Do cross-border acquisitions create value? Evidence from overseas acquisitions by Chinese firms

Based on the dynamic capability and organizational learning perspectives, we examine whether acquirers from emerging economies can create value for their shareholders in cross-border mergers and acquisitions, and the key drivers which may influence any such value creation. A sample of 367 cross-border mergers and acquisitions between 2000 and 2011 involving Chinese listed companies as the acquirers was analyzed to highlight the relationship between the cultural distance involved and the acquirers’ market valuation. On average, such cross-border transactions created value for the acquirer's shareholders, but cultural distance was negatively related to the extent of such value creation. Larger firms, more experienced firms, and acquisitions within the same industry were found to be less affected by cultural distance, emphasizing the importance of learning and absorptive capability, but employing a financial advisor did not seem to help. Thus firms with greater absorptive capacity were found better able to overcome the difficulties caused by cultural differences. Implications for research and practice are discussed.     

Do independent directors protect shareholder value?

The present global financial crisis has revived the notion that competitive markets may lead some directors and executives to behave in opportunistic ways considered unethical and even illegal, through the pursuit of self‐interest. This article proposes and tests an integrated model that offers new insights into the relationship between board structure, independence and firm value. By incorporating the proportion of independent directors on the board as a moderating factor in this relationship, this study contributes to a better understanding of the entrenchment and convergence‐of‐interests hypotheses. Using empirical data obtained from 114 Spanish listed companies in a context of economic crisis, from 2007 to 2010, we conclude that having a board with a greater proportion of independent directors reduces the negative association existing between firm value and a large board size and significant board share ownership.     

Does corporate diversification create value in emerging markets? New evidence from Chile

Using a sample of 85 Chilean firms listed in the Santiago Stock Exchange from 2005 to 2013, we analyze the impact of corporate diversification on firm value. We consider voting rights of the main shareholder and institutional investors’ influence on firm value. We report firm‐value destruction for diversified firms. Regarding ownership concentration, we report a negative relation between the largest shareholder ownership and firm value. Separation between voting rights and cash flows rights of this shareholder is negatively related to firm value. While Pension Fund Administrators (AFP) mitigate firm value destruction in diversified firms, other institutional investors do not play an active role in controlling value destruction. Finally, if the largest owner is a family, we report firm‐value creation in diversified firms. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

More shareholders,higher liquidity? Evidence from an emerging stock market

Using data assembled from all non-financial firms traded on the Malaysian stock exchange, we provide evidence of a nonlinear relationship between the number of shareholders and liquidity. While more shareholders are associated with higher liquidity, the negative effect of wider spreads kicks in when shareholder base exceeds a threshold level due to higher volatility induced by noise trading. However, the threshold level is considerably higher than the number of shareholders of most Malaysian public listed firms, suggesting much room for shareholder expansion in the local market. Our findings call for corporate managers to actively manage and expand their shareholder bases.     

Can corporate financing through the stock market create systemic risk? Evidence from the BRVM securities market

This paper investigates the systemic risk in the West African Economic and Monetary Union (WAEMU) stock exchange (Bourse Régionale des Valeurs Mobilières - BRVM). It examines the extent to which growing activities in this stock market generate systemic risk. We find strong linkages across all economic sectors of listed firms, with the financial and industrial sectors being the center of the system around which the other sectors revolve. Financial institutions are not the only source of systemic risk in the WAEMU region, even though they play an important role in the system. Finally, using panel regressions, we find that big, high-growth and profitable firms contribute more to systemic risk than others. Overall, we find that the determinants of systemic risk depend on the indicator used to assess it and the sectors in which companies operate.     

Do hedge funds time market tail risk? Evidence from option-implied tail risk

This paper focuses on an unexplored dimension of fund managers’ timing ability: Market-wide tail risk implied by information in options markets. Constructing the option-implied tail risk, we investigate whether hedge fund managers can strategically time the tail risk through adjusting their exposure to changes of it. Using an extensive sample of equity-oriented hedge funds, we find strong evidence of tail risk timing ability of hedge fund managers. Furthermore, tail risk timing ability brings significant economic value to investors. Top-ranked funds outperform bottom-ranked funds by 5–7% annually after adjusting for risk factors. Our results are robust to various robustness checks.     

Do investors value the nonfinancial disclosure in emerging markets?

This paper studies the impact of the nonfinancial disclosure on firm value for a large sample of Indian firms, arguably emerging market with poor investor protections and legal enforcement. We proxy the nonfinancial disclosure by the Bloomberg score on the extent of a firm's Environmental, Social, and Governance disclosures, and find positive valuation effects associated with the nonfinancial disclosure. We find the nonfinancial disclosure is more valuable to standalone firms compared to business group firms. This paper shows that the positive valuation effects associated with the nonfinancial disclosure are attributable to lower cost of funds and higher operating cash flows.     

Do networks of financial intermediaries help reduce local bias? Evidence from cross-border venture capital exits

Contributing to the literature on local bias and financial networks, we examine how direct and indirect network ties of financial intermediaries mitigate the effects of distance and preference for local investments. In our analysis of cross-border venture capital exits, we find that proximity within networks facilitates cross-border transactions, which suggests that network distance is an important dimension of distance in addition to its geographical and cultural dimensions. The results also suggest that network distance affects the reach and quality of mediated information: indirect ties to partners' partners, with their broad reach, facilitate the identification of investment opportunities, whereas direct ties, which have certification effects, facilitate quality assessment.     

How do emerging debt market participants recognize firm internationalization?Evidence from effects on credit ratings

We explore the firm internationalization's impact on firm credit ratings in emerging economies. Adopting Chinese data from 2009 to 2018, we document that firm internationalization varies negatively with its credit ratings, indicating that emerging debt market participants are risk averse and prioritize the risks involved in firm internationalization endeavors. This association is amplified for firms operating in host countries with lower institutional quality, decreased cultural distance from home countries, and when firms do not hold tax haven subsidiaries. We observe that the main association is consistent when alternative dataset (India, Russia, and Brazil) or proxy (cost of debt) is applied.     

Do small businesses create more jobs? New evidence for Europe

In this paper, we argue why, in our view, the so-called dynamic classification method should be favored when determining the contribution of small businesses towards job creation. First, it is the only method that consistently attributes job creation or loss to the size class in which it actually occurs. In addition, dynamic classification has two other advantages: (1) it is not vulnerable to the so-called regression to the mean bias, and (2) only a small number of aggregated data are required for its application. Using the dynamic classification, we analyze job creation within the different size classes for the 27 Member States of the European Union. Our main findings are as follows. For the EU as a whole, smaller firms contribute on a larger scale towards job creation than do larger firms. Net job creation rates decrease with each firm size class. This pattern occurs in most industries, however, not in all; the manufacturing industry and trade industry show different patterns. At the level of individual countries, the net job creation rate also tends to decrease with each firm size class. However, this relationship is not perfect.     

Do Competition Improve Persistence in Innovation Effort? Sectoral Patterns and Evidence from India

Journal of Industry, Competition and Trade - This paper studies the persistence of innovation efforts by Indian manufacturing firms and how the innovation effort gets affected by the extent of...     

Do financial structures affect exchange rate and stock price interaction? Evidence from emerging markets

We investigated the relationship between stock prices and exchange rates in eleven emerging markets over the period of 1988 to 2014 using cointegration methodology and multivariate granger causality tests. We find that in emerging markets, the inner-financial structure, which reflects the proportion of direct financing and indirect financing, plays an important role in the link between exchange rates and stock prices. For ten out of the eleven emerging markets studied, the financial structure had a significant impact, either through the flow channel or stock channel. The effects of financial-economic structure (FIR) were much smaller.     

Does it pay for firms in Asia's emerging markets to be market oriented? Evidence from Vietnam

The positive effects of market orientation (MO) on firm performance are empirically supported much more strongly by studies conducted in developed than in emerging markets. One commonly cited reason for this differential effect is that MO is affected by the cultural, economic and institutional characteristics of the economies in which it is applied. This study aims to determine whether or not MO is relevant in an Asian emerging market such as Vietnam and if so, how a firm in such countries can become more market oriented. Based on a survey of 300 firms and using structural equation modeling, the present study finds that MO has a significant effect on firm performance and that its adoption is driven by both internal organizational and external market forces. The study identifies these specific internal and external forces, including those that are unique to the emerging economies in Asia.     

Do Chinese firms benefit from government ownership following cross-border acquisitions?

Chinese firms’ increasing cross-border acquisitions (CBAs) in recent years seem to challenge the explanatory power of received theories of multinational enterprise (MNE) due to their relatively unique characteristics and the active role of the Chinese government. In this study, we seek to revisit and contextualize the OLI paradigm in conjunction with the institution-based view and examine how Chinese firms’ post-CBA long term performance is associated with government ownership. Our study shows that Chinese firms with more government ownership demonstrate better post-CBA long term performance. However, the above relationship is differentially moderated by such firm-level boundary conditions as political connections and financial slack, and the country-level institutional boundary conditions (i.e., the host country formal institutions and the home-host country cultural distance). We discuss our findings in detail and explore theoretical and practical implications for both Chinese firms and other emerging economy (EE) firms.     

Are Human and Social Capital Linked? Evidence from India

This paper develops a two‐period Overlapping Generations (OLG) model of endogenous growth in which a two‐way relationship between social capital and human capital is studied. In order to illustrate the impact of public policies, the model is calibrated using the data for a low‐income country, India and a sensitivity analysis is reported under different parameter values. Based on the numerical analysis, this paper focuses on possible trade‐offs in the allocation of government spending between two productive components, that is, social capital‐related activities and education. The results of this paper show that an increase in the share of public spending on social capital‐related activities through a cut in spending on education or vice versa entails trade‐offs. However, the trade‐off fades away and the net impact on long‐run growth turns out to be positive for different parameter values in the case where a higher share of spending on education is financed by a cut in spending on social capital‐related activities but a policy in improving social capital accumulation at the expense of education is always detrimental to long‐run growth.     

Do cross-border mergers and acquisitions increase short-term market performance? The case of Chinese firms

Despite the new momentum in cross-border mergers and acquisitions (M&As) by emerging market firms, we have a limited understanding of the impact of these activities. Drawing on signalling theory and the institution-based view, this paper examines the extent of stock market reactions to the announcement of cross-border M&A deals, based on an event study of a sample of Chinese firms during the period 2000–2012. The findings indicate that the announcement of cross-border M&As results in a positive stock market reaction; this effect is more significant in the mainland Chinese stock markets (Shanghai and Shenzhen) than that in the Hong Kong market. The shareholders of Chinese firms that acquire a target firm in a host country with a low level of political risk gain higher cumulative abnormal returns than those firms targeting companies in countries with a high level of political risk. The shareholders of Chinese state-owned enterprises experience lower abnormal returns compared with those of Chinese privately owned firms when engaging in cross-border M&A deals.     

Does founder ownership affect foreign investments? Evidence from India

We study the effect of founder ownership on foreign investments for Indian firms. We show that foreign investors underinvest in firms with higher level of founder ownership, since these firms are more vulnerable to information problems and expropriation risk. This effect is particularly stronger when founder ownership exceeds a threshold beyond which founders hold effective control on firms. We exhibit that information problems are the main cause of the relation between foreign investments and founder ownership. This is because the relationship is more pronounced in case of business group firms and firms that are engaged in more earnings management.     

What factors determine innovation performance in emerging economies? Evidence from China

Although the literatures on international trade, FDI and R&D have assisted significantly in improving our understanding regarding the determinants of innovation performance, there has been little research concerning the way in which each informs the other. Integrating theoretical developments from all three literatures, we propose and test a multidimensional conceptual framework that allows us to explain more fully what determines innovation performance in emerging economies. Testing the framework against a recently constructed industry-level dataset for China, the empirical analysis indicates that it has significant power in explaining variations in innovation performance. Nevertheless, our findings also show that factors such as international trade, FDI and R&D do not always have positive consequences. Rather, they indicate that their effects are moderated by technological opportunities and the level of foreign presence, implying that previous mixed findings regarding the role of international trade, FDI and R&D may be the result of incomplete theorizing about the factors that moderate the relationship between innovation performance and these factors.     

Is India Specialising in Polluting Industries? Evidence from US‐India Bilateral Trade

Recently, the apex environmental agency of India observed that domestic industrial pollution has been increasing at an alarming rate over the last two decades, and the need to rein in traditional polluting industries. This raises the pertinent question of whether the poor domestic pollution regime has affected the pattern of India's trade in dirty manufactured products in the post‐liberalisation era since 1991. We find that on the whole, India has remained a net importer of pollution‐intensive manufactured goods; however, there is a distinct trend of increasing specialisation in specific dirty industries especially in the bilateral trade with high‐income countries, and to a lesser degree with low‐income countries. The USA being India's single largest country trading partner in the post‐liberalisation era, we test for pollution offshoring at the finer industry level in US‐India bilateral trade. While we find that the pollution haven effect is not significant, India's specialisation in certain dirty manufacturing industries through the last decade remains a disturbing trend. India needs to integrate environmental sustainability within industrial growth urgently, and it is pertinent to implement policies which would reflect the true pollution costs in an industry that is increasingly competing in the international market.     

Does empathy matter in corporate social responsibility? Evidence from emerging markets

This paper explores how cross-country differences in empathy can explain variations in corporate social responsibility (CSR). We show that empathy is positively associated with overall CSR, as well as with its social and environmental components. Our results are robust to using the two components of empathy, empathic concern and perspective taking. Our findings are further corroborated by evidence from a quasi-natural experiment based on the 2004 Indian Ocean earthquake. We find that during the year of the disaster and the following year, firms located in countries with high levels of empathy donated more money than firms located in countries with less empathy.