We investigate how company-level corporate governance practices and country-level legal investor protection jointly affect company performance. We find that in any legal regime there are a few specific governance practices that improve performance. Companies with good governance practices operating in stringent legal environments, however, show a valuation discount relative to similar companies operating in flexible legal environments. At the same time, a stronger country-level regime does not reduce the valuation discount of companies with weak governance practices. Our analysis suggests a threshold level of country development above which stringent regulation hurts the performance of well governed companies or has a neutral effect for poorly governed companies.

Although foreign banks can act as catalysts for financial and economic development, their role remains controversial because they might displace local lending, thereby tightening firms’ overall access to credit. We study the economic channels through which domestic lending by foreign banks affects real economic activity in a large cross-section of developing and advanced countries. We find that foreign lending alleviates financial constraints and increases real growth net of the competitive reaction of local lenders. In addition to providing stable access to credit, foreign banks also mitigate the consequence of informational and legal obstacles to lending, especially in developing credit markets.

We highlight the role of duration and exchange rate risks on portfolio flows by using a unique and comprehensive database of U.S. investor flows into emerging market government bonds denominated in local currency. Borrowing long-term mitigates rollover risk but amplifies valuation changes that further interact with currency movements. Our analysis highlights the double-edged nature of long-term borrowing and draws attention to market stress dynamics due to strategic complementarities among mutual fund investors.

The strength of the U.S. dollar has attributes of a barometer of dollar credit conditions, with a stronger dollar associated with tighter dollar credit conditions. We find that following dollar appreciation, exporters that are more reliant on dollar-funded bank credit suffer a greater decline in credit and slowdown in exports, including those exporting to the United States. Our findings shed light on the role of the U.S. dollar in the interaction between financial globalization and international trade and show a novel channel of exchange rate transmission that goes in the opposite direction to the competitiveness channel.

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This paper provides a comparative assessment of the effectiveness of macroprudential policies in 12 Asia-Pacific economies over 2004–2013, using databases of domestic macroprudential policies and capital flow management (CFM) policies. We find that banking sector CFM policies and bond market CFM policies are effective in slowing down banking inflows and bond inflows, respectively. We also find some evidence of spillover effects of these policies. Finally, regarding the interaction of monetary policy and macroprudential policies, our empirical findings suggest that macroprudential policies are more successful when they complement monetary policy by reinforcing monetary tightening, than when they act in opposite directions.