Are there regional spillovers from FDI in the Swiss manufacturing industry?

This paper examines whether there are signs of regional spillovers from FDI, although evidence is still very scarce. It hypothesizes that (a) the assessment of regional spillovers relies on a detailed analysis of these effects, according to the channels by which they occur (namely, increasing competition, worker mobility, and demonstration effects); (b) the size and the extent of these effects depend on the interaction between their channels and the levels of existing technological capacity of local firms; and (c) spillover benefits tend to occur in regions where local firms largely invest in absorbing the best foreign knowledge. Using detailed firm-level manufacturing data from Switzerland, we have found that local firms gain from the presence of foreign firms in their region, but lose out if the firms are located elsewhere. Competition-related spillovers appear to be fully absorbed by local firms, with high technological capacities; worker-mobility-related spillovers are fully absorbed by low technology firms; while demonstration-related spillovers are absorbed by all groups of firms with mid technology firms experiencing the larger benefit. In addition, our results demonstrate that only local firms which have invested largely in the absorptive capacity benefit from spillovers, stemming mainly from technology transfer. This benefit seems to occur at both regional level and outside.     

Compensation of owner managers in Canadian family‐owned businesses: expropriation of minority shareholders

The aim of this paper is to test the hypothesis of owner managers expropriating minority shareholders by receiving excessive compensation. Using a sample of Canadian family firms, we found that when there is divergence between voting rights and cash flow rights, owner CEOs receive higher compensation than non‐owners. The higher the divergence between voting rights and cash flow rights, the higher the excess compensation. Further analysis shows that only poorly governed firms are affected by the expropriation problem. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.     

Private labels and public quality standards: How can consumer trust be restored after the mad cow crisis?

In those sectors faced with questions of food safety (meat, fruit, vegetables), new private labels have been set up in Europe in order to restore consumer trust. In this paper, we perform a theoretical analysis of these private labels. We propose an original model of vertical relationships between producers and retailers which takes into account two supply sources through (i) a competitive spot market on which the retailers buy a minimum quality standard product and (ii) supply contracts aimed at marketing higher quality private labels. We study how producers and retailers could cooperate in setting up these new labels. From a public point of view, we show the complementarity of a moderate increase in public quality standards and the creation of these new private labels. JEL Classification L22. L23. Q13. Q18     

Does religiosity enhance the quality of management earnings forecasts?

This study investigates whether firms located in areas with higher levels of religiosity disclose higher-quality management earnings forecasts than do other firms. Using a US sample of 4,655 firm-year observations over the period 2001 to 2014, we find that firms headquartered in counties with higher proportions of religious adherents issue earnings forecasts that are less optimistically biased and that the effect of religiosity is concentrated in firms with weak monitoring mechanisms. We also find that religiosity mitigates pessimistic bias in management earnings forecasts, but only for those issued by firms operating in low litigation industries. This result suggests that when the litigation risk is high, both ethicality and risk aversion are at work and their competing effects likely offset each other. Additionally, we document that forecasts issued by firms in more religious areas trigger stronger stock price reactions than those issued by other firms and that the effect is limited to forecasts containing optimistic bias. Overall, our results show that religiosity enhances the quality of management earnings forecasts, but the effect varies based on different conditions.     

EXTERNAL GOVERNANCE AND THE COST OF EQUITY FINANCING

We examine whether and how competitive pressure in the product market influences the cost of equity capital. Using a large panel of U.S. public firms, we find that intensification of product market competition results in lower equity financing costs. Our results are statistically significant and economically sizable. In line with the view of the disciplinary role of product market competition, we show that corporate governance, payout policy, and investment policy are channels through which competitive pressure influences the cost of equity capital.     

Are there demonstration-related spillovers from FDI?: Evidence from Switzerland

This paper examines whether there are signs of demonstration-related spillovers from foreign direct investment (FDI). It hypothesizes that the size and the extent of such benefits vary according to the level of the absorptive capacity of local firms. Using detailed firm data from Swiss manufacturing and services/construction, we find strong evidence for demonstration-related spillovers when (a) local firms are not far behind the technological frontier of the industry with a technological gap slightly greater than one, and (b) local firms demonstrate high investment in the absorptive capacity. The results are found to be more consistent in manufacturing than services/construction.     

Institutional quality,economic freedom and stock market volatility in the MENA region

How can a government help secure low-cost equity financing? This study offers an answer that a government can secure sustainable economic progress when policies of economic freedom are well institutionalized in a way that results in low equity volatility, thus low-cost equity financing. This study examines the quantitative and empirical associations between elements of Economic Freedom Index (being treated in this study as a proxy for institutional quality) and stock market volatility. The authors classify the institutional quality into three levels: high, medium and low. The data cover the years 1996–2014 for the MENA countries. The statistical tests include fixed and random effects, linearity versus non-linearity. The results show that stock market volatility can be mitigated and reduced when economic freedom is associated with an effective enforcement of law and efficient regulations. Nevertheless, the high freedom from corruption results in active equity trading which is associated with high volatility that leads in turn to high cost of equity financing. The study contributes to the literature in terms of offering practical insights on the pillars of economic freedom that policymakers must improve in order to mitigate or reduce equity volatility, therefore cost of equity financing.     

Foreign Direct Investment and Training in the Host Country: The Tariff-Jumping Argument Revisited

We analyze the direct investment versus export decision of a multinational firm in competition with a potential entrant in a host country. We consider a workers' skills asymmetry between the host and the multinational home countries. We also give the multinational the possibility to train all (or a part of) the hired workers when investing. We show that an improvement in the workers' skills in the host country does not systematically increase the multinational incentive to invest. We also demonstrate that the tariff-jumping investment can improve the welfare of the host country even if it excludes the local firm from the market.