Richard K' Lyons, Dean BerkeleyHaas School of Business

1
Richard K. Lyons, DeanBerkeley-Haas School of
Business
The Americas Competitiveness Forum III Financing
in Time of Crisis
2
Business creation after crises

• Keeping the Window Open

3
Agenda

• Business Creation and Destruction
• Example Window Mechanism
• Why does the Window close?
• Recurrent Crises
• Current Crisis
• Lessons on Resource Reallocation

4
Business Creation and Destruction
Source US Census Bureau
5
Business Creation and Destruction
.com burst
Source US Census Bureau
6
Business Creation and Destruction

• Fact entry gt exit in booms,
• entry exit in crises.
• First Best Efficient Reallocation or Cleansing
  Effect.
• Entry-Exit Behavior Window Mechanism

7
Example Window Mechanism

• Entry-Exit from investment point of view.
  Example IPOs open window in US

mean
Source Jay Ritter and Tim Loughran 2008, Thomson
SDC.
8
Example Window Mechanism

• Entry-Exit from investment point of view.
  Example IPOs open window in US

mean
Source Jay Ritter and Tim Loughran 2008, Thomson
SDC.
9
Example Window Mechanism

• Investors invest massively in certain periods, in
  others they dont (WINDOW CLOSED).
• Why?
• Market confidence
• Access to financing
• Proper institutional framework
• Herding (?)

10
Why does the Window close?

• Restructuring deterred by (Caballero and Hammour
  2000)
• Underdeveloped Institutions Many emerging
  economies.
• Recurrent crises.

11
Recurrent Crises
Source IMF, World Economic Outlook 2009
12
Recurrent Crises
Source IMF, World Economic Outlook 2009
13
Recurrent Crises
Bench Median
Source IMF, World Economic Outlook 2009
14
Recurrent Crises

• Large liquidations, but not always efficient
  reallocation
• Underdeveloped institutions hinder efficient
  reallocation (CH 2000)
• Some countries reallocate efficiently
• Benchmark France, Norway, Canada, US, Australia,
  UK, Netherlands, Singapore, Germany and Japan,
  Spain, Israel .
• Why?

15
Reallocation of Resources
Source World Bank, World Development Indicators
2009
16
Reallocation of Resources
Source World Bank, World Development Indicators
2009
17
Reallocation of Resources

• Latin American countries are separated from
  benchmarks trend
• Costly start a business, specially after crises
• In Latin America, Is the window likely to stay
  closed after the crisis?

18
Current Crisis
Source IMF, World Economic Outlook 2009
19
Current Crisis Causes

• Negative surprise in distress of financial
  system.
• Concentration of aggregate risk in highly
  leveraged (systemically important) financial
  institutions.
• Policy response too slow in addressing the
  consequences of the previous bullet points.

20
Lessons facilitating liquidation and fostering
reallocation

• The challenge is to ensure that reallocation
  (investment and labor mobility) be fast and
  productive. How?

21
Thanks
22
Appendix
23
Reallocation of Resources
Source World Bank, World Development Indicators
2009
24
(No Transcript)