The Effect of the Demand Side’s Confidence on the Supply Side’s Confidence: The Mediating Role of Financial Stress

Investment Management and Financial Innovations, 10(4), 43-47. December, 2013.

12 Pages Posted: 29 Aug 2012 Last revised: 25 Jan 2014

Vichet Sum

University of Maryland Eastern Shore - School of Business and Technology

Jack Chorlian

University of La Verne

Jung-Chu Lin

Takming University of Science and Technology - Department of Banking and Finance

Date Written: August 28, 2012

Abstract

This paper provides empirical evidence of how financial stress mediates the effect of the demand side’s confidence on the supply side’s confidence in the United States. Using monthly data from 1994:M2 to 2012:M5, the time-series regression analyses show that changes in the demand side’s confidence positively and significantly predicts the supply’s side confidence in the United States. The increased changes in the demand’s side confidence forecasts lower financial stress. When changes in financial stress and demand side’s confidence included in the regression to predict the changes in supply side’s confidence, the demand side’s confidence coefficient becomes statistically insignificant but the changes in financial stress coefficient is negative and statistically significant. The findings of this study imply that in a demand-driven economy, health of the financial sector plays a very important role in economic growth and prosperity because stressful financial sector puts downward pressures on businesses resulting in a higher unemployment rate in the economy due to workforce downsizing and freeze of new hire.

Keywords: business confidence, consumer confidence, financial stress

JEL Classification: E32, E44

Suggested Citation

Sum, Vichet and Chorlian, Jack and Lin, Jung-Chu, The Effect of the Demand Side’s Confidence on the Supply Side’s Confidence: The Mediating Role of Financial Stress (August 28, 2012). Investment Management and Financial Innovations, 10(4), 43-47. December, 2013.. Available at SSRN: https://ssrn.com/abstract=2137433 or http://dx.doi.org/10.2139/ssrn.2137433

Vichet Sum (Contact Author)

University of Maryland Eastern Shore - School of Business and Technology ( email )

2105 Kiah Hall
Princess Anne, MD 21853
United States
410-651-6531 (Phone)
410-651-6529 (Fax)

HOME PAGE: http://www.umes.edu/bma/Sum.html

Jack Chorlian

University of La Verne ( email )

1950 Third Street
La Verne, CA 91750
United States

Jung-Chu Lin

Takming University of Science and Technology - Department of Banking and Finance ( email )

No. 56, Sec. 1, Huanshan Rd., Neihu District,
Taipei City, 11451
Taiwan
886-2-26585801 (Phone)

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