This paper studies whether compliance with the Basel Core Principles for effective banking supervision (BCPs) is associated with bank soundness. Using data for over 3000 banks in 86 countries, we find that neither the overall index of BCP compliance nor its individual components are robustly associated with bank risk measured by individual bank Z-scores. We also fail to find a relationship between BCP compliance and systemic risk measured by a system-wide Z-score.

We examine empirically the existence of speculative bubbles in U.S. stock prices and, by building on West's procedure, propose direct and computationally simple tests of the “nobubble” hypothesis. These tests are likely to be close to their nominal size in small samples and to have small sample power against a wide class of bubbles including those orthogonal to the dividend process. We apply the tests to long-term annual U.S. stock market data for the 1871–1981 and 1871–1988 periods. Contrary to West, we do not reject the “no-bubble” hypothesis. We offer an explanation as to the cause of discrepancy between the two results.

Despite the devastating worldwide human and economic tolls of the COVID-19 crisis, it has created some positive economic and financial surprises and opportunities for research. This paper highlights two such favorable surprises - the shortest U.S. recession on record and the avoidance of any banking crisis - and a number of research opportunities. The paper ties the "economic surprise" of the short recession to the speed and size of U.S. stimulus programs during COVID-19 - faster and larger than for the Global Financial Crisis (GFC). We connect the "financial surprise" of the resilient banking sector to prudential policies put in place during and after the GFC that fortified U.S. banks prior to COVID-19. These twin "surprises" are also mutually reinforcing - if either the economy or banking system had failed, so would the other. The paper also reviews extant COVID-19 banking research and suggest paths for future research. It recommends that particular attention be paid to research outside of the U.S. - where fewer favorable "surprises" may be present - as the best way to advance knowledge in this area.

This paper presents recent research on access to finance by small and medium-size enterprises (SMEs). SMEs form a large part of private sector in many developed and developing countries. While cross-country research sheds doubt on a causal link between SMEs and economic development, there is substantial evidence that small firms face larger growth constraints and have less access to formal sources of external finance, potentially explaining the lack of SMEs’ contribution to growth. Financial and institutional development helps alleviate SMEs’ growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes. Specific financing tools such as leasing and factoring can be useful in facilitating greater access to finance even in the absence of well-developed institutions, as can systems of credit information sharing and a more competitive banking structure.

We investigate how differences in legal and financial systems affect firms' use of external financing to fund growth. We show that in countries whose legal systems score high on an efficiency index, a greater proportion of firms use long-term external financing. An active, though not necessarily large, stock market and a large banking sector are also associated with externally financed firm growth. The increased reliance on external financing occurs in part because established firms in countries with well-functioning institutions have lower profit rates. Government subsidies to industry do not increase the proportion of firms relying on external financing.

This study finds that banks receive more favorable Moody's financial strength ratings in countries with better compliance with Basel Core Principles related to information provision. The results are robust to controlling for broad indexes of institutional quality, macroeconomic variables, sovereign ratings, and reverse causality. Compliance with other Core Principles does not affect ratings robustly. Measuring bank soundness through Z-scores yields broadly similar results for advanced and emerging markets. Countries aiming to upgrade banking regulation and supervision should consider giving priority to information provision over other elements of the core principles.

We study how institutions influence start-up characteristics of firms and how these characteristics predict entrants' growth trajectories over the early firm life cycle. Using census data from India, we find that greater financial development is associated with higher entry rates and smaller-sized entrants. Following entry, however, large and small entrants grow at the same rates across states with different institutions or industries with differing reliance on external finance. The impact of access to finance is greater on start-up size and entry rates than on the subsequent growth of firms during the early life cycle.

[The fast growth of Chinese private sector firms is taken as evidence that informal finance can facilitate firm growth better than formal banks in developing countries. We examine firm financing patterns and growth using a database of twenty-four hundred Chinese firms. While a relatively small percentage of firms utilize bank loans, bank financing is associated with faster growth whereas informal financing is not. Controlling for selection, we find that firms with bank financing grow faster than similar firms without bank financing and that our results are not driven by bank corruption or the selection of firms that have accessed the formal financial system. Our findings question whether reputation and relationship-based financing are responsible for the performance of the fastest-growing firms in developing countries.]

[We examine how well several institutional- and firm-level factors explain firms' perceptions of property rights protection. The institutional theories we investigate account for approximately 50% of the country-level variation, indicating that current research addresses first-order factors. Firm-level characteristics, such as legal organization and ownership structure, are comparable with institutional factors in explaining variations in property rights protection. A country's legal origin predicts property rights variation better than its religion, ethnic fractionalization, or natural endowments. However, these results are driven by the inclusion of former Socialist economies in the sample. When we exclude the former Socialist economies, legal origin explains considerably less than ethnic fractionalization does.]