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Guest Editors' Introduction

This is the second issue of Emerging Markets Finance & Trade (EMFT) featuring papers presented at the Eurasia Business and Economics Society (EBES) Conferences, which bring together many distinguished researchers from all over the world to present new research, exchange information, and discuss current issues. Although the conferences focus on Europe and Asia, papers from all major business, finance, and economics fields—theoretical or empirical—are included in the program. Therefore, the scope of the issue is quite wide. The conference was organized in Istanbul on May 26–28, 2010, with the support of the Central Bank of the Republic of Turkey, Istanbul Economic Research Association, and Turkish Derivatives Exchange (Turkdex). The papers in this issue were selected from the 263 conference papers presented at the conference. All the papers went through the standard referee and editorial process of the journal, including assessments by two anonymous referees, and they benefited from the comments made during the conference as well. This issue includes five conference papers. In the first paper, Yiwei Fang, Iftekhar Hasan, and Katherin Marton investigate the relationship between institutional development and the performance effect of bank diversification in transition economies. The literature on the relation between bank diversification and its effect on bank performance is inconclusive. While some argue that diversification among the line of businesses in the banking sector might increase banks’ efficiency in capital allocation, others argue that if a bank does business in many different sectors, it might lose its comparative advantage and decrease its performance. The authors test the impact of institutional reforms in fifteen East European transition countries on the performance of bank loans and assets diversification using data from 1997 to 2008. They find that asset diversification is positively related to bank performance, whereas loan diversification is negatively related. They also show that institutional reforms may have different effects on bank performance. For instance, while banking liberalization and corporate governance restructuring increase profits from loan and asset diversification, legal reforms reduce profit gains. In the second paper, Heeho Kim and JooEun Cho analyze the degree of capital mobility of selected countries relative to China. They discover that uncovered interest parity (UIP) between China and the United States, Japan, the United Kingdom, Singapore, Korea, Malaysia, and Thailand does not hold and test for the existence of additional risk factors to explain the failure of the UIP. They argue that the existence of insufficient institutional development, weak macroeconomic fundamentals, and underdeveloped financial markets could justify the rejection of UIP. They show that including account portfolio equity flows and market risk do explain the failure of the model. In the third paper, Laura Márquez-Ramos investigates the effects of the adoption of International Financial Reporting Standards (IFRS) on international trade and foreign direct investment (FDI). She finds that IFRS encourages international trade in goods and foreign direct investment by reducing the cost of information and uncertainty. She