Corporate Multinationality and Acquirer Returns

This paper provides evidence on how corporate multinationality from the perspective of acquiring firms relates to M&A returns. Using multivariate regressions and a large dataset of over 6,000 M&As (both cross-border and domestic) by UK firms during 1987 to 2014, the paper finds multinationality to be associated with significantly higher short-run announcement returns and long-run operating performance. While the multinationality premium (higher M&A returns for multinationals) persists over time, it seems to be restricted to firms with superior resource/managerial capabilities and minimal agency problems. Finally, the multinationality premium appears to be driven by foreign acquisitions into advanced economies. The results are robust to correcting for sample selection bias and controlling for several firm and deal characteristics, as well as accounting for firm-, industry-, and year-fixed effects. Collectively, the findings imply that multinationality could be a source of value creation for acquiring firms, particularly in foreign acquisitions, which tend to be complex, and, thereby, require superior managerial capabilities to succeed.     

EXCHANGE RATE FUNDAMENTALS,FORECASTING, AND SPECULATION: BAYESIAN MODELS IN BLACK MARKETS

Although speculative activity is central to black markets for currency, the out‐of‐sample performance of structural models in those settings is unknown. We substantially update the literature on empirical determinants of black market rates and evaluate the out‐of‐sample performance of linear models and non‐parametric Bayesian treed Gaussian process (BTGP) models against the random walk benchmark. Fundamentals‐based models outperform the benchmark in out‐of‐sample prediction accuracy and trading rule profitability measures given future values of fundamentals. In simulated real‐time trading exercises, however, the BTGP achieves superior realized profitability, accuracy and market timing, while linear models do no better than a random walk. Copyright © 2013 John Wiley & Sons, Ltd.     

Illiquidity Premium in the MILA

This article analyzes the illiquidity premium in the MILA. Using seven proxies for illiquidity, we find a positive and significant illiquidity premium for our sample. A microstructure bias-free portfolio weighting based on past returns is critical in our finding of an illiquidity premium, which is robust to several methodological changes in our portfolio simulations. We also document that the premium is present only in small and high book-to-market stocks. Nonetheless, when we control for size and distress effects, the difference and significance in risk-adjusted returns between portfolios of high and low illiquidity stocks remains.     

Earnings management and accrual anomaly across market states and business cycles

This paper examines if the conditioning on market states is important to earnings management behaviors and profitability of accrual hedge strategy. This paper discusses four findings. First, accrual profits are consistently positive across both market states and significantly higher in DOWN markets. Second, while earnings management exists in both market states, the management effort is less effective and short-lived in the DOWN state. Third, this paper finds that the accrual effect exists but varies across industries. Finally, this paper examines how business cycles associate with accrual anomaly and show that accruals mispricing cannot be fully captured by macroeconomic model predicted returns.     

Mexico's private toll road program reconsidered

Mexico's private toll road program of 1989–1994 is famous both as one of the first and the most ambitious highway privatization programs among the developing countries and as one of the most dramatic failures. In just five years Mexico awarded 52 concessions totaling over 5300 km of toll roads, but as early as 1993 many of the concessions had to be renegotiated and in 1997 the government was forced to takeover 23 of them at an immediate financial cost of billions of dollars. This paper reconsiders the Mexican program and, with the benefit of hindsight, argues that it does not deserve its bad reputation. Although Mexico made some important mistakes in the design of the concessions, many of the highways turned out to be socially worthwhile investments. Moreover, the restructuring of the concessions in 1993–1997 converted many of them into financially profitable projects over the long-term, while the 1997 bailout ended up costing the government little in budget terms.     

Do German Welfare‐to‐Work Programmes Reduce Welfare Dependency and Increase Employment?

Abstract. During the last decade, many Western economies reformed their welfare systems with the aim of activating welfare recipients by increasing welfare‐to‐work programmes (WTWP) and job‐search enforcement. We evaluate the short‐term effects of three important German WTWP implemented after a major reform in January 2005 (‘Hartz IV’), namely short training, further training with a planned duration of up to three months and public workfare programmes (‘One‐Euro‐Jobs’). Our analysis is based on a combination of a large‐scale survey and administrative data that is rich with respect to individual, household, agency level and regional information. We use this richness of the data to base the econometric evaluation on a selection‐on‐observables approach. We find that short‐term training programmes, on average, increase their participants' employment perspectives. There is also considerable effect heterogeneity across different subgroups of participants that could be exploited to improve the allocation of welfare recipients to the specific programmes and thus increase overall programme effectiveness.     

Assessing cross-cultural marketing theory and research: A commentary essay

Cross-cultural research (CCR) is extremely important for advancing understanding of the range and limits of theoretical constructs and frameworks across different cultural contexts. CCR also provides an important understanding of the differences between countries and cultures. This commentary essay examines the review conducted by Engelen and Brettel (2010) and comments on shortcomings, as well as identifying areas where more needs to be done. A critical first step is to properly define the unit of analysis. This step is particularly critical as the concept of “national culture” is becoming increasingly less relevant and the appropriate culture unit for examination is often a smaller, more homogeneous grouping within a given geographic location. This view allows more meaningful inferences to be made and controls for possible contextual confounds, as well as providing a richer understanding of the limits of national culture in an increasingly global economy.     

Organizational governance and TMT pay level adjustment

This paper analyzes how the characteristics of boards and structure of ownership moderate a firm's capacity to adjust top management team (TMT) pay levels in the face of changes in its economic and complexity conditions. Using panel data from Spanish listed companies between 2003 and 2007, the results indicate that, over time, characteristics of corporate governance system contribute to give a fundamental importance to boards and ownership structure in the determination and adjustment of TMT pay. These associations appear to be even stronger than those that in other Western European and North American countries. Both the Spanish cross-holding and concentrated firms' ownership structure, and socially intervened boards play a major role in the high levels of pay received by the TMT, which, in turn, reflect a moderate adjustment of compensation practices to variations of surrounded environment factors.