Corporate Governance and Expected Stock Returns: Evidence from Germany

Recent empirical work shows evidence for higher valuation of firms in countries with a better legal environment. We investigate whether differences in the quality of firm‐level corporate governance also help to explain firm performance in a cross‐section of companies within a single jurisdiction. Constructing a broad corporate governance rating (CGR) for German public firms, we document a positive relationship between governance practices and firm valuation. There is also evidence that expected stock returns are negatively correlated with firm‐level corporate governance, if dividend yields are used as proxies for the cost of capital. An investment strategy that bought high‐CGR firms and shorted low‐CGR firms earned abnormal returns of around 12% on an annual basis during the sample period.     

Brands on the Brain: Neuro-Images of Advertising

Neuroscience is opening a new chapter of understanding in many fields. One such is how advertising works. For the first time we can directly 'see' some effects of advertisements on the brain's activity. This article reports two small-scale experiments into the differential effects of advertising's rational and emotional components. Advertising has long been seen as providing reasons to buy, however subtle. In academic research at least, the importance of emotion has often been downplayed. The preliminary experiment reported here shows how emotional ads are more likely to be remembered. The second experiment uses brain imaging to investigate the part of the brain which responds to emotionally-engaging ('affective') and reason-engaging ('cognitive') advertising stimuli. These are very early days in using brain-imaging techniques and these experiments are very exploratory. However, as the three Commentaries by Simon Broadbent, Thomas O'Guinn and Larry Percy suggest, along with other work, they may point towards a revolution in advertising research.     

Environmental Taxation and Induced Structural Change in an Open Economy: The Role of Market Structure

Abstract. Studies of structural change induced by environmental taxation usually proceed in a perfect-competition framework and typically find structural change to be quite moderate under realistic emission reduction scenarios. By observing that some of the industries affected are likely to operate under imperfect rather than perfect competition, additional mechanisms emerge which may amplify structural change beyond the extent identified as yet. Especially, changes in economies of scale may arise which weaken or strengthen the competitive position of industries over and above the initial cost effect. Using a computable general equilibrium model for Germany to examine the effects of a unilaterally introduced carbon tax, we find that induced structural change is more pronounced under imperfect competition than under perfect competition. At the macroeconomic level, we find that aggregate losses in economies of scale are larger than aggregate gains, implying that the total costs of environmental regulation are higher under imperfect competition than under perfect competition.     

Hedging GNMA Mortgage-Backed Securities with T-Note Futures: Dynamic versus Static Hedging

This article proposes a dynamic hedging model for Government National Association Mortgage-Backed Securities (GNMA MBSs) that is free of the drawbacks associated with the static hedging strategies currently used. The simultaneity bias of the regression approach is dealt with by modeling the joint distribution of price changes of GNMA MBSs and 10-year Treasury-note futures. Error correction (EC) terms from cointegrating relationships are included in the conditional mean equations to preserve the long-term equilibrium relationship of the two markets. The time-varying variance–covariance structure of the two markets is modeled via a version of the bivariate generalized autoregressive conditionally heteroskedastic model (bivariate GARCH), which assures that the time-varying variance–covariance matrix is positive semidefinite for all time periods. This dynamic error-correction GARCH model is estimated using daily data on six different coupon GNMA MBSs. Dynamic cross-hedge ratios are obtained from the time-varying variance–covariance matrix using the 10-year Treasury-note futures contract as the hedging instrument. These ratios are evaluated in terms of both overall risk reduction and expected utility maximization. There is overwhelming evidence that dynamic hedge ratios are superior to static ones even when transaction costs are incorporated into the analysis. This conclusion holds for all six different coupon GNMA MBSs under investigation.     

Volatility Reversion and Correlation Structure of Returns in Major International Stock Markets

This paper investigates the stochastic behavior of weekly stock market returns in the U.S., Japan, and the U.K. during the period 1984 to 1994. The analysis is carried out using an augmented version of Bollerslev's [7] multivariate GARCH model with structural dummies to test for differences in the mean, volatility, and covariance structure of returns during the pre- and post-October 1987 crash periods. In addition, the paper explores the issue of the volatility reversion and time-varying behavior of correlation structure of returns in these markets. Mean-spillovers exist from the U.S. and Japan to the U.K. The magnitude of these spillovers is, however, low. Volatility spillovers exist from the U.S. and, to a lesser extent, from Japan to the U.K. Mean returns in all three markets and volatility in Japan and the U.K. are the same during the two periods, while volatility in the U.S. is lower during the post-crash period. With the exception of the correlation of returns between Japan and the U.K., which has doubled since the October 1987 crash, the remaining correlations are statistically similar during the two periods. Simulations performed indicate that volatility is reverting in the sense that, when it departs from its long-run equilibrium level, it tends to revert back to that level.     

Agility and flexibility in international business research: A comprehensive review and future research directions

This study explores 134 articles on agility and flexibility research published in the top-nine international business (IB) journals. Accordingly, we critically analyze, map and structure flexibility and agility research in IB, and synthesize the findings into an integrative framework. The paper identifies a wide range of definitions of the concept and a lot of work on its conceptualization. However, studies at the individual and institutional levels of analyses are scarce, and the concept is under-theorized, as there is a dearth of real theoretical underpinnings in this research stream. Thus, in addressing this gap, more qualitative and interdisciplinary research is needed.     

Micro-foundational ambidexterity and multinational enterprises: A systematic review and a conceptual framework

During the past decade, ambidexterity research has broadened from its traditional macro-level focus to examine the micro-level perspectives of ambidexterity on various settings. The authors systematically review and critically appraise the literature of ambidexterity from a micro-foundational perspective, within the context of Multinational Enterprises (MNEs). By synthesizing the review findings, the authors develop a comprehensive framework that maps extant literature within and across various disciplines and multiple levels of analysis. As part of their review, the authors also identify and discuss important emerging themes and fruitful areas for future research and present the implications to both research and management practice.