The Impact of Corruption on Liquidity, and Foreign Equity Investments in International Capital Markets - Article Example

While the article suggests that the well-functioning of a financial enterprise is only possible with the reliability of sustainable market conditions and crystal clear transparency of transactions. Many authors like Shleifer and Eleswarapu consider financial business confronts several conditions that pose a dangerous threat to liquidity; most of them are centered on corruption, government involvement in the financial sector, and malpractices due to poor management.

This study is an improvement to various findings mentioned in the previous literature of many economists but they were initially limited to macroeconomics or firm-level corporate finance studies without consideration of the impact of t the constraints as a relationship with international financial crises.  The authors summarize the impact of corruption in three ways; possible reduction in foreign portfolio investment inflow, the negative coefficient on the nonlinear for on equity investment, and in some contexts, inconsistent behavior of foreign investment in countries with different levels of corruption.  The elaboration of the research element is divided by the authors into six segments like relevant literature, hypothesis, data selection, empirical methodology, empirical results, and the conclusion.

Earlier pieces of literature notify the significant reduction in market investment as a direct co-efficient to an increased level of corruption. State-level political corruption is identified as the deed of the government of a country misallocating or selling state capital funds and property to private parties. As per the transparency index, for a complete fall in equity, it was calculated that one-third effect of corruption was enough. Therefore, countries like Hong Kong and Singapore have set up agencies acting against corruption whereby they secured better inflow.  However, corruption takes a positive note as it saves them time and complications of law when large multinational companies try to invest in a foreign country. The analysis made in the study is quantitative in expression. Since the reference posted in necessary places pinpoint the accuracy of the literature.

Even a distinctive reader can find little reasons to differ from the views of the authors, for they have clarified the entire query list a reader may probably make. All the features are relevant to the assumptions and investigative levels of market financing risks basically related to corruption and political conditions in different countries of separate economic zones of the world. The calculations based on average risk on the average level of corruption and its correlation with calculated execution risk are clearly assessed for the easy analysis of economic constraints. However, the reference, “Effective judicial system can also reduce corruption” (pg.23)is a little disputable because the article asserts that government interference in public financing is a matter of diminishing foreign equity, it yet to be answered if the judiciary can still be outside the frame of the sovereignty of the government. As a final statement, this article is well-edited and accurately spelled; therefore a suggestion is not demanded typos or misappropriations of expressions.

Concisely speaking, if I was required to conduct a study on the same topic, I would surely refer to this article as a guide. On the extension of the analysis, micro-level economic functions and privatized business units would be of greater concern. Since the economy starts basically from an individual, economic models and study groups should be chosen from even among the commoners. My focus would also cover areas of concerns like saving habits and mini micro-finance schemes and the risks they carry in relation to government policies and corruption. In my opinion, a question can be effectively raised as to how to facilitate the stability of foreign equity in a comparatively risky market; for which the answer could be suggestions for setting up new globalized segments of locally managed finance and business enterprises without the involvement of local bureaucrats. In such a way a foreign bank can secure widespread business at investors’ risk and mostly without the help of local office management if the business is carried out using the cybernetic and electronic channels of operation.