The motives and performance of cross-border acquirers from emerging economies: Comparison between Chinese and Indian firms

During the recent decade, the world has witnessed the rapid growth of MNEs from emerging economies. Their increasing participation in cross-border mergers and acquisitions has raised great attention in the extant literature. This study evaluates the value creation from these cross-border transactions from two representative emerging countries, namely China and India, and determines factors that result in the different performance of these international acquisition activities. Cross-border acquisitions conducted by these countries’ companies indeed lead to significant shareholder wealth creation. Furthermore, Indian shareholders are more likely to benefit from deals in small cultural distance countries, while Chinese investors gain from the cross-border expansion of manufacturing companies. Location also affects the performance of cross-border acquisitions, with acquisitions into developed countries generating higher returns to shareholders. Our sample consists of 203 Indian and 63 Chinese cross-border deals over the period 2000–2010 and our results hold after controlling for various deal-level and firm-level characteristics.     

Stock price impact of diversity in investor beliefs

I re-examine the association between diverse investor beliefs and stock prices within the context of an imperfect competition model. The relationship is ambiguous because of several different effects of a change in diversity in investor beliefs. This has implications for empirical design and explains why 40 years of evidence on this association is inconclusive.     

The Predictive Ability of Direct Method Cash Flow Information

This research examines the predictive ability of direct method cash flow information for firms that use the direct method in their cash flow statements. We use cross sectional and pooled time series regressions to predict operating cash flow data and assess relative predictive ability. Principal findings are: (1) past period direct method cash flow data predict future operating cash flow better than indirect method cash flow data; (2) past period direct method gross operating cash flows predict future net operating cash flow better than past period net operating cash flow; (3) measurement error exists in estimates of direct method operating cash flows from other financial statement data; (4) past operating cash flows predict future operating cash flows better than earnings and accruals.     

Entry, reforms, complementarity and performance: A tale of two Indian manufacturing sectors

In this paper, we use plant-level data from two Indian industries, namely, electrical machinery and textiles, to examine the empirical relationship between structural reforms like abandonment of entry restrictions to the product market, competition and firm-level productivity and efficiency. These industries have faced different sets of policies since Independence but both were restricted in the adoption of technology and in the development of optimal scales of production. They also belonged to the first set of industries that benefited from the liberalization process started in the 1980s. Our results suggest that both the industries have improved their efficiency and scales of operation by the turn of the century. However, the process of adjustment seems to have been worked out more fully for electrical machinery. We also find evidence of spatial fragmentation of the market as late as 2000–2001. Gains in labour productivity were much more evident in states that either have a strong history of industrial activity or those that have experienced significant improvements in business environment since 1991.     

Optimal wage contracts under asymmetric information and moral hazard when investment decisions are delegated

I derive an optimal wage contract when risky investment decisions are delegated by riskaverse owners/investors to risk-neutral agents. The owners/investors do not know the probability distribution over the returns of any investment made by an agent. They know only the mean and the variance, and the upper and lower bounds of the return realizations of the different positive net present value (NPV) investment opportunities that can be discovered by their agents. They observe only the returns realized at the end of the period. Moral hazard with respect to investments made by agents, who are protected by limited liability, is also possible: an agent can falsely claim to have invested in one type of positive NPV investment opportunity and invest in another, or the agent can falsely claim to have invested in a positive NPV investment and invest in a negative NPV investment. I show that an optimal wage contract is simple under such conditions of severe asymmetric information and moral hazard. (JEL G20, G31)     

Information theoretic approach to migration analysis

Information theory is employed to look at certain aspects of migration. It is suggested that the dividedness of a population into “movers” and “stayers” is better assessed by migration entropy. The notion of “migration inequality” is introduced and the principle of minimum entropy suggested as a criterion for fitting migrations models. Canadian census data are utilized for illustration purposes.     

Out of Africa: The role of institutional distance and host-home colonial tie in South African Firms’ post-acquisition performance in developed economies

The colonial ties and institutional distance affect the cross-border acquisition performance of internationalizing South African firms who acquire targets in developed economies. Along with these main effects, this paper examines the moderating effect of the colonial tie on the effects of institutional distance on post-acquisition long-term operating performance. Using data on South African acquisitions in developed economies, this study finds that the colonial tie has a negative impact on the long-term operating performance of South African acquirers. Yet, the colonial tie also moderates the effects of institutional distance. This work contributes to the discussion on host-home country institutional distance and its impact on post-acquisition long-term operating performance and how colonial past can influence the performance of acquirers from South Africa and other such countries with colonial history.