Product market relationships and cost of bank loans: Evidence from strategic alliances

This paper examines the relation between strategic alliances and non-financial firms’ bank loan financing. We construct several measures to capture firms’ alliance activities. The key finding is that borrowing firms with active alliance involvement experience lower cost of bank loans. The reduction of borrowing cost is strongest for financially unconstrained firms and firms with high G-index and intensive monitoring from institutional investors. We also relate various characteristics of alliance agreements to the cost of bank borrowing, and find evidence supporting market power hypothesis and organizational flexibility hypothesis. We further report that allying with a prestigious partner (i.e., S&P 1500 firms) provides certification effect that lowers bank loan cost. In addition, firms positioned in the center of the alliance network enjoy lower cost of bank loans. Lastly, we document that firms engaging in alliance activities expand their debt capacity and are less likely to use collaterals and covenants in their bank loan contracts.     

Bank ownership and efficiency in China: What will happen in the world’s largest nation?

China is reforming its banking system, partially privatizing and taking on minority foreign ownership of three of its dominant “Big Four” state-owned banks. This paper helps predict the effects by analyzing the efficiency of Chinese banks over 1994–2003. Findings suggest that Big Four banks are by far the least efficient; foreign banks are most efficient; and minority foreign ownership is associated with significantly improved efficiency. We present corroborating robustness checks and offer several credible mechanisms through which minority foreign owners may increase Chinese bank efficiency. These findings suggest that minority foreign ownership of the Big Four will likely improve performance significantly.     

Seasonal Cointegration and Long‐Run Neutrality of Money in the USA

Using the notion of seasonal cointegration and a monetarist model, this paper re‐examines the long‐run monetary neutrality hypothesis, based on the seasonally unadjusted quarterly data of the US over the period 1959Q1–2004Q4. The results indicate that money is cointegrated with price at all possible frequencies while real output is cointegrated with price only at an annual frequency. The cointegration between money and price at the zero frequency, and non‐cointegration between real output and money at all possible frequencies, suggests that money affects nominal but not real variables in the long run.     

Evaluating the Performance of Investment Funds in Turkey

It is important to determine the most appropriate levels of risk and return for small investors. For that purpose, the investment funds are very important tools to create a portfolio for small investors, to deploy the potential risks in optimal proportions, and to direct investors. In this study, the performance of 83 pieces of investment funds will be evaluated which are treated in Turkey dates from January 1, 2010 to December 31, 2012 with performance evaluation methods such as Sharpe, Modigliani （M2） that is based on the standard deviation, and Treynor, T2, Jensen that is based on systematic risk （beta）, and the highest and lowest performance investment funds will be presented. The aim of the study is to examine the success of the investment fund managers whether they could estimate the course of the market well or not regarding time period. The empirical results show that the investors who invest on the funds that have negative risk premium by investing in the investment funds getting under the risk cannot get more excess return than getting the return from the risk-free interest rate as treasury bills. The result implies that it could be said that the systematic and total risks of all investment funds are low and they are not sensitive to the developments in the market, and thus, regarding funds could be called as conservative funds.     

The effects of focus versus diversification on bank performance: Evidence from Chinese banks

This paper investigates the effects of focus versus diversification on bank performance using data on Chinese banks during the 1996–2006 period. We construct a new measure, economies of diversification, and compare the results to those of the more conventional focus indices, which are based on the sum of squares of shares in different products or regions. Diversification is captured in four dimensions: loans, deposits, assets, and geography. We find that all four dimensions of diversification are associated with reduced profits and higher costs. These results are robust regardless of alternative measures of diversification and performance. Furthermore, we observe that banks with foreign ownership (both majority and minority ownership) and banks with conglomerate affiliation are associated with fewer diseconomies of diversification, suggesting that foreign ownership and conglomerate affiliation may play important mitigating roles. This analysis may provide important implications for bank managers and regulators in China as well as in other emerging economies.     

Growth Strategies and Value Creation: What Works Best for Stock Exchanges?

In recent years, demutualized stock exchanges increasingly have been engaging in mergers and acquisition (M&A) and alliance activities. To examine the effect of these growth strategies on exchange shareholders’ value creation, we focus on 15 public stock exchanges and investigate their short‐run share price responses to the formation of 111 M&As and alliances around the world spanning the period 2000–2008. Our findings show that the average stock price responses for M&As and alliances are positive. M&As create more value than alliances. For alliances, joint ventures generate more value than nonequity alliances. More value accrues when the integration is horizontal than when it is vertical. Cross‐border integration creates more value than domestic integration. In addition, there is evidence of learning‐by‐doing effects in stock exchange integration activities. Finally, we find that when the partnering exchange is located in a country with better shareholder protection, accounting standards, and capital market development, more shareholder value accrues to our sample exchange. These patterns are consistent when we examine the exchanges’ long‐run performance.     

Strategic Conservative Earnings Management of Technology Firms: Evidence from the IPO Market

In this paper, we investigate the conservative earnings management strategies of technology firms in the IPO market. We hypothesize that technology IPOs, due to their fewer tangible assets, more information asymmetry, and higher uncertainties of future cash flows, tend to have higher litigation risk. At equilibrium, technology firms are more motivated to strategically employ conservative earnings management during the IPO process, to mitigate their higher litigation risk. Using a sample of U.S. IPOs, we find that technology IPOs, on average, involve significantly more conservative earnings management, especially during the bubble periods. Our results also show that the conservative earnings management strategies of technology firms tends to have a greater impact on their underpricing than for non‐tech firms, and thus effectively reduce their risk of being a target in the securities class action lawsuits.     

The European Redemption Pact: Implementation and macroeconomic effects

One possible solution to the sovereign debt crisis is the European Redemption Pact (ERP) proposed by the German Council of Economic Experts. The ERP provides sustainable financing conditions for participating sovereigns to facilitate bringing public debt ratios below the reference value of 60% within the next 20 to 25 years. In this paper, we describe one possible way of implementing the ERP and analyse the fiscal effects of participating in the ERP. The macroeconomic impact of the proposal is illustrated with the multi-country model NiGEM.     

General equilibrium with price intervention policies: a computational approach

Three alternative formulations of general equilibrium under price intervention policies are presented in a computational framework. In the first, minimum or ceiling prices are supported by a government marketing agency. Revenues are recycled to consumers in the minimum price case, and losses covered by lump sum taxes in the ceiling case. Similarities to general equilibrium with taxes are stressed. In the second, sector specific minimum prices are considered similar to Harris-Todaro equilibria. In the third, government price supports operate through market interventions. Existence is discussed, numerical examples presented, and possible policy applications outlined.