Capital controls as restrictions on capital flows are a tool proposed as a cure to the destabilizing market movements of the 1970s (i.e., Tobin, 1978) despite the criticism that they have received (Edwards, 1999). Capital controls resurfaced during the European Financial Crisis and the restrictions imposed on capital flows in Cyprus and Greece. These were the first instances of capital control implementation in the European Union’s history and had various effects on firms’ financial positions. By using a sample of EU countries and distinguishing between austerity and capital controls periods, we assess the effects of capital controls on the stock liquidity of firms. All of the sample countries have a common financial reporting framework (International Financial Reporting Standards -IFRS), and some of them implemented a range of different measures from less intensive, such as increases in tax rates, to more intensive, such as the enforcement of capital controls, in their effort to stabilize their economies. For the task at hand, we specifically engage two accounting determinants of information asymmetry, namely, conditional conservatism and the level of earnings management. Our results show that financial reporting quality as measured by higher conditional conservatism and lower earnings management is beneficial for liquidity. However, during the capital controls period, the relation between conditional conservatism and liquidity becomes negative, and this negative relation relates to less risky firms. Thus, the negative relation between conditional conservatism and liquidity is likely due to investors keeping more conservative firms in their portfolios as a measure against the crisis.

Introduction

The European Financial Crisis, which started as a debt crisis and continued as a generalized financial crisis, had a significantly more adverse impact on a number of South-European countries in relation to the rest of the Eurozone countries. The inability of these countries to borrow money through the markets due to escalating interest rates led to a number of measures that were targeted at limiting the negative effects of the crisis. These measures ranged from increases in tax rates or decreases in wages and pensions to restrictions of capital flows (Cyprus in 2013 and Greece in 2015). These circumstances were the first in which an extreme measure such as capital controls was used in the European Union, which certainly had an impact on the capital flows of the firms domiciled in the affected countries. The present study attempts to examine how such regulations on capital flows may help an economy to break free from the crisis downward spiral. To this extent, we emphasize the usefulness of financial reporting quality as a protecting mechanism against the crisis and underline the presence of the “flight to quality” phenomenon. Capital controls were devised as a measure of fiscal policy to limit market turbulence. For example, Tobin (1978) proposed the use of an international uniform tax on foreign exchange transactions (Edwards, 1999). These measures were particularly common until the 70s (Johnson and Mitton, 2003). However, due to the continuous effort by institutions such as the IMF for more liberalized emerging markets, the use of capital controls was reduced until the Asian Crisis (Bhagwati, 1998). Therefore, despite the controversy around the usefulness of capital controls (Edwards, 1999), there is a tendency of using these measures as a final solution during a financial crisis from a macroeconomic perspective (Krugman, 1998). For example, during the Asian Crisis, Malaysia used capital controls as a measure of reducing the effects of the crisis (Johnson and Mitton, 2003). Moreover, in the European Union, the financial crisis that affected the countries of the South and in particular, Cyprus and Greece, also led to the implementation of capital control measures to limit the drain of their banking systems.

Purpose – The purpose of this paper is to examine the dynamics of human capital accumulation and human capital depletion in the processes leading to business failure. Design/methodology/approach – Building on the human capital theory, strategic human resource and business failure literature, this paper develops a conceptual framework which links the inward and outward dimensions of human capital flows in the business failure process. Findings – The analysis sheds light on why some highly skilled individuals may opt to flee declining firms to avoid being stigmatised whilst others become motivated to joint such firms. Research limitations/implications – The paper suggests that understanding the nature and dynamics of both flows are essential when seeking to avert collapse. Originality/value – In spite of a growing body of research on business failure and intense competition for top talent, much of the existing literature has circumvented the relationship between them. This study develops a unified model towards enhancing our understanding of the human capital flows.

Introduction

Over the past couple of decades, a burgeoning stream of research has demonstrated that when companies are collapsing or experiencing declining performance, some highly skilled individuals jump ship to avoid being stigmatised and stereotyped ( Jiang et al., 2017; Semadeni et al., 2008; Sutton and Callahan, 1987; Pozner, 2008). Indeed, threat of business failure has an emotional and psychological effect which then influences employees’ mobility just before or after the collapse (see Shepherd, 2003). Given that top-management team members are often stigmatised by failure, it makes sense for some to jump ship (Wiesenfeld et al., 2008). Nevertheless, there might be another side of the coin where some highly skilled individuals and reputable organisations decide to get “on board” such failing firms. Indeed, human capital accumulation can play a pivotal role in reversing the business decline process (see D’Aveni, 1990). Yet the theoretical grounds on which the current streams of scholarly works have been reformulated and examined have yet to fully embrace and explore both dimensions of human capital flows just before business collapse. Although human capital diffuses in, out and through declining organisations before collapse, many of the existing scholarly works have examined one type of human capital flow at a time ( Jiang et al., 2017; Semadeni et al., 2008), with little or no attempt to integrate these streams of research. This lacuna in our understanding is surprising given that there still remains a lack of a comprehensive and integrated conceptual model to articulate different aspects of human capital flow into or out of collapsing firms. Given that human resource remains one of the most valuable organisational strategic assets (Crook et al., 2011), inflows and outflows can play a pivotal role in determining a firm’s ability to combat performance decline (see Pennings et al., 1998). Although the possession of scarce human capital is important to sustain competitive edge, the ability to control the flow is a quintessential element during turbulent periods (Ployhart et al., 2009; Ramadan et al., 2017). Accordingly, the purpose of this paper is to examine the dynamics of human capital accumulation and human capital depletion in the processes leading to business failure. This issue of human capital flows is particularly important given that most collapsed firms experience some level of performance deterioration, and inward and outward flows of human capital preceding the actual business failure. Indeed, such analysis could help to differentiate the varying effects of human capital flow in determining organisational life chances.

Purpose – Nowadays, foreign capital inflow (FCI) is considered as a catalyst for economic development and an important source of transferring technology and foreign exchange earnings from developed to developing countries. The purpose of this paper is to study, first, the impact of different forms of FCIs, namely, foreign direct investment (FDI), personal remittances (PR) and official development assistant (ODA) on economic growth on 26 top African countries; and, second, which of them is more effective on economic growth of the studied countries. The results of this paper are very important for host governments’ policy and help them to design their economic plans to absorb the suitable foreign inflow. Design/methodology/approach – The paper uses Pooled Mean Group (PMG) econometric technique to estimate the heterogeneous panels over the period 1992–2016. Findings – The results of the study show that all three forms of FCIs have positive and significant effects on economic growth in the long and short run. However, the PR had the most effect on economic growth in the long and short run. The study suggests that the governments should design and implement appropriate fiscal, monetary and trade policies in order to create and improve an enabling environment to attract FCIs as a supplementary source of domestic investment. Research limitations/implications – The research limitations of this paper are as follows: data sets of FDI, PR and ODA were available not for all African countries; and, data sets that were available were of before the year 1992. Thus, the research is done for the African countries which had the data sets after the year 1992. Practical implications – The result of this paper indicates the impact of each FDI, PR and ODA in economic growth. So, countries can take more attentions to each of them on economic planning. Social implications – FCIs are one of the important external source of exchange for each country. So, the study of importance of each of them is necessary for economic planning. Originality/value – Most of the previous studies have examined the impact of three different forms of FCIs on economic growth separately, on different countries and regions and using various models and econometric techniques. One of the contributions of this paper is focused on the impacts of FDI, PR and ODA on economic growth separately and simultaneously in 26 top recipient African countries and using the PMG technique which is an advanced econometrical estimation and studied less about it. The other contribution of this research is the comparison of the impact of different FCIs on economic growth, and it is very important for governments’ economic policy.

Introduction

The developing countries can accelerate the speed of economic growth through the transfer of advanced technology and innovations of developed countries through attracting various forms of foreign capital inflows (FCIs). Most of the economists confirm a positive relationship between FCIs and economic growth. Of course, the effect of FCIs varies from one country to the others and also from one group of countries or region to the others; and it depends on the economic environment and governments’ policies (Nwaogu and Ryan, 2015). The different forms of FCIs are foreign direct investment (FDI), personal remittance (PR), official development assistance (ODA) and foreign portfolio investment. Among them, FDI, PR and ODA are the most important sources of FCIs in the most host (or recipient) countries. FDI is an investment in a business by an investor country for which the foreign investor has control over the company purchased. OECD defines “control” as owing 10 percent or more of business. FDI can be a tremendous source of external capital for a developing country, which can lead to economic development. FDI may also provide some great advantages for multinational corporations such as access to foreign markets, access to natural resources and it reduces the cost of factors production (www.oecd.org, 2016). Remittances are mainly in the form sent by non-resident to their household (resident) in the home country. In other words, PR are defined as transfers of a sum of money that follow unidirectional paths from a migrant to his or her sending relations and or friends, community, and country (Majumder and Donghui, 2016). PR are one of the largest sources of external funding for developing countries and three times the size of ODA while supplementing the domestic incomes of millions of poor families across the world. ODA refers to foreign aids, in other words, the flow of financial resources from the central or local government of donor countries and multilateral agencies to developing countries. ODA is intended to promote the economic development and to improve the quality of life in developing countries (www.oecd.org, 2016). Most of the African countries suffer from the low finance sources or old technology to develop their industrial projects, and the domestic savings or native technology is not enough and suitable to implement advanced plans. So, they have to provide the shortage of financial reserves or modern technology from abroad. The African countries have not been more successful to attract FCIs. In the last two decades, for instance, the ratio of investment to GDP in African countries averaged at about 18 percent of GDP which was well below the ratios attained by similar countries of Asia (30–32 percent) and Latin America (20–25 percent) (www.world bank.org, 2016). The African countries also face the difficulties such as severe unemployment, heavy external debts and economic stagnation.

The determination of foreign exchange rates has long been an important but empirically challenging topic in international economics. Models that aim to relate foreign exchange (FX) rates directly to macroeconomic fundamentals tend to have disappointing out-of-sample and forecasting properties (Meese and Rogoff, 1983; Cheung et al., 2005, 2017). Instead of contin uing to try to model exchange rates primarily as variables that equilibrate exports and imports of goods and services across countries, economists turned to modeling exchange rates as the relative prices of assets denominated in various currencies, with trade flows and financial flows both responding to asset demands and supplies. Moreover, beginning with the work of Glosten and Milgrom (1985), Kyle (1985), and Admati and Pfleiderer (1988), it has been argued that in order to understand the price formation in a financial market more fully, one needs to distinguish between the private and public information sets of market participants. Because published data about macroeconomic fundamentals constitute public information, models that rely exclusively on macroeconomic fundamentals are bound to disappoint as the miss the influence investors’ private information. There is by now broad agreement among researchers that FX order flow, defined as the difference between buyerinitiated and seller-initiated transaction volumes in the FX market, helps explain exchange rates because it conveys investors’ private information. Market-relevant private information can pertain to future changes in aggregate economic activity and inflation as well as to firm-level cash flows and discount rates. FX order flow that is driven by market participants’ private information (‘‘informed trades”) should have, in principle, a permanent effect on exchange rates. In contrast, FX order flow that is not driven by private information (‘‘noise trades”) should have at most a temporary impact on exchange rates.

Sometimes financial crises make policy-makers stop and rethink whether they know what they think they know about how economies work and what the proper economic policy responses should be to prevent and mitigate such crises. Was this time different? It has been well established that the International Monetary Fund (IMF) was generally skeptical for the regulation of cross-border financial flows from the 1980s to the run up to the global financial crisis (Abdelal, 2007; Chweiroth, 2009; Moschella, 2010; Gallagher, 2015). In the wake of the crisisthe IMF surprised many observers by openly embracing capital controls to both prevent and mitigate financial crises. The IMF supported the use of capital controls on inflows in a number of countries such as Brazil and South Korea (Gallagher, 2015). Mostsurprising to many wasthe IMF’s outright advocacy for the use of capital controls on outflows in Iceland as part of that country’s post crisis stand-by-agreement (Sigurgeirsdottir and Wade, 2015). In some ways, advocating for the appropriate use of capital controls is new policy at the IMF. In 2012, the IMF adopted a ‘new institutional view’ on capital account liberalization and controls that states that capital account liberalization is not always optimal and that under certain conditions capital controls on inflows and outflows can be appropriate to prevent and mitigate financial instability (IMF, 2012). Thisshift hasreceived a significant amount of attention, however there is yet to be a rigorous account of whether the IMF has put its new words into action. This paper sets out to do just that.