Category Archives: institutional capital

23/4/21: There are no ‘social’ winners amidst this pandemic


No one is left unscarred by the #covid19 pandemic when it comes to public approval trends for the major social stakeholders in Ireland: 

Source: Core Research. 

Broadly-speaking, the above is expected, although Core Research report contains one glaring omission: it does not survey public attitudes to media/press. Worse, the three improving stakeholder groups are also the three least impacted: own employer, citizens and large companies. Meanwhile, approval of the government is still nosediving. 

Covid pandemic is certainly testing Irish (and other countries') key institutional frameworks. The fallout from these tests is going to be long-lasting and deep. We went into the pandemic with huge deficits of trust in key institutions of our societies. And we are becoming more polarized and less enthusiastic in our support for these institutions since then.

18/6/20: Cheap Institutional Money: It’s Supply Thingy

In a recent post, I covered the difference between M1 and MZM money supply, which effectively links money available to households and institutional investors for investment purposes, including households deposits that are available for investment by the banks ( Here, consider money instruments issuance to institutional investors alone:

Effectively, over the last 12 years, U.S. Federal reserve has pumped in some USD 2.6 trillion of cash into the financial asset markets in the U.S. These are institutional investors' money over and above direct asset price supports via Fed assets purchasing programs, indirect asset price supports via Fed's interest rates policies and QE measures aimed at suppression of government bond yields ( 

Any wonder we are in a market that is no longer making any sense, set against the economic fundamentals, where free money is available for speculative trading risk-free (

30/7/18: Corruption Perceptions: Tax Havens vs U.S. and Ireland

Transparency International recently released its annual Corruption Perceptions Index, a measure of the degree of public concerns with corruption, covering 180 countries. 

The Index is quite revealing. Not a single large economy is represented in the top 10 countries in terms of low perceptions of corruption. Worse, for a whole range of the much ‘talked about’ tax havens and tax optimising states, corruption seems to be not a problem. Switzerland ranks 3rd in the world in public perceptions of corruption, Luxembourg ranks 8th, along with the Netherlands, and the world’s leading ‘financial secrecy’ jurisdictions, the UK. Hong Kong is ranked 13th. Ireland is in a relatively poor spot at 19th place. 

American exceptionalism, meanwhile, continues to shine. The U.S. occupies a mediocre (for its anti-corruption rhetoric and the chest-thumping pursuits of corrupt regimes around the world) 16th place in the Corruption Perception Index, just one place above Ireland, and in the same place as Belgium and Austria (the former being a well-known centre for business corruption, while the latter sports highly secretive and creative, when it comes to attracting foreign cash, financial system). UAE (21st), Uruguay (23rd), Barbados (25th), Bhutan (26th) and more, are within the statistical confidence interval of the U.S. score. 

And consider Europe. While most of the Nordic and ‘Germanic’ Europe, plus the UK and Ireland, are  in top 20, the rest of the EU rank below the U.S. All non-EU Western European countries, meanwhile, are in the top 15. 

Now, in terms of dynamics, using TI’s data that traces comparable indices back to 2012:
- The U.S. performance in terms of corruption remains effectively poor. The country scored 73 on CPI in 2012-2013, and since then, the score roughy remained bounded between 74 and 75. Ireland, however, managed to improve significantly, relative to the past. In 2012, Irish CPI score was 69. Since then, it rose to a peak of 75 in 2015 and is currently standing at 74. So in terms of both 2012 to peak, and peak to 2017 dynamics, Ireland is doing reasonably well, even though we are still suffering from the low starting base. 

Hey, anyone heard of any corruption convictions at the Four Courts recently?

21/5/2105: The Darker Side of Transparency?

World Bank paper published earlier this month and titled "The Dark Side of Disclosure: Evidence of Government Expropriation from Worldwide Firms" raises some very interesting questions about the relationship between corporate transparency and government incentives.

The paper by Liu, Tingting and Ullah, Barkat and Wei, Zuobao and Xu, Lixin Colin (May 4, 2015, World Bank Policy Research Working Paper No. 7254:  looks at "the effects of voluntary accounting information disclosure through auditing on firm access to finance, exposure to corruption, and sales growth." The authors use data for more than 70,000 firms in 121 countries.

The authors find that "…disclosure can be a double-edged sword" with overall effect depending on institutional capital present in a specific country.

"On the one hand, audited firms exhibit a slightly lower level of financial constraints than unaudited firms." This is in line with traditional theory whereby voluntary transparency increases information quality about the firm, but also signals self-selection of better-governed and better-performing firms to the markets.

"On the other hand, audited firms face a significantly higher level of corruption obstacles." Which is really surprising, until you understand the underlying logic.

"The net effects of voluntary information disclosure on firm growth are negative, which can largely be explained by the fact that most of the countries in the sample are developing countries where institutions are weak. The beneficial effect of disclosure increases as a country's property rights protection improves. The qualitative results are robust to considerations of the endogeneity of auditing and to alternative measures of corruption and financial constraints. The findings reveal the dark side of voluntary information disclosure: exposing firms to government expropriation where institutions are weak."

In other words, in more institutionally-advanced economies, voluntary disclosure is a positive factor for the firms, even she we control for self-selection bias. But in countries where institutional capital is weak, the effect is the opposite: in presence of corrupt and accountable governments, disclosing corporate information to the markets can trigger greater effort by the government to expropriate from the reporting firm.

There are serious ramifications for policy and development economics from this study. Traditionally, we tend to push more transparency and more disclosure for the firms operating in institutionally-weak emerging markets. In doing so, we may be aiding the predatory governments who, thus, gain greater ability to corruptly capture firm assets and/or profits over and above legally required taxation. This, in turn, strengthens the corrupt state institutions and government, instead of pushing them toward adopting more rule of law-styled reforms.

Beyond this, the study results suggest that at least in some setting, less transparency and greater ability for the corporates to operate within private information markets can actually be a good thing.

What is interesting is that in public domain, very little attention is paid to this issue. The results of this study, however, are broadly supportive of Acemoglu and Johnson ("Unbundling Institutions", Journal of Political Economy 113(5), 949–92005, 2005) work on the overwhelming importance of constraining government expropriation in facilitating economic development, ex ante other reforms.

On the other hand, transparency is value-additive in the advanced economies setting, where institutions are sufficiently high quality to preempt (or at the very least, diffuse significantly) the emergence of actionable incentives for state expropriation and information-led corruption.