Earnings announcement timing,uncertainty, and volatility risk premiums

We examine the relationship between firms’ quarterly earnings report timing and uncertainty before quarterly earnings announcements. Prior research provides conflicting predictions on how investor uncertainty and report timing are related. Using implied volatilities from equity options and the realized returns to straddle positions, we find evidence that uncertainty and volatility risk premiums are higher for firms that report later in the quarter. Further tests show that the increase in option premiums is unexplained by risk factors suggesting a mispricing by investors. These results are not associated with static firm-level factors and our findings are concentrated in high growth firms.     

Institutional conditions,economic policy uncertainty and foreign institutional investment in China

This paper investigates the influence of host and home country institutional conditions on foreign institutional investment. Utilizing longitudinal and multilevel data on foreign institutional investment in Chinese listed firms between 2004 and 2017, we document that foreign institutional investment decreases with increasing economic policy uncertainty in the host nation. We also find that foreign institutional investors respond more strongly to local economic policy uncertainty when their home nations are closer to China, are culturally and administratively similar to China, operate a smaller domestic stock market, and have weaker minority shareholder protection. The impact of economic policy uncertainty on foreign institutional investment is also stronger when the host nation institution is more developed and open.. Moreover, we reveal the mediating role of stock market volatility on this relationship. Overall, we document that foreign institutional investment is not only shaped by institutional conditions in the host country but also influenced by home country characteristics that define geographical and institutional distance between home and host nations.     

The influence of oil price uncertainty on stock liquidity

Using high-frequency intraday data, this study provides strong empirical evidence that elevated oil price uncertainty has a significant and negative influence on stock liquidity. More specifically, the results suggest that large oil-related corporations are most affected, followed by small-listed firms more generally. Further analysis reveals that liquidity providers widen the bid-ask spreads to protect themselves during periods of high oil price uncertainty for large-listed firms, particularly those in the oil industry. These findings are robust to various measures of oil price uncertainty, different market conditions, structural break analysis and show the influence of oil price movements extends to stock liquidity.     

Do cross-border mergers and acquisitions increase short-term market performance? The case of Chinese firms

Despite the new momentum in cross-border mergers and acquisitions (M&As) by emerging market firms, we have a limited understanding of the impact of these activities. Drawing on signalling theory and the institution-based view, this paper examines the extent of stock market reactions to the announcement of cross-border M&A deals, based on an event study of a sample of Chinese firms during the period 2000–2012. The findings indicate that the announcement of cross-border M&As results in a positive stock market reaction; this effect is more significant in the mainland Chinese stock markets (Shanghai and Shenzhen) than that in the Hong Kong market. The shareholders of Chinese firms that acquire a target firm in a host country with a low level of political risk gain higher cumulative abnormal returns than those firms targeting companies in countries with a high level of political risk. The shareholders of Chinese state-owned enterprises experience lower abnormal returns compared with those of Chinese privately owned firms when engaging in cross-border M&A deals.     

A comparative analysis of the role of national culture on foreign market acquisitions by U.S. firms and firms from emerging countries

Do firms from emerging economies differ from U.S. firms in their foreign market acquisition strategies? A comparison of cross-border acquisitions by firms from the United States and 18 emerging countries shows that (1) firms from both the United States and emerging countries target countries that are culturally closer to their home countries, (2) a strong interaction effect occurs between market potential and cultural distance for emerging country firms as the market potential increases (i.e., at high market potential, firms from emerging economies are willing to overlook cultural distance), (3) no interaction effect occurs between market potential and cultural distance for U.S. firms, and (4) different cultural dimensions affect the market entry strategies of U.S. firms and firms from emerging countries.     

The stock market performance of exploration-oriented and exploitation-oriented cross-border mergers and acquisitions: Evidence from emerging market enterprises

This study builds on insights from mergers and acquisitions (M&A) studies and the perspective that stock market performance is affected by the M&A strategies of firms. Past studies show that acquisitions are an effective way to exploit existing knowledge and explore new possibilities. We argue that stock market performance can be a response to exploration/exploitation strategies in the context of cross-border M&As by emerging market multinationals. Based on cross-border M&A data of Chinese multinationals, we find that exploration-oriented acquisitions have worse stock market performance than exploitation-oriented acquisitions. Furthermore, we find support for our premise that acquiring firms can reduce the risk of exploration-oriented acquisitions by having more high-discretion slack resources or by maintaining a high level of equity share of the target firm. In addition, acquiring firms perform better if they conduct exploration-oriented acquisitions in related industries. Our results contribute to a better understanding of exploration and exploitation in the context of M&As.     

Towards a behavioral theory of MNC response to political risk and uncertainty: The role of CEO wealth at risk

Drawing on behavioral agency research, we examine how CEO equity wealth at risk of loss in the form of restricted stock influences the response of multinational corporations (MNCs) to political risk and political uncertainty. In a sample of 14,765 cross-border greenfield investments and full acquisitions announced by U.S. firms from 2004 to 2016, we find that while greater CEO equity wealth at risk of loss in the form of restricted stock strengthens the (positive) relationship between political risk and MNCs’ choice of greenfield investments over full acquisition, CEO equity wealth at risk of loss does not influence the relationship between political uncertainty and MNCs’ choice of greenfield investments. We contribute to international business theory by introducing a behavioral theory of MNC responses to adverse host country political environments. As such, unlike previous studies that have treated political risk and political uncertainty interchangeably, our study highlights the need to differentiate between political risk and political uncertainty as related yet distinct concepts.     

Economic policy uncertainty,CDS spreads,and CDS liquidity provision

Using a news-based index of economic policy uncertainty (EPU), we find that EPU is positively associated with credit default swap (CDS) spreads and negatively associated with the number of liquidity providers in the CDS market. A 10% increase in EPU leads to an 8.4% increase in CDS spreads and a 4.0% decrease in the number of liquidity providers. Furthermore, the effects of EPU are persistent and robust after controlling for macroeconomic variables. Our results are also robust to different econometric methodologies. Overall, our findings suggest that, when EPU is high, investors find credit protection more costly and difficult to purchase.     

The role of market orientation,relational capital,and internationalization speed in foreign market exit and re-entry decisions under turbulent conditions

Firms’ internationalization strategies can vary with changing environments. Occasionally, a firm may choose to re-enter a foreign market it had abandoned in the past if environmental conditions have improved. The present study provides insight into the foreign market exit and subsequent re-entry processes. Specifically, we utilize the strategic flexibility perspective to investigate the impact of market orientation, relational capital, and internationalization speed on market exit and re-entry decisions under turbulence in a host market. Using a sample of 156 Turkish firms that operated during the Arab Spring in the Egyptian market between 2010 and 2015, we find that the market-oriented firms are more flexible in their market exit decisions than less market-oriented organizations. In addition, relational capital specific to the host country has a negative impact on market exit decisions under conditions of political conflict. The results also suggest that strong ties with partners in the host country increase the propensity to re-enter the market.     

Wealth effects on cross-border acquisition firms from emerging economies

Cross-border acquisitions (CBAs), as a corporate expansion strategy, are being espoused by emerging market firms (EMFs) to overcome their competitive disadvantage at the global level. The objective of this paper is to analyse the wealth effects of cross-border acquisition announcement on the acquiring firms from emerging economies during the period of 2001–17. Wealth effects have been measured in terms of short-term change in equity prices (investors' reaction) around the public announcement of 553 and 125 overseas acquisitions by Indian and Chinese listed firms respectively. The investors' reaction to the acquisition of a foreign target has been captured using the event study methodology. Further, a disaggregated analysis has been conducted to gauge the impact of various deal-specific factors, the legal structure of the target firm and the development status of the target country on the wealth creation potential of a cross-border acquisition.Both Indian and Chinese investors have responded favourably to the announcement of international acquisitions as exhibited in significant and positive average abnormal returns of 0.71% and 0.23% respectively on the event day. Further, it is revealing to note that investors in these economies differ widely with regard to their perception pertaining to the method of payment and acquisition strategy. At the same time, the extent of wealth creation is higher when acquired firms are based in developed economies possessing high quality resources and advanced technology along with better institutional and regulatory milieu; Indian as well as Chinese markets have experienced larger abnormal returns on acquiring advanced vis-à-vis developing market firms.     

Completing the technology transfer process: M&As of science-based IPOs

This paper investigates the valuation and merger and acquisition (M&A) dynamics of the population of 254 biotech firms that went public in Europe between 1990 and 2009. Among these, we identify a high proportion (40%) of firms affiliated with a university or another public research organization. After controlling for intellectual capital and other possible determinants, we find that affiliation with a university is recognized as beneficial by investors. This affiliation enhances the valuation of the firms and the probability of being targeted in subsequent M&As, particularly in cross-border deals. We conclude that following the initial public offering acquisitions by incumbent firms are mechanisms to finalize the technology transfer process started in a research institute. Our findings allow us to derive implications for venture investors, academic entrepreneurs, university managers, and policymakers.     

The asymmetric effect of warranty payments on firm value: The moderating role of advertising,R&D,and industry concentration

Changes in firms’ warranty payments are informative signals that enable investors to form timely expectations about potential changes in product quality. The authors’ survey shows that warranty payments affect potential investors’ product quality assessments and stock investment likelihood. Their quantitative analysis reveals an asymmetric stock market reaction: unanticipated increases in warranty payments (which signal quality “losses”) lower stock returns but unanticipated decreases do not affect stock returns. Two important factors moderate this relationship. First, boosting advertising spending attenuates the negative stock return effect of unanticipated increases in warranty payments. Second, unanticipated decreases in warranty payments, which signal quality “gains”, translate into higher stock returns when the industry has become less concentrated. Interestingly, changes in R&D spending do not moderate investors’ response to unanticipated increases or decreases in warranty payments. The authors advise firms to use advertising to lessen the harm from warranty payment increases and to strongly communicate warranty payment decreases in the face of intensified competition. The authors also caution that offering warranties in general does not ensure greater firm value as declining quality firms that myopically offer warranty programs experience lower firm value than those that do not provide warranties.     

Home country uncertainty and the internationalization-performance relationship: Building an uncertainty management capability

We analyze the impact of home country uncertainty on the internationalization-performance relationship of emerging market firms. Building on organizational learning theory and the institutional approach, we argue that internationalization has a positive impact on the performance of emerging market firms, and that this relationship is strengthened for firms based in emerging countries with higher corruption and political risk. The reason is that by being exposed to high levels of home country uncertainty in the form of political risk and corruption, firms develop an uncertainty management capability at home that helps them face the challenges of internationalization better. We also propose that this uncertainty management capability helps emerging market firms perform better outside of their home region. We test our arguments on a sample of 536 firms from Argentina, Brazil, Chile, and Peru.     

Determining investment size and local embeddedness under host market uncertainty and growth rates

This study employs a growth options perspective to examine how multinational corporations (MNCs) design their investment attributes under the influence of host market uncertainty and growth rates. It specifically examines MNCs’ decisions on investment size and local embeddedness under host market conditions. Using data on Korean overseas manufacturing subsidiaries, we find that MNCs choose either more-local-embedded small investments or less-locally-embedded large investments under high demand uncertainty and GDP growth rates. We also find that this choice is moderated by host market political risk and competition. Our findings imply that MNCs consider both uncertainty-driven flexibility and growth rate-induced commitment when selecting international investment modes. This consideration allows MNCs to gain flexibility as well as an enhanced ability to expand in the future. This study contributes to the literature on real options and entry modes in the international business area by showing how host market conditions and investment decisions are related.     

Similarities and differences among cross-border M&A and greenfield FDI determinants: Evidence from Asia and Oceania

Firms choose either cross-border M&A or greenfield foreign direct investment (FDI) when expanding their operations overseas. In this study, by focusing on Japanese firms pursuing FDI in emerging countries in Asia and Oceania, we provide empirical evidence of the similarities and differences in cross-border M&A and greenfield FDI determinants. We derive the following four main conclusions. First, an increase in host-country population size and decreases in per capita income and corporate tax rates generally attract both inward cross-border M&A and greenfield FDI to the host country. Second, however, a home-country firm tends to choose cross-border M&A rather than greenfield FDI when the host country sufficiently implements shareholder rights laws and the firm tends to choose greenfield FDI rather than cross-border M&A when the host country adequately enforces intellectual property rights laws. Third, a firm tends to choose greenfield FDI when the firm already has regional networks in the host country and choose cross-border M&A when the purpose of the firm's overseas operations is to establish sales distribution channels. Finally, a firm pursuing cross-border M&A experiences higher cumulative abnormal returns in its stock prices following the investment, while a firm pursuing greenfield FDI experiences increases in its stock prices immediately before the investment.     

The retailer's brand promotion strategy under competition: The impact of supply uncertainty

While retailers are committed to promoting product brands to increase sales quantity and brand visibility, retailers are exposed to supply uncertainty. Therefore, we explore the brand promotion strategies of retailers in a competitive model. We then investigate the decision model under three different brand strategies and explore the equilibrium outcomes of stakeholders under supply uncertainty. In addition, we analyze and discuss social welfare under different scenarios. The results show that when the promotion cost is high (i.e., the cost effect dominates the market expansion effect), neither retailer promotes the product brand. When the promotion cost is low (i.e., the market expansion effect dominates the cost effect), both retailers tend to promote the product brands. When the promotion cost and market expansion match each other, only one retailer promotes the product brand becomes the equilibrium strategy. It is worth noting that when both retailers promote the product brand, the retailer falls into a prisoner's dilemma. In addition, we find that the supply uncertainty level diminishes the cost affordability and the motivation of retailers to promote the product brands. Interestingly, the supply uncertainty level reduces the possibility of retailers being in a prisoner's dilemma. Besides, market expansion (supply uncertainty) contributes to improving (diminishing) social welfare.     

Why did the equity home bias fall during the financial panic of 2008?

Investors tend to put most of their wealth in local stocks; theories of portfolio choice and uncertainty aversion jointly predict that this home bias should increase during a financial crisis. Yet, using a sample of 45 countries, I document that the equity home bias fell during the financial panic of 2008. Exploiting bilateral stock holdings, I find that investors actively increased their home bias, but large valuation changes subsumed these trades. Across countries, the change in home bias is consistent with partial portfolio rebalancing and increased information asymmetries during the crisis.     

Actualization of growth potential in international joint ventures: The moderating effects of localization strategies

We employ the growth options perspective to examine how multinational corporations’ localization strategies facilitate the actualization of growth potential preserved in international joint ventures (IJVs). This study uses a data of Korean IJVs; it accounts for the endogeneity associated with a firm’s decision to exercise growth options through a two-stage model. We find that the enlarged IJVs, via conversion to majority ownership under reduced host market demand uncertainty, performed better. We also find that the realized growth potential are larger for IJVs that have more local business ties with other firms, or that hire more local employees. This study contributes to the growth options literature by examining the strategies that enable firms to exploit evolved exogenous uncertainty, and thus actualize upside growth potential.     

Do Announcements About Corporate Social Responsibility Create or Destroy Shareholder Wealth? Evidence from the UK

This paper investigates the stock market reaction to the announcement that a firm has been included in the UK FTSE4Good index of socially responsible firms. We use the announcement of firm inclusion in the index to estimate the stock market reaction to a firm being classified as socially responsible. This is an important test of whether investors view the undertaking of socially responsible activities by firms as a value increasing or value decreasing initiative by management. We do not find strong evidence in favour of a positive market reaction. However, there is a large cross-sectional variation in the market reaction to this announcement. Investors appear to be reacting to this event and there are a number of firm characteristics that are well-established proxies for CSR that can explain the market reaction.     

Cross-border private equity syndication: Institutional context and learning

Private equity (PE) has become an increasingly international phenomenon but there is a lack of research that looks at the process by which PE firms invest across borders. We aim to fill this gap in the literature by examining the role of institutional context and organizational learning as determinants of cross-border PE syndication. We examine these issues by studying the international expansion by later-stage UK PE investors into continental Europe over the period 1990 to 2006. Our results indicate that institutional context (in terms of the number of PE firms in the local environment and the presence of investment bankers in the local market) and organizational learning (in terms of the PE firm's experience in the host country; the PE firm's multinational experience; and the number of investment managers per portfolio company; but not the presence of local offices) are significantly related to the use of cross-border syndicates. Implications for theory and practice are suggested.