Investment Transactions Research Articles

Factors of the fintech market development in the global economy (the case of the alternative lending)

Alternative lending is one of the largest segments of the financial technology market in the world which is represented by online platforms specializing in organizing the lending process. The purpose of the article is to assess the impact of key factors on the dynamics of venture capital investments in alternative lending platforms. The objectives of this study are to define the concept of alternative lending, build an econometric model to analyze the factors of development of alternative lending in the world, and interpret the results from the point of view of the prospects for the development of alternative lending. Alternative lending has been defined as a segment of the fintech market that can be characterized as parallel financing of economic activities based on digital platforms through the provision of syndicated loans after decentralized business models. To test the hypotheses of the study, an econometric model was built on the analysis of 5,234 investment transactions completed in the period from 2013 to 2019 in 35 countries of the world and included in the CrunchBase database. According to the model, such factors as the availability of venture capital, the number of workforce, the digital competitiveness of the economy (the factor of future readiness), and the availability of credit information have a significant impact on the dynamics of direct and venture capital investments in alternative lending companies. The obtained results can be considered when improving the national strategy for regulating the alternative lending market, which is especially important for Russia, where the segment of alternative lending is at the stage of stagnation.

К ВОПРОСУ О РЕГУЛИРОВАНИИ ИНВЕСТИЦИОННОГО БАНКИНГА В РОССИИ

Analytical documents of the Bank of Russia and financial statements of large Russian banks indicate the growth in incomes from operations with securities within the gross share of revenues of commercial banks. In the world, there are cases of excessive activity of commercial banks in the security market (the Great Depression of 1929–1933 in the USA, default on state treasury bills in Russia on the 17th August 1998), which led to negative consequences for bank clients. The author analyzed peculiarities of investment transactions conducted by commercial banks in Russia. The author gives recommendations to reduce financial risks for the commercial banks’ customers and promote the attractiveness of the investment banking products. The author’s concept of regulation of banking activity in Russia consists of two directions: regulation of classical banking (income from lending operations exceeds income from operations in the securities market) and regulation of investment banking (the predominance of investment operations). The author justifies the necessity of the introduction of mandatory insurance of funds invested in equity securities of Russian issuers admitted to circulation on the Moscow Stock Exchange in the event of bankruptcy of issuers. The paper critically evaluates the recommendation of the Bank of Russia that professional participants in the securities market should not offer complex investment products to unqualified investors as this restricts the application of derivative securities for hedging financial risks. The author suggests the requirements for the equity capital of professional participants of the securities market and the methodology for calculating the equity capital separately for classical and investment banks.

Modulating the activity of right temporo-parietal junction by anodal tDCS enhances the agent’s repayment in hold-up game

Hold-up problem is very common in non-contractible relation-specific investment transactions. And this problem can affect by trust, cooperation and altruism behavior of human beings. Recent neuroscience researches had explored a network of right temporo-parietal junction (rTPJ) involved in human cooperation and altruism behavior. The purpose of this study is to modulate the activation of rTPJ through transcranial direct current stimulation (tDCS), and to study the influence of rTPJ on investment and offer behavior in hold-up game. The results of our study showed that the anodal stimulation significantly increased participants' offer compared with the cathodal and sham stimulation. A possible explanation is that changes in rTPJ activity induced by anodal stimulation improve the accuracy of agents' mental reasoning and promote cooperation by influencing agents' offer behavior.

CFIUS issues final regulations on national security review of foreign investments in the United States under FIRRMA: broader reach, mandatory filings, and limited exceptions

Purpose The article examines the sweeping changes to the review process undertaken by Committee on Foreign Investment in the United States (CFIUS) as a result of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). The Article specifically reviews the long-awaited final sets of regulations, effective as of February 13, 2020, and analyzes their impact on the CFIUS process, as well as considers the implications of FIRRMA for parties to foreign acquisition, control, and investment transactions. Design/methodology/approach The Article begins with an overview of the CFIUS framework and a general explanation of FIRRMA. It then moves to an analysis of FIRRMA and the resulting changes to the prior CFIUS regime. The Article concludes with general considerations and provides recommendations for parties who may find themselves analyzing the potential applicability of CFIUS to foreign acquisition and investment transactions. Findings FIRRMA resulted in significant changes to the existing CFIUS regulatory framework. Practical implications Parties should learn the CFIUS changes as a result of FIRRMA, including the new mandatory filing requirements as well as implications for non-controlling investment transactions. Parties should include CFIUS analysis and planning in the earliest stages of deal planning and due diligence. Originality/value The article provides an in-depth review of the changes to CFIUS resulting from FIRRMA. The changes to the existing CFIUS landscape have resulted in new mandatory filing requirements and expanded jurisdiction over non-controlling investment and real estate transactions, which are discussed in the article.

The Investors Exchange’s (IEX) impact on investors

The Investors Exchange (IEX) claims that it improves investor transactions in the US Equity markets. The founders of IEX suggest that other equity exchanges cater more to traders such as high-frequency and algorithmic traders, thus giving them a distinct advantage over the typical investor. We examine the immediate impact IEX had on US equity markets when it became a national exchange in mid-2016. Initial analysis supports that the IEX shows signs of meeting their intent to provide a more investor friendly exchange for those who chose to trade on it.

Antecedents of Financial Instrument Choice by VC/PE Funds: Using the Theory of Adverse Selection

This article examines the choice of financial instruments of venture capital/private equity (VC/PE) funds in Indian infrastructure sector. Using a sample of 690 VC/PE investment transactions in Indian infrastructure sector over a period of fifteen years, the findings indicate that the choice of financial instrument by VC/PE funds in Indian infrastructure sector is largely influenced by the ability to mitigate information asymmetry and adverse selection faced by the fund. The evidence provides insights about the type of uncertainty faced by VC/PE funds in different types of Indian infrastructure financing transactions. Results show that the VC/PE funds are less able to screen growth stage firms and, therefore, utilize convertible securities to reduce the cost of adverse selection. Regression analysis provides empirical evidence about the determinants of VC/PE funds choice of financial instrument in Indian infrastructure sector. VC/PE funds face higher risk when an infrastructure firm expects greater variability of returns at early and growth stages and for new investments in any stage. TOPICS:Private equity, other real assets, emerging markets Key Findings • VC/PE funds use more common equity than other financial instruments for making investment in the Indian infrastructure sector. • When VC/PE investors are not able to mitigate information asymmetry and adverse selection cost, convertible securities are more likely to be used. • VC/PE funds face higher risk when any infrastructure firm expects greater variability in return at early stage, growth stage firms and for new investment in any stage.

Formation of Chinese venture capital syndication network

Using a dataset that recorded a large number of investment transactions in China from 1991 to 2018, we examine the statistical properties of the Chinese venture capital (VC) syndication network. Our main findings are as follows. First, the number of investment transactions sharply increased after 2014. Second, more than half of the VC firms are located in Beijing, Shanghai, and Shenzhen. Third, the degree distribution becomes roughly straight on a log–log plot. Fourth, the hypothesis that the degree distribution follows a power-law distribution is not rejected for 2015 and 2016. Fifth, better connected VC firms increase their connectivity faster, which suggests the existence of preferential attachment.

Riskless Principal Trades in Corporate Bond Markets

We identify growth in riskless principal trades (“RPTs”) using TRACE corporate bond market trade data. An RPT is a brokered trade arranged by a dealer for which the dealer obtains compensation by marking up the price instead of charging a commission. Over the last 15 years, RPTs increased from 19% to 37% of all customer trades, while non-zero markups declined 43% on average, with most changes occurring recently. The growth in electronic trading systems undoubtedly explain these trends, but most traders cannot access these systems directly. Small changes to the bond market structure could further decrease investor transaction costs.

International investors and the multifractality property: Evidence from accessible and inaccessible market

This study provides the evidence that the transactions of international investors in the stock market exacerbate the degree of market multifractality. We analyze shares cross-listed in an accessible market (H-shares in Hong Kong) and an inaccessible market (A-shares in mainland China) by applying the method of multifractal detrended fluctuation analysis (MF-DFA) from 01 January 2010 to 31 December 2019. The results based on MF-DFA confirm that the degree of multifractality in the accessible market is much stronger than the inaccessible market and intensifies with the increasing openness of the stock market. We find that the participations of international investors enhance the strength of multifractality by affecting both the long-range correlations and the fat tail distribution of the return series. Besides, the results also verify the impact of the stock market crash on multifractal strength.

CREDIT DERIVATIVES IN BANKING: BENEFITS AND THREATS

Financial institutions have faced a variety of threats, the main reasons for which are weak lending standards, ineffective risk evaluation of the loan portfolio, lack of attention to economic and other factors that can affect the creditworthiness of bank counterparties. Thus, among various threats, credit risk, caused by lending, remains the main source of problems for commercial banks. However, globalization and liberalization of the global financial system has led to the appearance of other sources, including trade and investment transactions, which are reflected both on the balance sheet and off-balance sheet. Banks are increasingly faced with credit risk in other financial operations – for example, with derivative financial instruments. Effective credit risk management is a critically important component of the comprehensive approach to risk management and the long-term success of a banking organization. The use of financial instruments that allows commercial banks to transfer credit risk to a third party for a fee and, thus, avoid the additional costs for forming reserves, has become one of the ways to prevent negative consequences. However, despite the many advantages associated with the risk hedging, credit derivatives, like other financial innovations, pose additional risks directly related to the application of these instruments. For example, these risks have manifested themselves in the global financial crisis of 2008-2009 and minimized the positive effect of the credit derivatives. This article discusses the advantages and disadvantages of using credit derivatives by commercial banks, shows the need for timely identification of probable risks and the development of effective methods for managing them by both the risk management of the bank and regulators.

The impacts of macroeconomic and financial indicators on stock market index: Evidence from Thailand

Market capitalisation and foreign investor transactions of the Thai Stock market have expanded significantly over the past 10 years. This research paper employed the autoregressive distributed lag (ARDL) approach to examine the impacts of key macroeconomic and financial indicators on the stock market of Thailand. We applied two models in this study. The first model is based on macroeconomic indicators such as broad money supply, consumer price index (CPI), manufacturing production index (MPI), exchange rate, and exports. The second model is based on financial and commodity indicators such as volatility index, price-to-earnings ratio, gold price index, and oil price index (OIL). Consistent with theory, the results indicate that the Thai stock market index has a long-run relationship with the selected indicators such as exchange rate, broad money supply, CPI, price-to-earnings ratio, volatility index, and OIL. Therefore, the long-run coefficients estimated in this study could be utilised for managing long-term investments.

Protection of the Rights of Crowfunding Participants as an Electronic-Digital Method for Attracting Investments

Introduction. The article is devoted to identifying the shortcomings of civil law mechanisms currently in force in Russia to protect the rights and legitimate interests of crowdfunding entities based on technologies of Industry 4.0. The relevance of the declared topic is predetermined by the need for technological improvement of production processes during the period of neo-industrial transformations of the national economy, which, in turn, are impossible without impressive investments.Materials and methods. Researchers’ attention is focused on the Federal Law “On Attracting Investments Using Investment Platforms and Amending Certain Regulatory Acts of the Russian Federation”, the systemic change of which, in the author’s opinion, can solve the complex task of improving the existing set of financial instruments through the use of the latest digital technologies. The author uses the methods of system analysis, the formal legal and comparative legal method of scientific research.Research results. Recognizing the high importance of crowdfunding in a neo-industrial economy, the author devoted his research to the protection of the rights and legitimate interests of entities involved in investment relations. The unresolved issues and the provisions requiring modernization are analyzed, which are contained in the Federal Law “On attracting investments using investment platforms and amending certain regulatory acts of the Russian Federation”. As a result of the analysis, specific proposals and recommendations on improving the federal law were made.Discussion and conclusions. The necessity of the emergence of new high-tech financial instruments to raise funds, allowing to radically improve the quality of decision-making in all sectors of the economy, including in the field of banking services, as well as significantly accelerate the transaction process, is substantiated. One of these developing instruments for investing in the fourth industrial revolution looking to the future is crowdfunding. The advantages of using crowdfunding and crowdinvesting platforms as investment transaction technologies are revealed.

Development of Contract Law Rules in the Field of Blockchain Technology

The paper analyzes the most common models of contractual regulation of private relations with the use of blockchain technologies. The author scrutinizes the jurisprudence of the United States as a country leading in the field of implementation of the contractual models of creation, financing, development of blockchain projects. In particular the paper characterizes ICO as a model for raising funds for the creation of blockchain projects, analyzes approaches to the definition of blockchain tokens, generalizes powers of bodies carrying out control and supervisory functions in the field of financial legislation. The author explains the essence of the simple agreement for future tokens (SAFT) as one of the promising models of legal registration of an investment transaction using blockchain technology. Using comparative-legal, formal-legal, formal-logical methods, the author comes to the conclusion about the possibility of adapting advanced contractual constructions to contractual relations regulation using blockchain technologies in the Russian Federation. The paper proposes the ways of adapting traditional contractual structures, such as a license agreement and franchise agreement, in the context of the new economic opportunities of blockchain projects.

Tracking Spillovers During the Taper Tantrum: Evidence from Institutional Investor Transactions in Emerging Markets

In this report, we study the mid-2013 taper tantrum—a market event comprised of a series of policy communications from the Federal Reserve that contributed to sharp volatility across global asset prices—as a case study to shed light on a widely-referenced monetary policy shock. Our research documents and analyzes the trading activity of institutional investors to provide policymakers and researchers with a picture of the interplay between market price movements and investor behavior. The work is motivated by the growing importance of unconventional monetary policy and the role of the market participants in transmitting such signals across markets. We use proprietary data that includes global financial markets transactions (foreign exchange and government bond trades) executed by all types of institutional investors, made available by the Markets Division of J.P. Morgan’s Corporate & Investment Bank. We find that flows of institutional investors have substantial explanatory power for EM currency performance. In particular, the extent of EM currency depreciation during the taper tantrum is correlated with the trading activity of a relatively small set of hedge funds and banks associated with momentum, as well as asset managers that do not typically exhibit systematic behavior. During the taper tantrum, asset manager net flows became increasingly correlated with changes in EM currencies and the net flows of certain banks and hedge funds, reflecting potential herding behavior that had a significant impact on prices. We also find evidence of a time-varying relationship between net flows and EM currency price action consistent with a larger impact of net flows amid the rise in market volatility over the period. Our findings illustrate how private investor trading activity can be an important, but difficult-to-predict, component in monetary policy transmission mechanism. Central banks should continue to advance their understanding of how policy measures designed to influence market prices also affect the behavior of market participants.

E-Commerce Transaction in Hello Gold Investment: Islamic Investment Review

With advancing the digital platform, many investment plans were introduced to share the benefits and potential assets invested. This paper aims to seek to understand the e-commerce of gold investment transactions from the context of Shariah. The methodology adopted was interview and document research from the qualitative study. Review of existing literature sheds light on some conditions that must be adhered to in e-commerce gold investment are the four pillars of Islamic contracts consist of contracting parties, the price, offer, and acceptance, and subject matter. Gold investment also has its own standard criteria and regulations that must be fulfilled according to Shariah where the item gold has considered as ribawi item. The finding shows that Hello Gold launched the first online gold platform e-commerce through a new mobile application Smart Saver Plan as an automated 12-months savings plan that helps customers have a saving gold monthly with little effort. The features of e-commerce mobile applications are equipped with easy steps of gold purchasing which contain detailed registration, price, features of the gold specification, and method payment system. Term and condition also adhered to gain the consent of customer engagement in the transaction. Hello Gold is a recognized Shariah-compliant whereby it complies with BNM guidelines. The appraisal of these criteria and features justified the validity of Hello Gold Smart Saver Plan from Shariah review perspectives. The e-commerce of mobile application also meets the Shariah ruling transaction which in turn enhance the level of online trust among Muslim users.

Malaysia REIT Companies Concepts in Practicing Sale and Leaseback Investment

Sale and leaseback investment has been a growing trend among the Real Estate Investment Trust (REIT) Companies in Malaysia. This study is to determine the important elements in the concepts of the sale and leaseback transactions practiced by the REIT companies. The study uses the NVIVO software to analyze the data interviews with the REIT managers that adopt sale and leaseback investment transactions. With a response rate of 78%, results show there are three main elements namely location, type of lease, and rental. This study forms a useful guide to real estate managers in developing countries towards using the sale and leaseback as one of the alternative methods in property investment.

INFRASTRUCTURE SUPPORT FOR THE DEVELOPMENT OF REGIONAL ECONOMIC SYSTEMS

This article considers the problems of infrastructure financing, which is necessary for the successful development of regional economic systems. To identify the current problems in the development of investment attractiveness of the Russian regions, we selected the following factors: availability and level of provision of industrial, social, transport, and other infrastructure with facilities, government expenses on the creation and development of regional infrastructure. The study consists of several stages and is based on data published on the official websites of the World Bank, Gazprombank, the Ministry of Economic Development of the Russian Federation, and the Ministry of Regional Development of the Russian Federation. The study shows that the absolute leaders in terms of infrastructure investments are such countries as China, the United States, and India. In the total amount of infrastructure investments, transport infrastructure and telecommunications have an absolute advantage. In recent years, one of the development priorities of the Russian regions has been investing in physical culture and sports infrastructure facilities. This is due to major international sporting events and increasing the investment attractiveness of the regions. An important trend in the development of infrastructural support for the development of regional economic systems has been the conclusion of international investment transactions (IIT) and regional agreements. Most countries and regions, leading in the inflow of foreign direct investment, are the leaders in terms of infrastructure development at the same time.

Voting with their money: Brexit and outward investment by UK firms

We study the impact of the 2016 Brexit referendum on UK foreign direct investment. Using the synthetic control method to construct appropriate counterfactuals, we show that by March 2019 the Leave vote had led to a 17% increase in the number of UK outward investment transactions in the remaining EU27 member states, whereas transactions in non-EU OECD countries were unaffected. These results support the hypothesis that UK companies have been setting up European subsidiaries to retain access to the EU market after Brexit. At the same time, we find that the number of EU27 investment projects in the UK has declined by around 9%, illustrating that being a smaller economy than the EU leaves the UK more exposed to the costs of economic disintegration.

Risk Analysis and Suggestions on Bond Investment Transaction of Financial Institutions

<p>At present, the development of China's bond market is becoming more and more mature. However, with the continuous expansion of bond trading scale and the innovation of bond products, the risks existing in the transaction are also gradually increasing. Therefore, financial institutions, as the main investors in the bond market, should pay more attention to the measurement and avoidance of risks. Credit spread is an indicator of risk measurement. This paper compares the credit spread of four kinds of bonds through the statistics of their yields, and makes a simple analysis of their risks. Moreover, some suggestions are put forward for the bond investment of financial institutions, which may help them better avoid risks and make reasonable bond investment.</p>

Illiberal Governance and the Rise of China's Public Firms: An Oxymoron or China's Greatest Triumph?

The early 21st century will be remembered for its shift in global economic power dynamics. In the past two decades, the Chinese government has fostered the growth of many of the world’s most valuable firms, advanced complete integration of Chinese companies in global supply chains, and positioned its firms as key players in cross-border infrastructure and investment transactions. Perhaps even more striking is the speed of China’s capital market growth. It took merely three decades for China’s capital market to advance as the world’s second most meaningful market. Chinese firms—many of which are subject to an illiberal, political governance—are increasingly integrated with global financial markets, attracting domestic and foreign public investors. Neither state ownership and control, political influence, or weakly functioning legal institutions stand in the way of these firms’ access to capital. Such reality challenges law and development theories and notions of corporate governance best practices. This Article discusses the puzzling allure of Chinese public firms to external suppliers of capital while illuminating the functions of illiberal governance through the Chinese state’s and Communist Party capacities within firms. It argues that Chinese public firms were able to grow and expand, attracting external finance, not despite the function of “bad” corporate governance institutions but because of them. The Article shows how alongside its many obstructions, China’s illiberal governance system plays an important role in promoting market regularity, providing investors with the assurances necessary to secure the flow of external finance. Against the backdrop of the U.S.-China trade war and calls for economic decoupling, policymakers are trying to comprehend the various implications of China’s rising powers while considering appropriate regulatory and policy responses. Yet while aspects of trade, national security, and labor carry the headlines, corporate governance is largely missing from the discussion. Only now, as a result of escalating geopolitical wariness, Congress and the SEC (Securities and Exchange Commission) have extended efforts to grapple with corporate governance aspects as well. This Article supports such recent intentions. It examines the implications of China’s illiberal corporate governance for global investors and assesses recent policy developments while pointing to the potential fallacies of adhering to conventional notions of corporate ownership and control. * Please refer to the published Article for the final version.