Underpricing,partial price adjustments,and equity carve-outs

We examine the extent to which carve-out parent announcement and ex-date subsidiary initial market-adjusted returns reflect public information for 260 equity carve-outs and their parents for the period 1990–2012. We evaluate four hypotheses related to carve-outs and their parents: partial price adjustment, prospect theory, managerial discretionary, and leaning against the wind. To test these hypotheses we use four primary variables: the percentage of the subsidiary retained by the parent, filing range adjustments, the percentage of the offering used to retire subsidiary debt, and the CBOE Volatility Index (VIX) to predict initial returns. We show that 29 %–98 % of the variation i n market-adjusted equity carve-out returns can be predicted using public information known prior to the offer date. In addition, consistent with prospect theory, we show that the increase in share value for shares retained by parent companies (overhang) offsets the level of underpricing.     

Divisional sell-off: A hazard function analysis

For a sample of roughly 450 companies, hazard function estimation is used to determine the environmental and organizational variables precipitating the ‘sell-off’ of divisional units. The sample focuses on 285 ‘lines of business’ fully divested between 1975 and 1981, comparing them to 2157 retained lines. The most powerful sell-off predictor was prior profitability at the line of business level; the lower profits, the higher the sell-off probability. Also, divestiture was more likely, the lower company-wide profitability, the lower a line's market share, the lower the line's R&D/sales ratio, and in the aftermath of a company chief executive officer change. Units previously acquired in conglomerate mergers were more likely to be sold off than original units. On the buyer's side of the sell-off market, large companies acquiring other firms' divested units tended to improve the units' profit performance, but not enough, on average, to realize a normal return on their investments.     

Wertsteigerung durch Sell-Offs: Eine Meta-Analyse

This paper reviews the empirical evidence on shareholder wealth effects of corporate sell-offs. Meta-analysis is used to aggregate the considerably heterogeneous findings of 64 event studies (1984–2010) on sell-off announcements. Fourteen hypotheses are tested (1) to examine effects on shareholder wealth of the announcement of sell-offs and (2) to identify factors that influence the wealth effects associated with the announcement of sell-offs. The overall results show that sell-off announcements have a positive impact on shareholder wealth. The shareholder wealth effects are higher, if the divested unit is large in terms of its relative size, if it is loss-making and domestic, if the sale proceeds are paid out to shareholders or bondholders, if the purchase price is disclosed and buyer equity is used for settling the purchase price. The results emphasize the importance for companies to constantly reassess their investment portfolio and execute sell-offs in a value enhancing way.     

Multinational Firm Knowledge,Use of Expatriates,and Foreign Subsidiary Performance

The impact of knowledge transfer on foreign subsidiary performance has been a major focus of research on knowledge management in multinational enterprises (MNEs). By integrating the knowledge‐based view and the expatriation literature, this study examines the relationship between a multinational firm's knowledge (i.e. marketing and technological knowledge), its use of expatriates, and the performance of its foreign subsidiaries. We conceptualize that expatriates play a contingent role in facilitating the transfer and redeployment of a parent firm's knowledge to its subsidiary, depending on the location specificity of the organizational knowledge being transferred and the time of transfer. Our analysis of 1660 foreign subsidiaries of Japanese firms over a 15‐year period indicates that the number of expatriates relative to the total number of subsidiary employees (1) strengthened the effect of a parent firm's technological knowledge (with low location specificity) on subsidiary performance in the short term, but (2) weakened the impact of the parent firm's marketing knowledge (with high location specificity) on subsidiary performance in the long term. We also found that the expatriates' influence on knowledge transfer eventually disappeared. The implications for knowledge transfer research and the expatriate management literature are discussed.     

Modeling the performance of US direct investment in Japan: Some empirical estimates

Foreign firms' direct investments in Japan increased from about $930 million in 1984 to $2.2 billion in 1987, and are still increasing at a rapid rate. Most of these investments come from the United States and Europe. In this paper a short-run model for the performance of a foreign parent firm's subsidiary in Japan is presented. The model is based on theories presented by Hymer, Caves, Buckley and Casson, among others, and consists of two equations: one for profitability and the other for growth. Duality is used to relate a parent firm's activities to its subsidiary firm's profitability. The model is estimated using data for US firms' subsidiaries in the Japanese chemical industry. We find that for jointly owned subsidiaries (joint ventures), imports from US parent firms and the R&D spending by both US and Japanese parent firms are major determinants of profitability and growth. US firms' fully owned subsidiaries, however, exhibit considerably different profit and growth behavior than their jointly owned counterparts. Because of the small sample sizes used, it is not possible to ascertain the sources of the observed differences.     

Expatriate staffing in foreign subsidiaries of Japanese multinational corporations in the PRC and the United States

This study examines expatriate staffing in foreign wholly-owned subsidiaries and joint ventures of Japanese firms located in the People's Republic of China and the United States. Expatriates are conceptualized as performing two primary functions. The first is a control function in which the expatriate works to align the operations of the subsidiary with that of the Japanese parent. The second function is a knowledge role. In this role, either the expatriate acts to transfer the Japanese parent's knowledge to the subsidiary or the expatriate is an agent for the acquisition of host-country knowledge. We tested for these two functions using subsidiary-level data on Japanese firms' operations in China and the US. Our results indicate that the control function was more prominent in joint ventures in China than in the US. The results also indicate that expatriates played a more significant knowledge-transfer function role in technology and marketing-intensive industries in China than in the US. A lack of MNC experience in China was found to be associated with limited use of expatriates. Finally, expatriate employment was negatively related to the number of subsidiaries of the parent company worldwide.     

A Communication‐Based Theory of the Choice Between Greenfield and Acquisition Entry

This paper develops a communication‐based theory of the choice by multinational enterprises (MNEs) between greenfield and acquisition entry. It argues that MNE parents communicate with their subsidiaries for reasons of knowledge exchange, coordination, monitoring, and socialization. The expected communication costs arising from these activities are argued to increase with the verbal communication barriers existing between a prospective subsidiary and its parent, but this increase is argued to be larger for acquisitions because they require more extensive parent–subsidiary communication than greenfields. I therefore hypothesize that verbal communication barriers have positive effects on the likelihood that MNEs choose greenfield over acquisition entry. I also hypothesize that these effects are weaker for prospective subsidiaries that will have more autonomy or local co‐owners. An analysis of 231 entries by Dutch MNEs into 48 countries lends substantial support to these hypotheses, indicating that geographic and linguistic barriers to verbal communication play important roles in MNEs' establishment mode decisions.     

Leadership change and shareholder value: How markets react to the appointments of women

This study examines whether the appointment of women into senior leadership positions has a more positive effect on share price than the appointment of men into equivalent positions. Our dependent variable is the degree of change in share price following the announcement of men and women into senior leadership positions. Although market reactions to corporate events represent a complex process, we argue that changes in stock price represent a barometer for how investors assess the decision's potential effect on a corporation's short‐ and long‐term economic viability. We find a significant spike in stock price following the announcement of women into top leadership positions. The size and direction of change in stock price, however, is moderated by the gender composition of the industry. © 2011 Wiley Periodicals, Inc.     

The Driving Forces of Subsidiary Absorptive Capacity

The study investigates how a multinational corporation (MNC) can promote the absorptive capacity of its subsidiaries. The focus is on what drives the MNC subsidiary's ability to absorb marketing strategies that are initiated by the MNC parent, as well as how the subsidiary enacts on this absorptive capacity in order to compete in its focal market. The dual embeddedness of MNC subsidiaries plays a key role in this investigation, as subsidiaries belong to the MNC network and are simultaneously embedded in their host country environment. We argue that subsidiary absorptive capacity is formed as a purposeful response to this dual embeddedness. An analysis of marketing strategy absorptions undertaken by 213 subsidiaries reveals that MNCs can assist their subsidiaries to compete in competitive and dynamic focal markets by forming specific organizational mechanisms that are conducive to the development of subsidiary absorptive capacity. The findings hold important theoretical and practical implications.     

Expatriates in their own home: A new twist in the human resource management strategies of japanese mncs

Liaison positions in an overseas subsidiary represent a vital link to the parent company. Staffing this position constitutes a critical HRM decision. Based on exploratory interviews conducted with personnel managers and foreign employees, we examine an emerging approach to meeting this staffing need which entails hiring non-Japanese as employees of the parent company, retaining them at headquarters in Japan for three to four years, then assigning them back to their own countries as expatriates. We discuss this approach's underlying rationale, its advantages and disadvantages, and its potential implications for future IHRM developments within Japanese MNCs.     

On the differential market reaction to dividend initiations

The finance literature documents substantial positive stock price reaction to dividend initiations. Most dividend initiation studies focus on the average positive reaction; however, 40 percent of the firms that initiate dividends experience negative abnormal returns at announcement. This paper focuses on the apparent heterogeneity in the stock price reaction to dividend initiation. I find that the observed negative market reaction reflects the market’s economic assessment of the impact of the event on these firms, and that it is not caused by anticipation or confounding events. The result is also supported by the fact that the market reaction to dividend initiation for these firms is negatively related to initial dividend yield. Both the positive and negative observed reactions are consistent with conventional arguments regarding the information content of dividends, and their role in mitigating agency problems.     

Agency problems in tracking stock and minority carve-out decisions: Explaining the discrepancy in short- and long-term performances

Several studies have evaluated short- and long-term performances of parent firms who resort to restructuring via tracking stock or minority carve-out. Results show that short-term positive performance of restructuring parents turns negative in the long haul. Although researchers have attempted to resolve this inconsistency, a satisfactory explanation is yet to emerge. In this paper, we offer the self-serving behavior of restructuring parents’ managers as a potential explanation for the observed discrepancy in the short- and long-term performances. We argue that managers of parent firms create new units to receive additional compensation packages. We present evidence that the long-term negative performance can be attributed, at least partially, to self-awarded raise. Since managers of tracking stock parents enjoy a greater degree of managerial discretion and controls, we hypothesize that they would pay themselves a bigger compensation package than their carve-out counterparts and their long-term performance would be inferior to that of the latter group. Our results largely support these hypotheses.

Impact of Environmental Performance on Firm Value for Sustainable Investment: Evidence from Large US Firms

This research examines the impact of environmental performance on firm value, applying the event study methodology to Newsweek’s ‘Green Rankings’ announcement of 2012 for large US firms. Specifically, it analyzes the impact of the absolute green score and green rank of firms on their performance in the stock market. We found that investors perceive the announcement as positive news, leading to significant positive standardized cumulative abnormal returns (SCARs). After controlling for industry‐ and firm‐specific effects, we observed that firms with repeated green rankings for enhancing environmental performance showed significantly higher SCARs than those with either reduced or unchanged environmental performance. In addition, the environmental impact score measuring environmental damage from a firm's operational activities was found to be the most influential factor in improving the firm's value. Our findings are beneficial to managers in allocating resources to different types of environmental initiative, and provide valuable insight for sustainable environmental investment. Copyright © 2014 John Wiley & Sons, Ltd and ERP Environment     

Financial constraints and synergy gains from mergers and acquisitions

This paper examines mergers and acquisitions motivated by financial constraints. Synergy gain is measured as the cumulative abnormal return of a value‐weighted portfolio of the acquirer and the target around the acquisition announcement. By constructing a financial constraint difference between the target and the acquirer, we find a positive relationship between the financial constraint difference and synergy gains generated from the acquisition. The positive effect of the financial constraint difference is only significant for high growth targets and severely constrained targets. The acquirer's corporate governance also enhances the synergy gains created from the financial constraint difference. Additional evidence shows that both acquirer's and target's shareholders benefit from the financial constraint difference. Our results are robust for different measures of financial constraint.     

Institutional distance,host country and international business experience,and the use of parent country nationals

This study examines how the institutional distance between a host country and a home country influences foreign subsidiary staffing, and how overseas business experience moderates the effect of institutional distance. Hypotheses regarding the effect of institutional distance on foreign subsidiary staffing are empirically tested using a sample of 2,980 foreign subsidiaries of Japanese firms. This study shows that although the ratio of parent country nationals to subsidiary employees decreases when firms face greater institutional distance, the absolute number of parent country nationals assigned to the subsidiary increases. This study also shows that firms with more overseas business experience replace host country nationals with parent country nationals when there is greater institutional distance.     

Transfer of HRM practices across cultures: An American company in Scotland

This paper reports the findings of a case study into human resource management (HRM) policies and practices of the Scottish subsidiary of an American multinational firm. The study is discussed within the debate on transfer of HRM practices between nations, and on subsidiary - parent company relationships. The paper makes a distinction between HRM policy on the one hand, and HRM practice on the other. It will be argued that whereas companies might find it feasible to have company-wide policies , they might find it unavoidable to be responsive to local conditions when it comes to HRM practices . Further, it will be argued that some practices can be transferred across nations almost without any change from one country to another. Some must be modified to become workable in another setting. And some are more deeply culture-specific and may not always be transferable. The findings of the study support the argument that multinational companies' management practices are more prone to local cultural influences than are their overall policies and strategies. Moreover, some of the practices which the company had imported from abroad had to be modified to make them workable, given its local cultural and non-cultural contexts. These local contexts had at the same time affected the relationship between the Scottish subsidiary and its parent company. The study found four clusters of factors which intervened in this relationship. A dynamic model of subsidiary-parent company is proposed to elaborate such an intervention. On the basis of the study it is argued that HRM in a foreign subsidiary is a complicated matter. The choice between one of three major options, polycentric, ethnocentric, and global, advocated by many scholars, is found to be too simplistic a model for understanding what actually goes on in a subsidiary and between it and its parent organization.     

The relationship between the valuation effect of equity financing and firm-specific characteristics

The findings of this study indicate that although the overall announcement effect of equity offerings is negative on the issuing firms' common stock prices, 23 percent of the sample firms have a positive two-day announcement period stock abnormal return (CAR). Further tests show that firms in the positive CAR group have significantly higher research and development (R&D) and profitability than firms in the negative CAR group, while the average leverage ratio of firms in the positive CAR group are significantly lower. Results of the regression analysis suggest a positive relation between the price effect and R&D as well as the profitability ratio. It also is found that only in the sample of large R&D firms is the magnitude of R&D significantly associated with the magnitude of announcement effect.     

Is there a global bonds bubble ‐ what if it bursts?

Both real and nominal bond yields have fallen to historically low levels, and in the US the yield curve has been inverted (that is, two-year yields have been above ten-year yields) or very flat since the start of December. This article by Jonathan Hoffman and Keith Church discusses the possible reasons for these developments - including the 'savings glut' proposed by the new Fed Chairman Bernanke - as well as the likelihood of a sharp sell-off of bonds. It then looks at precedents for a sell-off but concludes that there are few parallels between the current situation and the earlier episodes. Finally, it identifies possible triggers for a sell-off and presents a simulation with the OEF Global Model to analyse the likely consequences for the world economy. The conclusion is that, while a rise in US yields to 6.5% in the first half of 2007 would cut growth significantly, including through a fall of almost 1% point in the growth rate of household consumption in the US in 2008, its impact would not be catastrophic.     

Credit risk of subsidiaries of foreign banks in CEE countries: Impacts of the parent bank and home country economic environment

In this study, using dynamic panel data, we investigated the influences of the home country economic environment and parent bank condition on the credit risk of foreign banks in Central and Eastern European (CEE) countries. We concentrated on the international transmission of credit risk through the internal capital market of multinational banks. Our theoretical assumptions follow studies that document how the parent bank condition and home country macroeconomic environment affect lending in subsidiaries in CEE countries. However, our results go one step further. We provide evidence that these relationships are reflected in subsidiaries’ credit risk in CEE countries. Our results suggest that the size and profitability of the parent bank have negative influences, while the liquidity and credit risk of the parent bank have positive influences on the subsidiaries’ credit risk. Moreover, the GDP growth in the parent bank’s country has a negative effect on the credit risk of the subsidiary, while the lending rate and liquidity in the parent bank country cause growth in the credit risk. These results indicate a new channel of international risk transfer from parent bank countries to host countries through foreign-owned banks.     

Subsidiary initiatives and subsidiary autonomy: Evidence from New Zealand and Brazil

The paper uses evidence from a developed and a developing economy (New Zealand and Brazil) to study the consequence of multinational subsidiary initiative taking for subsidiary autonomy. Initiative taking and autonomy are known to increase the likelihood of a subsidiary continuing to grow and develop. Uncertainty remains as to whether subsidiaries acquire or lose autonomy as they engage in initiatives partly as the willingness to pursue initiatives can be viewed positively or negatively by the parent company. By using cross-country data and distinguishing three types of initiative according to the scope of their potential impact (internal, local and global) the study provides a basis for examining this topic that improves on evidence from a single country or single initiative study. Data from 200 multinational subsidiaries in New Zealand and 172 in Brazil are gathered for analysis. As well as examining the overall relationship between initiative taking and autonomy the study presents the first evidence on this topic for subsidiaries in New Zealand and Brazil. The overall conclusion is that subsidiary initiative taking is likely to increase subsidiary autonomy but the affect over autonomy is dependent upon the type of initiative that the subsidiary undertakes: subsidiary autonomy is more likely to increase as a result of a local market initiative than a global or internal market initiative.