how financial frictions affect capital misallocation and total factor productivity (TFP). Our model predicts that financial frictions could lead to greater capital misallocation and TFP losses. Moreover, credit constraints exacerbate capital misallocation and amplify TFP losses caused by heterogeneous financing costs. On this basis, we use micro-level data of the Chinese industrial firms to quantify the TFP losses caused by financial frictions. The results show that: (1) financial frictions have caused huge TFP losses in China's manufacturing industry, and credit constraints have contributed to 120.7% of annual manufacturing TFP losses on average. (2) The manufacturing TFP losses are significantly higher in the post-crisis period than in the pre-crisis period because of the more prevalent and tighter credit constraints. (3) The increase in the post-crisis TFP losses is largely accounted for by the tightening credit constraints faced by firms in central China and non-state-owned enterprises. Our findings highlight the importance of alleviating financial frictions to improve capital allocation efficiency and promote economic growth. [ABSTRACT FROM AUTHOR]

The life insurance industry plays a crucial role in the economy as it serves as one of the channels through which countries mobilize long-term savings, promote the development of capital markets, foster efficient capital allocation, and substitute and complement government security programs. Therefore, the performance of this sector is imperative. Since the early 1990s, researchers have been paying particular attention to the performance of life insurance firms, with a specific emphasis on identifying the key determinants of their performance. The objective of this study is to synthesize the studies that have explored this topic. Using a systematic literature review approach, the study reviews 129 studies published between 1990 and 2021. The analysis reveals that the literature primarily examines factors such as size, organizational structure, capital composition, diversification, distribution systems, risk management practices, and reinsurance strategies as key firm-specific drivers of life insurer performance. Additionally, the study underscores the importance of competition and macroeconomic conditions as commonly discussed external determinants. While a clear relationship between performance and factors like firm size, organizational structure, and risk management practices is evident, the impact of other factors remains inconclusive. One of the implications of this study is that policymakers should enact laws that promote competition in the insurance industry. The study also reveals several research gaps, including methodological gaps. [ABSTRACT FROM AUTHOR]

The development of green finance and social low-carbon transformation is an essential concern for academia and industry. Based on Chinese provincial panel data spanning the period 2005–2019, we introduce the Cobb-Douglas production function and spatial Durbin and dynamic panel threshold models to deeply analyse the impact of green finance on the low-carbon economy. The mechanism test demonstrates that the scale, technique, and structural effects of green finance play a significant role in the low-carbon economy: they correct capital mismatch, promote green technology innovation, and optimise industrial structure. Meanwhile, green finance not only promotes the local low-carbon economy construction process, but also generates spatial spillover effects on neighbouring regions; however, there is regional heterogeneity in the impact of the transmission mechanism. Furthermore, only when capital mismatch is severe, and the low-end industrial structure poor is the positive impact of green finance on the low-carbon economy highlighted based on scale and structural effects; the ability of green finance to contribute to the low-carbon economy through the technique effect has been more stable and significant. This emphasises that green technology innovation is key to supporting low-carbon development in the long run. [ABSTRACT FROM AUTHOR]

The concepts of sustainable supply chains and Industry 4.0 are progressively getting attention in different domains. Companies have started developing and implementing these practices in their business models. However, several challenges influence the adoption of sustainability and Industry 4.0 (I4.0) in small and medium-sized enterprises (SMEs). This study aimed (i) to identify the adoption barriers of sustainability and I4.0 and (ii) to establish the interrelationship among these barriers for SMEs. An extensive literature search supported by interviews with supply chain practitioners from three SMEs identified 12 critical barriers to adoption. The barriers are then ranked using 'Interpretive Structural Modeling'. The results suggest that the 'lack of resources' and the 'lack of employee's competence/expertise' are the most influencing barriers. Changing government regulations on the allocation of capital and financial incentives for SMEs to encourage training and skills development programs could promote sustainable supply chains and practices. The study also reflects short-, medium- and long-term planning strategies for supply chain practitioners for adoption of sustainability and I4.0 in SMEs. [ABSTRACT FROM AUTHOR]

The economic downturn caused by the Covid-19 pandemic has brought unprecedented uncertainty to the global banking system. Banks are facing critical market challenges driven by uncertain monetary policies, deterioration in credit quality, and regulation and compliance pressures. These challenges highlight the importance of better understanding the new role of financial intermediations in facilitating efficient capital allocations and economic development. This article reviews the related literature on monetary policy uncertainty, bank performance, digital finance, and introduces articles on these themes. Finally, we propose potential areas for future research. [ABSTRACT FROM AUTHOR]

Two natural and potentially useful properties for capital allocation rules are top-down consistency and shrinking independence. Top-down consistency means that the total capital is determined by the aggregate portfolio risk. Shrinking independence means that the risk capital allocated to a given business line should not be affected by a proportional reduction of exposure in another business line. These two properties are satisfied by, respectively, the Euler allocation rule and the stress allocation rule. We prove an impossibility theorem that states that these two properties jointly lead to the trivial capital allocation based on the mean. When a subadditive risk measure is used, the same result holds for weaker versions of shrinking independence, which prevents the increase in risk capital in one line, when exposure to another is reduced. The impossibility theorem remains valid even if one assumes strong positive dependence among the risk vectors. [ABSTRACT FROM AUTHOR]

We study how the relationship between a firm's growth opportunities and its dividend policies shifts in response to a reduction in information asymmetry between investors and firms. Existing literature suggests a negative relationship between growth opportunities and dividend payouts in the presence of information asymmetry. Using the mandatory adoption of IFRS (International Financial Reporting Standards) as an exogenous shock to the information environment of a firm, we document that the negative relationship between growth opportunities and dividend payout strengthens. This suggests IFRS adoption improves capital allocation by shifting dividend demand towards low-growth firms and reducing dividend demand from high-growth firms. [ABSTRACT FROM AUTHOR]

Introducing private strategic investors (PSIs) is an important way for Chinese state-owned enterprises (SOEs) to implement mixed-ownership reform today. Based on the data of the Chinese listed SOEs, this study assesses the impact of PSIs on SOEs' capital allocation efficiency manifested in sensitivity of investment to growth opportunities. We find that PSIs could significantly improve capital allocation. In particular, the shareholding ratio and top management ratio of PSIs have an inverted U-shaped and positive impact on capital allocation, respectively. Furthermore, we investigate four underlying mechanisms based on principal–agency and resource perspectives. Finally, we investigate the effects of heterogeneous PSIs, and discover that PSIs from regions with higher levels of marketization yield greater benefits. Prior to 2013, foreign PSIs played a more positive role than their domestic counterparts, but this became the opposite after 2013. [ABSTRACT FROM AUTHOR]

Since the supply-side reform, the credit allocation from the finance sector is more concentrated in state-owned enterprises (S.O.E.s). It results in a mismatch between the credit allocation and the economic contribution of private enterprises (P.E.s). In China, we find that government intervention in the finance sector to allocate credit to S.O.E.s helps to achieve sustainable growth. Because of the ownership relationship, the credit allocation to S.O.E.s will also produce social or political interests for the finance sector. Based on the stylised facts, this article builds the finance sector credit allocation dual objective mechanism in the framework of the neoclassical economic growth model. It also analyses the influence of government intervention and ownership relationship on economic growth in the mixed economy represented by the socialist market economy with Chinese characteristics. The empirical analysis found that government intervention and ownership relationship were the main factors affecting the efficiency of capital allocation. Further research into whether there is an optimal parameter of government intervention and optimal mixed proportion in the stated-owned enterprise mixed-ownership reform is needed. [ABSTRACT FROM AUTHOR]

Risk contributions of portfolios form an indispensable part of risk-adjusted performance measurement. The risk contribution of a portfolio, e.g. in the Euler or Aumann-Shapley framework, is given by the partial derivatives of a risk measure applied to the portfolio profit and loss in the direction of the asset units. For risk measures that are not positively homogeneous of degree 1, however, known capital allocation principles do not apply. We study the class of lambda quantile risk measures that includes the well-known Value-at-Risk as a special case but for which no known allocation rule is applicable. We prove differentiability and derive explicit formulae of the derivatives of lambda quantiles with respect to their portfolio composition, that is, their risk contribution. For this purpose, we define lambda quantiles on the space of portfolio compositions and consider generic (also non-linear) portfolio operators. We further derive the Euler decomposition of lambda quantiles for generic portfolios and show that lambda quantiles are homogeneous in the space of portfolio compositions, with a homogeneity degree that depends on the portfolio composition and the lambda function. This result is in stark contrast to the positive homogeneity properties of risk measures defined in the space of random variables, which admit a constant homogeneity degree. We introduce a generalised version of Euler contributions and Euler allocation rule, which are compatible with risk measures of any homogeneity degree and non-linear but homogeneous portfolios. These concepts are illustrated by a non-linear portfolio using financial market data. [ABSTRACT FROM AUTHOR]

The cyclically adjusted price-earnings ratio (CAPE) is a tool that has become widely used to predict market returns. However, recently, deterioration in its forecast strength has surfaced. At the same time, global long-term interest rates have declined and are expected to remain at record lows, which the CAPE fails to consider. Omitting to fully examine the impact of the cost on capital on the effectiveness of CAPE as a valuation tool represents a gap in knowledge. This study uses a modified CAPE to account for interest rates, known as the excess CAPE yield (ECY), to offer an alternative – and potentially improved – model for predicting global stock market returns. We find that CAPEs peak when real interest rates are between 3% and 5%, while the ECY fails to improve on the predictive abilities of the CAPE. [ABSTRACT FROM AUTHOR]

Examining China's stock market, mean variance is used to measure returns and risk and build an irrational risk-asset pricing model. The power of heterogeneous beliefs and risk-valuation deviation are found to affect capital asset pricing, presenting excessive fluctuations that neoclassical finance theory cannot easily explain. A diversified portfolio can disperse or aggregate irrational risk. Trading frequency and quantity reflect differences in investors' rationality and reveal irrational risk effects. On that basis, regulatory tools and derivative products can be designed to build a rational risk anchor, prevent the systematic bias of irrational risk, and improve capital allocation. [ABSTRACT FROM AUTHOR]

As China's economic growth slows down and the pressure of the economic downward increases gradually, the agricultural and rural economic development faces more serious challenges. Fortunately, thanks to the China's rural land certification, it guarantees the security and stability of property rights of land, and provides a huge development space for rural household's entrepreneurship, which promotes agricultural and rural economy greatly. In order to investigate the impact of the land certification on rural household's entrepreneurship in China, this paper uses China Rural Household Panel Survey data for the empirical analysis based on the panel Logit model. The results show that: (1) The land certification increases the probability of agricultural entrepreneurship by at least 25%, but it has no significant influences on non-agricultural entrepreneurship. (2) The rural land certification with boundary influences agricultural entrepreneurship more significant than that without boundary, and the land certification to household is more beneficial for agricultural rural household's entrepreneurship than that without to household. (3) The land certification mainly increases probability of agricultural entrepreneurship through the land transfer, labor allocation, and capital allocation. Moreover, the research of this study highlights the importance of standardizing rural labor market and accelerating land financial reform in creating conditions for agricultural entrepreneurship, which can provide effective data support for future rural policy-making. [ABSTRACT FROM AUTHOR]

This research utilizes hand-collected data on business groups' pyramidal equity structure to examine the impacts of internal capital markets on research and development (R&D) investments in China. Empirical findings show that the allocation efficiency of the internal capital market positively correlates with R&D investments. We further provide evidence of a U-shape relationship between pyramidal layers and R&D investments for state-owned business groups. For non-state-owned business groups, however, there is an opposite impact pattern on the relation between internal capital markets and R&D investments. [ABSTRACT FROM AUTHOR]

This paper investigates the impact of Chinese write-down bond issuance on issuing bank's capital structure. We divide the capital structure into asset allocation (financial leverage ratio) and capital allocation (the proportion of Tier 1 capital). We find that the issuance of write-down bonds has a positive effect on the issuing bank's asset allocation, and the effect is relatively greater for lower leveraged banks. The write-down bond issuance has no effect on capital allocation for the whole sample, but it is inversely related to capital allocation for banks with high Tier 1 capital ratios. For banks that have issued write-down bonds, the issuing amount of write-down bonds has a significant impact on asset allocation, while the impact on capital allocation is not significant. Since write-down bonds are considered to be gone concern capital, and Tier 1 capital is considered to be going concern capital, the issuance of write-down bonds has no significant effect on the proportion of Tier 1 capital for the whole sample. [ABSTRACT FROM AUTHOR]

This paper investigates the inter-sectorial capital misallocation in Brazil over 2000–2012. In this regard, I first propose Brazilian specific sector-level indicators of dependence on external finance, using the methodology of the pioneering work of Rajan and Zingales (1998, RZ). In order to assess capital misallocation, I perform correlation tests between the Brazilian and the original RZ indicators. I also compute measures of the wedge of capital for Brazilian industries, following Marconi and Upper (2017). I then examine the role of the level of financial development as well as the state-bank BNDES in driving capital misallocation in Brazil, and in explaining sector-level growth. Results show that the credit expansion in the 2000s has been less beneficial to manufacturing sectors with high dependence on external finance. This suggests that the development of the financial system in Brazil does not permit to ensure a better allocation of capital. BNDES credits are found to improve sectors' growth of output, but their effects are reduced in sectors that highly depend on external finance. BNDES loans are also found to increase capital misallocation in Brazil. [ABSTRACT FROM AUTHOR]

This paper studies the mechanism of financial intermediaries' information production and its impact on industry-level growth, especially its difference between industries that differ in the technological composition of small firms. We build a growth model in which (i) both loan contracts and production of information on borrowing firms' productivities are endogenously determined, and (ii) the smaller firm's productivity is more costly to assess. Analytic results show that the smaller firm's innately greater degree of informational opaqueness hinders its growth, especially in the early stage of a country's financial development. We provide some evidence supporting the key mechanism. [ABSTRACT FROM AUTHOR]

We provide a computational framework for the selection of weights that minimize the expected shortfall of the aggregated risk . Contrary to classic and recent results, we neither restrict the marginal distributions nor the dependence structure of to any specific type. While the margins can be set to any absolutely continuous random variable with finite expectation, the dependence structure can be modelled by any absolutely continuous copula function. A real-world application to portfolio selection illustrates the usability of the new framework. [ABSTRACT FROM AUTHOR]

This paper develops a risk-based capital pricing model for credit insurance portfolios held by a vulnerable insurer. The model accounts for business cycles using a two-state Markov switching model, and allows for dynamic leverage adjustment by the insured firms. The new proposed model, which incorporates risk-based capital practice, is better for both the insurer and the insured firms. Based on the risk-adjusted performance metric, we found that the insurer is better off insuring short- and medium-term loans in expansion and steady states, while it is better off backing both short- and long-term loans in recessions. Our results also emphasize that macroeconomic uncertainty significantly impairs the creditworthiness of the insurer and insured firms. [ABSTRACT FROM AUTHOR]

In this article, we select 30 public companies as samples which are, respectively, from the up, the middle and the downstream of the Chinese wind power industry chain and extract their financial data as panel analysis. Based on data envelopment analysis (DEA) and DEA-Malmquist model, we analyze the financial support efficiency for the Chinese wind power industry, respectively, from two aspects of capital raise and allocation. The empirical study shows that there is a big fluctuation in terms of financial support efficiency, and the main problem is the lack of the core technology in the Chinese wind power industry. [ABSTRACT FROM PUBLISHER]

The narrowing wage gap between high- and low-skilled workers in the Chinese labor market in recent years is suggestive of government interventions which may have been implemented in the capital markets. We develop a game theoretic model between a continuum of heterogeneous workers and the government, where workers choose education levels, the government chooses its capital allocation strategy subject to a budget constraint, and the workers then make employment choices. The government is modeled as having a possible policy priority on particular industries or sectors. We characterize the existence and uniqueness conditions for equilibrium of the game and provide a closed form solution to the model for reasonable parameter values. We show that the wage ratio between high- and low-skilled workers decreases as government’s policy priority (or bias) toward low-skilled sectors increases, up to a threshold level of the policy bias. Beyond that threshold level, the wage gap between high- and low-skill workers is negative. Thus the shrinking wage gap can be explained by the government’s capital investment strategy which is driven by its policy priority bias. We derive comparative statics results and discuss policy implications. [ABSTRACT FROM PUBLISHER]

That the returns on financial assets and insurance claims are not well described by the multivariate normal distribution is generally acknowledged in the literature. This paper presents a review of the use of the skew-normal distribution and its extensions in finance and actuarial science, highlighting known results as well as potential directions for future research. When skewness and kurtosis are present in asset returns, the skew-normal and skew-Student distributions are natural candidates in both theoretical and empirical work. Their parameterization is parsimonious and they are mathematically tractable. In finance, the distributions are interpretable in terms of the efficient markets hypothesis. Furthermore, they lead to theoretical results that are useful for portfolio selection and asset pricing. In actuarial science, the presence of skewness and kurtosis in insurance claims data is the main motivation for using the skew-normal distribution and its extensions. The skew-normal has been used in studies on risk measurement and capital allocation, which are two important research fields in actuarial science. Empirical studies consider the skew-normal distribution because of its flexibility, interpretability, and tractability. This paper comprises four main sections: an overview of skew-normal distributions; a review of skewness in finance, including asset pricing, portfolio selection, time series modeling, and a review of its applications in insurance, in which the use of alternative distribution functions is widespread. The final section summarizes some of the challenges associated with the use of skew-elliptical distributions and points out some directions for future research. [ABSTRACT FROM PUBLISHER]

A unified framework is presented to characterise the capital structure of firms that face borrowing restrictions – which extends the classic theory of capital by incorporating elements from actuarial and agency theory. It is demonstrated that the bankruptcy and agency costs afforded by these firms can be expressed in terms of the actuarial prices of the underlying exposures. Then the optimal surplus is determined in order to maximise value – which is equivalent to minimise the cost of bankruptcy plus the opportunity cost of capital. The capital principle thus obtained explicitly depends on risk and expectations, and can be applied to allocate reserves both in financial and insurance companies. An optimal decentralised mechanism is also defined that stimulates the exchange of information inside multidivisional corporations. [ABSTRACT FROM PUBLISHER]

An axiomatic definition of coherent capital allocations is given. It is shown that coherent capital allocations defined by the proposed axiom system are closely linked to coherent risk measures. More precisely, the associated risk measure of a coherent capital allocation is coherent and, conversely, for every coherent risk measure there exists a coherent capital allocation. [ABSTRACT FROM AUTHOR]

Elliptical copula measures with symmetrical marginals are proposed as a natural generalization of the elliptical family, which preserves the symmetrical character of marginals, but is more flexible in the choice of their shape parameters. The properties of these copulas are investigated and the elliptical copula tilting and corresponding premium are proposed as a natural tool for portfolio capital allocation. For the case of the multivariate normal family, such a tilting and premium coincide with the Esscher transform and premium. [ABSTRACT FROM AUTHOR]

This article presents a case study on the use of multi-criteria decision analysis tools to improve the alignment of strategy and capital allocation decisions. A questionnaire was used to test for consistency of priorities regarding capital allocation decisions among managers. There was a significant divergence of opinion regarding ranking of attributes used for comparison of investment alternatives. This suggested that the strategy at the strategic business unit (SBU) was not resulting in a consistent vision of priorities regarding investment decisions. Additionally, a case study of four investment alternatives was presented to managers at the SBU. A comparison was made between the decisions made using non-structured decision-making methods characteristic of those employed at the SBU and those using traditional scorecard, payback, rank sum, and rank reciprocal multi-criteria decision analysis (MCDA) techniques. [ABSTRACT FROM AUTHOR]