Hedge Fund Activism in Japan under the Stewardship and Corporate Governance Codes

This study focuses on activist funds during the second wave of activism after the implementation of the Stewardship and Corporate Governance Codes in Japan. Based on reports of large-scale shareholdings (acquisitions of 5% shares or more) submitted by activist funds between 2014 and 2019, this study finds that the stock returns of target firms react positively to the intervention of activist funds. The positive correlation intensifies for funds classified as hostile or domestic. Unlike in the first wave of activism, activist funds do not necessarily target low-margin or undervalued firms in the second wave of activism. Comparing financial indicators of the targets of the pre- and post-acquisition periods of large blocks of shares by activist funds, return on assets tends to decline more than that of their matching peer control firms, while the dividend payout ratio tends to rise more. This study contributes to the related research in three ways. First, this study adds empirical evidence on hedge fund activism outside the U.S., which is still somewhat scant. Second, this study is the first in the English or Japanese language literature to focus on the second wave of activism in Japan. Third, this study presents empirical results that are distinct from those in prior studies focusing on the first wave, perhaps because institutional changes forced activist funds to focus more on engagement rather than selecting cheap firms.

     

Policy mix to foster innovation in the Dominican Republic: attempts from an empirical perspective

ABSTRACT

This paper aims to understand firms’ preferences for incentives to foster innovation in Dominican firms. A key research question arises: What are the most preferred science, technology, and innovation (STI) policy options to support innovation in Dominican firms? This research relies on the concept of policy mix and the conjoint analysis to support the empirical approach. Over 300 firms were surveyed across the country, and we discovered that Dominican firms prefer more complex STI policy options, including at the same time research grants, guarantee funds, and tax incentives to support several kinds of innovative activities. But also, firms need to understand the potential of available options such as tax credit and other monetary instruments, including guarantee funds. It is concluded that in the medium and long term, the STI policy mix approach could support as part of the Dominican policy agenda, an economic transition toward a more resilient and competitive economy.     

The Role of Hedge Funds in International Financial Markets

This paper analyses the risk and return characteristics of a wide universe of hedge funds in the period 1990–2000. Most major categories of hedge funds are found to have outperformed (often by a considerable margin) the performance of traditional asset classes. The potential impact of hedge fund trading on market spreads and volatilities is examined especially in the period 1998, so as to provide some guidelines in terms of regulation of such funds. It is shown, however, that despite hedge fund difficulties in that period, the inclusion of hedge funds in investor portfolios definitely moves the efficiency frontier outwards, and allows significantly higher levels of returns for given levels of risk. This is primarily because of the low level of correlation of certain hedge fund styles, especially arbitrage strategies, with other hedge fund styles and with traditional assets.
(J.E.L.: G10, G11, G14, G23).     

Modeling hedge fund exposure to risk factors

This paper examines the adjustment dynamics of hedge fund returns and studies their exposure to risk factors in a nonlinear framework for several types of strategies over the last two decades. Nonlinearity is justified by distortions due to the use of short selling, leverage, derivatives and illiquid assets for hedge fund strategies. Among nonlinear models, switching regime (STR) models are applied to reproduce the dynamics of hedge fund returns. This nonlinear multivariate modeling has the advantage of capturing the time-varying exposure of hedge fund strategies to risk factors, and of specifying the asymmetric relationship between hedge fund returns and risk. The findings are interesting and provide several contributions to the hedge fund literature. First, we show that the dynamics of hedge fund returns exhibit significant asymmetry and nonlinearity, indicating that they evolve and vary asymmetrically in accordance with stages in financial cycles. Second, hedge fund exposure to risk factors also varies over time, depending on the strategy and the regime. Finally, our modeling captures the most important changes in hedge fund exposure to risk factors induced by the recent global financial crisis (2008–2009).     

Pension funds' allocations to hedge funds: an empirical analysis of US and Canadian defined benefit plans

This article investigates the characteristics of US and Canadian pension funds that allocate assets to hedge funds. The typical pension fund that invests in hedge funds is a large sophisticated pension fund that diversifies its portfolio across numerous classes of investments, private equity in particular, uses a core-satellite organization and has access to low delegation costs for alternative assets. Moreover, we find that pension funds investing in hedge funds significantly obtained higher global returns.     

INNOVATION ACTIVITIES EXPLAINED BY FIRM ATTRIBUTES AND LOCATION

In this paper, innovation activities of a firm are observed as its R&D spending and participation in three categories of innovation systems. The various factors that can influence a firm's innovation efforts are divided into, (i) firm location reflecting the regional milieu and (ii) firm attributes such as corporate structure, nature of the knowledge production, type of industry and a set of specific firm characteristics. The study is based on information about 2094 individual firms, which may be non-affiliated or belong to a group (multi-firm enterprise). The empirical analysis applies a novel data set to examine the influence of location versus a vector of firm attributes. Among innovative firms, the location of a firm does not influence neither the R&D intensity nor the frequency of interaction in horizontal and vertical innovation systems, when controlling the skill composition, physical capital intensity, industry, firm size and market extension. The paper contributes to the literature by observing that innovative firms have similar characteristics irrespective of where they are located, although the share of innovative firms differs between regions.     

As times goes by. A dynamic impact assessment of the innovation policy and the Matthew effect on Argentinean firms

ABSTRACT

The objective of this paper is to analyse the impact of public funds for innovation on firm’s capabilities, innovative dynamics and economic performance. A large stream of literature about the evaluation of public funds is focused on testing the existence of additionality effects on investments and results. This paper aims to provide evidence about other dimensions of the firm that public policy can alter, with focus on the time window between the treatment and the impact, and the role of the Matthew effect (recurrence) in this process. The empirical exercise is based on a dynamic panel data made of 1465 firms (3337 observations) that applied to the Argentinean Technological Fund (FONTAR), which is the main public fund for innovation in Argentina, between 2007 and 2016. Results show short-term effects of accessing to FONTAR on firms’ capabilities, medium-term effects on innovation efforts and long-term effects on productivity. Even though the effect on productivity is larger among recurrent firms, the differences among recurrent and non-recurrent firms are not conclusive in case of capabilities and innovation efforts. All in all, this research provides evidence about the ‘when’ of public policy and the need to look beyond input additionality effects when analysing its impact.     

Financial innovation in the UK

This study employs a national survey of over 1100 British financial firms to ascertain the determinants of financial innovation and their sales success using the logit and the generalized Tobit models. We find that the likelihood of financial innovation rises with the size of financial firms, employee education, greater expenditure on research and development, the availability of finance and the extent to which firms cooperate with each other. Perceptions of economic risk and innovation costs are also influential. R&D, cooperation and human capital are the main variables driving the success of financial innovation, measured by the percentage share of innovations sold. Firms in London/the south have a significantly greater tendency to innovate, though Scotland also does well. Stock broking, fund management and related activities are more innovative than firms in the financial intermediation and pension/insurance sectors.     

What drives the high moments of hedge fund returns?

We study the high-moment distribution of hedge fund returns and identify factors that drive high-moment risk. Using hedge fund monthly returns, we find a strong correlation between the first four moments of returns (i.e. mean, standard deviation (SD), skewness, and kurtosis) and different characteristics of the funds such as leverage, liquidity, incentives, and strategy-related factors. We find that after controlling for other factors, incentives-related factors and a hedge fund’s specific strategy have the greatest impact on the distribution of fund returns. Our evidence also suggests investors allocate across hedge fund characteristics while placing greater emphasis on fund strategies and incentive factors.     

The Dark Matter of Innovation: Design and Innovative Performance in Dutch Manufacturing

This paper focuses on the impact of expenditures on design on the innovative performance of Dutch manufacturing firms. The competitive advantage of a firm often depends on its ability to innovate. Past research has shown that investments in research and development (R&D) can play a key role in stimulating innovation, yet relatively few studies have examined the impact of expenditures on design on innovative performance. Using a database containing 2010 firms from the Netherlands, this paper explores the association between expenditures on design and product innovation, highlighting the importance of the new range of 'downstream' innovation activities for understanding innovation performance.     

The Dark Matter of Innovation: Design and Innovative Performance in Dutch Manufacturing1

This paper focuses on the impact of expenditures on design on the innovative performance of Dutch manufacturing firms. The competitive advantage of a firm often depends on its ability to innovate. Past research has shown that investments in research and development (R&D) can play a key role in stimulating innovation, yet relatively few studies have examined the impact of expenditures on design on innovative performance. Using a database containing 2010 firms from the Netherlands, this paper explores the association between expenditures on design and product innovation, highlighting the importance of the new range of ‘downstream’ innovation activities for understanding innovation performance.     

上市公司股票流动性对企业创新的促进作用*

本文利用A股上市公司的交易数据和财务数据，通过多种匹配分析方法控制企业的异质性，分析了股票流动性对企业创新的影响。本文研究发现股票流动性好的企业其创新能力更强。融资融券业务提升股票流动性但是不影响企业创新活动，基于融资融券业务的拟自然实验分析发现流动性改善有利于企业扩大研发投资规模，提高创新能力。股票流动性促进企业创新的作用机制包括提高融资规模以及提高机构持股比例。本文为通过发展资本市场促进企业创新提供了经验证据。     

Attribution of hedge fund returns using a Kalman filter

Hedge funds offer attractive investment possibilities because they engage in investment styles and opportunity sets which – because they are different from traditional asset class funds – generate different risk exposures. Conventional wisdom holds that hedge funds add value and provide unique investment opportunities because of their ability to invest in disparate risk exposures, and via the manager’s skill in selecting stocks and timing the market. In this article, a Kalman filter is used to decompose the time series of hedge fund returns into market timing and stock selection factors to establish whether fund managers really do generate statistically significant abnormal profits. Compelling evidence supports an alternative interpretation for the market timing return constituent. This work represents the first time the Kalman filter has been used to extract a time series of the capital asset pricing model’s dynamic variables for determining return component magnitudes.     

Hedge fund return higher moments over the business cycle

We investigate how macroeconomic and financial uncertainty impacts the behavior of hedge fund strategy higher moments—i.e., co-skewness and co-kurtosis—and their respective cross-sectional dispersions. Consistent with theoretical models, we find that strategy managers trade off these two higher moments when building optimal portfolios. Moreover, these trade-offs depend on the kind of strategy. Our experiments show that the VIX and its conditional variance are the most important factors affecting higher moment risk in the hedge fund industry. They also reveal that the behavior of hedge fund strategies is very asymmetric depending on the phase of the business cycle. In contrast to studies which rely on the mean-variance setting, we find that systemic risk—as measured by the cross-sectional dispersions of higher moments—tends to decrease in the low regime. The indicators of market volatility play a decisive role to explain this decline in systemic risk.     

The macroeconomic drivers in hedge fund beta management

We investigate how macroeconomic indicators alter the dynamic risk exposure of different hedge fund style strategies. We implement a multifactor model to estimate the unobservable time-varying risk exposure conditional on macroeconomic information and a VAR to measure the impact of macroeconomic predictors on different time horizons. Using monthly returns on a cross-section of 10 different style indices from February 1997 to August 2019, we find that, on average, macroeconomic indicators explain approximately 30%, 55%, and 75% of the variability of betas at 1-, 6-, and 36-month horizons, respectively. Although macroeconomic predictors play a critical role at every horizon, at 1 month, the dominating effect comes from idiosyncratic shocks, which indicates that in the short run, hedge fund managers rely mostly on their own reallocation signals. Moreover, consistent with the fundamental drivers of the smart beta factors, we find that the interest rate level and GDP growth similarly impact hedge fund exposures across styles.     

Technology mining for small firms: Knowledge prospecting for competitive advantage

Successful small businesses effectively use outside information. High tech small firms are designed to be flexible and innovative. They are often built upon a successful innovative product. These organizations are challenged to remain innovative in a fast-paced competitive environment. However, they face constraints due to the costs associated with the development of continuous innovation. This paper presents technology mining as a method to aid small firms in remaining knowledgeable about innovative ideas. In doing so, the authors present findings from a small high tech company whose issues are typical of other small high tech firms. Areas for improvement and recommendations to address those areas are also presented for review and further reflection.     

Modes of international activities and the innovativeness of firms: an empirical analysis based on the Japanese National Innovation Survey for 2009

We quantitatively examine the factors which account for differences in innovation output depending on the mode of international activities, employing the innovation accounting framework proposed by Mairesse and Mohnen [2001. To be or not to be innovative: An exercise in measurement. NBER Working Paper No. 8644. Cambridge, MA: National Bureau of Economic Research; 2002. “Accounting for Innovation and Measuring Innovativeness: An Illustrative Framework and an Application.” American Economic Review 92 (2): 226–230]. We find that internationally engaged firms use more innovation inputs and generate more innovation outputs. Firms with R&D establishments abroad show the best innovation performance. A significant part of the higher innovation performance of internationally engaged firms can be explained by their greater intra-firm knowledge spillovers, R&D intensity, perceived competitive pressure, and proximity to basic research. However, more importantly, our innovation efficiency analysis suggests that engagement in international activities increases the sales amount of innovative products though it does not necessarily raise the probability that a firm successfully develops a new product or process.     

Skillful hiding: evaluating hedge fund managers’ performance based on what they hide

Mandatory disclosure of hedge fund portfolios has been a hotly debated topic. This article studies asset returns of ‘confidential holdings’ (confidentiality treatment [CT]) or those assets that were not voluntarily disclosed by US-based hedge funds in their original 13F filings to the Securities and Exchange Commission. After analysing returns from 1999 to 2013, we find that in aggregate, the CT position size, ownership share and returns are statistically different to non-CT positions. We provide a mechanism for regulators and investors to rank fund managers based on what they hide in positions.     

Sectoral Patterns Of Technological Change In Services

This article provides a comprehensive picture of the characteristics of innovation in services, using the results of the 1993–95 Italian innovation survey in services. Technological change does play a role in services: around one third of service firms have introduced a technological innovation in the period 1993–95. Process innovation, innovative investment and the acquisition and internal development of software represent the most important channels through which service firms innovate. R&D activities represent an important innovation source only for a small number of science and technology-based service industries. The sectoral analysis highlights the variety of innovative patterns, which should discourage any simple generalization about innovation in services. Accordingly, a sectoral taxonomy is proposed in which service industries are clustered according to the overall innovative performance of firms, the nature of the innovation activities carried out, the different knowledge bases underlying the innovation processes, and the different patterns of interaction through which service firms innovate.     

Labour market deregulation, 'flexibility' and innovation

Labour ‘flexibility’ is often portrayed as importantto competitive success. Using evidence from an original surveyof UK firms, this paper investigates the relationships betweenfirms' use of, on the one hand, various flexible work practices,human resource management techniques, and industrial relationssystems and, on the other hand, the innovative activities ofthose firms. Our results suggest that the sort of ‘lowroad’ labour flexibility practices encouraged by labourmarket deregulation—short-term and temporary contracts,a lack of employer commitment to job security, low levels oftraining, and so on—are negatively correlated with innovation.