Editorial

Citation

Wang, C. (2013), "Editorial", China Finance Review International, Vol. 3 No. 4. https://doi.org/10.1108/CFRI-07-2013-0083

Editorial

Article Type: Editorial From: China Finance Review International, Volume 3, Issue 4

Finance has been a separate discipline for at least half a century in China. However, prior to the end of the 1990s, academic research into finance mainly focused on money and banking areas. In the past decade, more and more young scholars have undertaken financial research using the Western financial framework and techniques. Two factors facilitated this transformation. First, two Chinese stock exchanges were established in the early 1990s, and since then, the financial market has experienced the fastest growth in the world; and second, a large number of scholars who obtained formal PhD training in Western countries returned to China, and promoted academic research using the same theoretical framework and techniques as those used in Western countries. Despite this short history, these young financial economists have become an important force in the global financial academic community. Along with China’s economy growth, China has now become an innegligible part of international financial markets. Moreover, more and more investable assets are accessible to foreign individual and institutional investors. Therefore, a deep understanding of financial issues such as asset allocation, the monetary policy transmission mechanism, and corporate financial policy and corporate governance in China, is essential not only to Chinese scholars and investors, but also to international academics and financial market practitioners.

In this issue, five papers have, respectively, focused on the topics of capital structure, monetary policy effect financing of small and medium firms, portfolio selection under vague environment, and the effect of market liquidity demand shocks on price shocks.

The first paper entitled “Equity financing constraints and capital structure: a model” proposed a theoretical model to examine how equity financing uncertainty affects a firm’s capital structure decision-making, and showed that a firm’s value decreased with the uncertainty of equity financing, due to the relationship between the firm’s future cash flow and its financing policies. In the paper “Simulation to the effects of monetary policy with constraint threshold,” the authors chose the large commercial banks in China as the subject of their research, and took commercial bank capital adequacy requirement as the example of the threshold constraint on the traditional monetary policy transmission path, and simulated the implementation effects of policy combinations. The paper, “Can third party’s collateral arrangements tackle the financing problem of small-medium enterprises?” extended the models of Holmstrom and Tirole (1997) and Tirole (2006) and developed an analytic framework for the theory of financing collaterals. They showed that only under certain conditions can the third-party collateral arrangements tackle the financing problems typically experienced by SMEs. Diversification, anti-collateral and linked-transactions are three means to improve financing conditions, but the most important way is efficient monitoring by collateral institutions. The paper “A combined CFAHP-FTOPSIS approach for portfolio selection” tackled the portfolio selection problem under vague environment. It utilized the constrained fuzzy analysis hierarchy process (CFAHP) method to evaluate the relative weights of the criteria, and rank alternatives by fuzzy technique for order preference by similarity to an ideal solution (FTOPSIS). The proposed method in this paper could be an efficient method to deal with vague information during decision making process. The final paper “Asymmetric effect of market liquidity demand shocks on price shocks: empirical studies based on the CSI 300 Index and the futures” used the simultaneous equations model of price and net order flow proposed by Deuskar and Johnson (2011) and the asymmetric ITH method to analyze high frequency data from CSI 300 index and the index futures. The authors found that the flow-driven risk of CSI 300 index futures is about 20 percent, and the asymmetric effect between liquidity demand shocks and price shocks emerged only after the introduction of index futures. Together these five papers contribute to our better understandings of financial theory and financial markets in China.

Changyun Wang

References

Deuskar, P. and Johnson, T.C. (2011), “Market liquidity and flow-driven risk”, Review of Financial Studies, Vol. 24 No. 3, p. 721

Holmstrom, B. and Tirole, J. (1997), “Financial intermediation, loanable funds and the real sector”, Quarterly Journal of Economics, Vol. 112 No. 3, pp. 663–691

Tirole, J. (2006), The Theory of Corporate Finance, Princeton University Press, Princeton, NJ