Capital Structures in Developing Countries

This study uses a new data set to assess whether capital structure theory is portable across countries with different institutional structures. We analyze capital structure choices of firms in 10 developing countries, and provide evidence that these decisions are affected by the same variables as in developed countries. However, there are persistent differences across countries, indicating that specific country factors are at work. Our findings suggest that although some of the insights from modern finance theory are portable across countries, much remains to be done to understand the impact of different institutional features on capital structure choices.     

Equilibrium dominance in experimental financial markets

We examine the predictive power of equilibrium dominance inexperimental markets where firms with investment opportunitieshave an informational advantage over potential investors andare permitted to purchase a money-burning signal. Equilibriumdominance often fails to predict well when a Pareto-superiorsequential equilibrium is also available. Instead, equilibriumselection appears to be related to the potential earnings ofa more valuable firm that can signal its type successfully bydefecting from the sequential equilibrium.     

Financing patterns around the world: Are small firms different?

Using a firm-level survey database covering 48 countries, we investigate how financial and institutional development affects financing of large and small firms. Our database is not limited to large firms but includes small and medium-size firms and data on a broad spectrum of financing sources, including leasing, supplier, development, and informal finance. Small firms and firms in countries with poor institutions use less external finance, especially bank finance. Protection of property rights increases external financing of small firms significantly more than of large firms, mainly due to its effect on bank finance. Small firms do not use disproportionately more leasing or trade finance compared with larger firms, so these financing sources do not compensate for lower access to bank financing of small firms. We also find that larger firms more easily expand external financing when they are constrained than small firms. Finally, we find suggestive evidence that the pecking order holds across countries.     

Post-merger restructuring and the boundaries of the firm

We examine how firms redraw their boundaries after acquisitions using plant-level data. We find that there is extensive restructuring in a short period following mergers and full-firm acquisitions. Acquirers of full firms sell 27% and close 19% of the plants of target firms within three years of the acquisition. Acquirers with skill in running their peripheral divisions tend to retain more acquired plants. Retained plants increase in productivity whereas sold plants do not. These results suggest that acquirers restructure targets in ways that exploit their comparative advantage.     

The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?

We analyze the market for corporate assets. There is an active market for corporate assets, with close to seven percent of plants changing ownership annually through mergers, acquisitions, and asset sales in peak expansion years. The probability of asset sales and whole-firm transactions is related to firm organization and ex ante efficiency of buyers and sellers. The timing of sales and the pattern of efficiency gains suggests that the transactions that occur, especially through asset sales of plants and divisions, tend to improve the allocation of resources and are consistent with a simple neoclassical model of profit maximizing by firms.     

Who creates jobs in developing countries?

This paper investigates the contribution of small firms to employment, job creation, and growth in developing countries. While small firms (<20 employees) have the smallest share of aggregate employment, the small and medium enterprise sector’s (<100 employees) contribution is comparable to that of large firms. Small firms have the largest shares of job creation, and highest sales growth and employment growth, even after controlling for firm age. Large firms, however, have higher productivity growth. Conditional on size, young firms are the fastest growing and large mature firms have the largest employment shares but small young firms have higher job creation rates.     

A data mining approach to financial time series modelling and forecasting

This paper describes one of the relatively new data mining techniques that can be used to forecast the foreign exchange time series process. The research aims to contribute to the development and application of such techniques by exposing them to difficult real-world (non-toy) data sets. The results reveal that the prediction of a Radial Basis Function Neural Network model for forecasting the daily $US/$NZ closing exchange rates is significantly better than the prediction of a traditional linear autoregressive model in both directional change and prediction of the exchange rate itself. We have also investigated the impact of the number of model inputs (model order), the number of hidden layer neurons and the size of training data set on prediction accuracy. In addition, we have explored how the three different methods for placement of Gaussian radial basis functions affect its predictive quality and singled out the best one. Copyright © 2001 John Wiley & Sons, Ltd.     

Consistent estimation of cross-sectional models in event studies

Event studies often include cross-sectional regressions of announcementeffects on exogenous variables. If the event is voluntary andinvestors are rational, then standard OLS and GLS estimatorsare inconsistent. Consistent ML estimators are constructed fora cross-sectional model of horizontal mergers relating announcementeffects to exogenous characteristics of firms and industries.The OLS and ML estimates differ dramatically for bidders butnot for targets. The evidence suggests that manager of bidders,but not targets, have valuable private information about thepotential synergies from proposed mergers.     

Law, Finance, and Firm Growth

We investigate how differences in legal and financial systems affect firms' use of external financing to fund growth. We show that in countries whose legal systems score high on an efficiency index, a greater proportion of firms use long-term external financing. An active, though not necessarily large, stock market and a large banking sector are also associated with externally financed firm growth. The increased reliance on external financing occurs in part because established firms in countries with well-functioning institutions have lower profit rates. Government subsidies to industry do not increase the proportion of firms relying on external financing.     

Technological innovation and initial public offerings

This article shows how both technological and competitive risksaffect the timing of private and initial public offerings inan emerging industry. Early private financing occurs in industriesthat are perceived to be risky, with high development costsand low probability of being displaced by technologically superiorrivals. Early public financing occurs in industries perceivedto be viable, with low development costs and low probabilityof displacement. Due to feedback effects between financial andproduct markets, the value of investors' proprietary informationis greater in private than in initial public offerings. Thishas implications for underpricing.