Product-destination Portfolio and Dynamics by Firm Ownership and Trade Mode： Evidence from Chinese Industrial Exporters

Using matched firm‐level trade and production data over the period 2000–2006, we study the product‐destination portfolio and dynamics of Chinese industrial exporters and make a thorough comparison among four types of firms and between two kinds of trade modes. We find that ownership structure and trading modes do matter to the destination and product mix choices of Chinese industrial exporters. In particular, foreign firms' exports and processing trade tend to be more destination‐specific and products are more specialized. Therefore, foreign firms are more likely to maintain a particular link within a specific global supply chain.     

Exchange Rate Pass‐through to China's Export Price: A Product‐level Investigation

Exchange rate movement usually results in changes in the production costs of exporting firms, and, therefore, the prices and the quantity of traded products. The present paper constructs a theoretical model to demonstrate that export products with higher productivity, or with larger market share, or of higher quality will experience a less complete pass‐through. Using the six‐digit harmonized system export data from the CEPII database over the period of 2000 to 2013, the present paper examines how product heterogeneity affects the exchange rate pass‐through of Chinese exports. The empirical results show that the most competitive Chinese export products, or those least affected by exchange rate risks, are those of higher quality, with higher technological complexity and at the high end of the international value chain. Therefore, Chinese exporting firms should pay more attention to improving export quality and upgrading technology to better cope with exchange rate risks and to enjoy more bargaining power in the international market.     

Religious minorities and firm ownership in early twentieth‐century Egypt

This article examines the composition of firm ownership and entrepreneurship in Egypt between 1910 and 1949 by assembling a novel dataset on multi‐owned firms. The evidence supports two main results. First, Muslim participation remained disproportionately low in partnerships but was distinctly high in corporations relative to non‐Muslims. Second, Muslim‐owned firms were frailer and more likely to experience early exits. The findings are consistent with the view that the region's institutional legacy, such as disparities in physical or human capital, created obstacles for Muslims. When these implications are tested, the findings show that only small‐scale Muslim firms had restricted access to capital. The skewness in Muslim firms’ entry and start‐up size is probably the result of legal distortions introduced by the government, which entrenched a small class of political elites in large‐scale firms.     

加工贸易转型升级的核心因素:粤省证据

以融入到国际大买家或跨国公司所主导和控制的全球价值链全球分工体系中的中国加工贸易,近年来面临要素成本上升、政策和市场环境约束等一系列内外综合因素的挑战,价值链攀升势在必然。作为中国加工贸易发展最早、最集中的地区之一,广东省东莞市注重在来料加工企业转三资或独资企业、拓展内销、自主创新、创新监管模式、制造环节转移等方面积极探索,在就地不停产转型、平台搭建以及务实高效创新的政府服务等方面积累丰富经验。未来东莞的加工贸易转型升级还要强化企业和基层的动力,提升加工贸易产业集群化水平,核心和关键在于价值链整合和升级、构建国内价值链。为此需要加大人力资本积累、制度环境激励、完善生产性服务和政府服务等。     

Shareholder‐ Versus Stakeholder‐Focused Japanese Companies: Firm Characteristics and Accounting Valuation*

Recent research has found that the value‐relevance of accounting variables depends not only on whether a country's accounting rules are code‐law oriented or common‐law oriented, but also on the reporting incentives created by the legal and business environment in which a firm operates. Therefore, for example, the earnings of firms in some countries with common‐law oriented rules but with code‐law incentives have more code‐law‐type characteristics. We further this research by examining whether this is true for firms facing the same accounting regime and institutional environment but different stakeholder‐related incentives. We find significant stakeholder‐related incentives across 23 Japanese firms listed in the United States and 23 Japanese firms not listed in the United States that are matched by industry and size. Although these firms face the same institutional environment and the same accounting regime, consistent with the differences in stakeholder‐related incentives, the earnings and book values of the firms listed in the more shareholder‐oriented U.S. markets have significantly more explanatory power for market value than those for firms not cross‐listed in the United States. These findings are unaffected by whether the reports are based on consolidated or parent‐only accounting or whether they are based on U.S. or Japanese GAAP, emphasizing the potential influence of reporting incentives at all levels on the effect of standardization, conversion, or harmonization of accounting methods globally.     

‘Learning by importing’ in global value chains: upgrading and South–South strategies in the Ugandan pharmaceutical industry

Drawing on global value chain analysis, this article discusses the possibilities for upgrading in a domestically oriented import-dependent industry. The pharmaceutical industry in Uganda consists of a large number of importers, nine of which have upgraded into assembly and four a step further into manufacturing. The industry upgrades by a process of ‘learning by importing’. Although not engaged with global buyers, pharmaceutical producers in Uganda are tied into the global pharmaceutical value chain by international linkages with their suppliers, mainly in India, from whom they access technology and intermediates for production. Hence, this industry is based on South–South networks for production of low-value pharmaceutical products. With the globalisation of the pharmaceutical industry, an increasing number of global lead firms are ceasing to manufacture these products. This study illustrates an alternative form of industrialisation and upgrading that has not been adequately considered in the development of the African pharmaceutical industry.     

THE IMPACT OF EXCHANGE RATE MOVEMENTS ON FOREIGN DIRECT INVESTMENT: MARKET‐ORIENTED VERSUS COST‐ORIENTED

This paper examines the impact of exchange rate movements on foreign direct investment (FDI). We first employ a real options model to show that while the depreciation of a host country's currency tends to stimulate FDI activity of cost‐oriented firms, the depreciation tends to deter FDI activity for market‐oriented firms. With industry panel data on Taiwan's outward FDI into China over the period 1991–2002, our empirical findings indicate that the exchange rate level and its volatility in addition to the relative wage rate have had a significant impact on Taiwanese firms’ outward FDI into China. In general, the empirical results are consistent with the prediction of the theory. Our results reveal that the relationship between exchange rates and FDI is crucially dependent on the motives of the investing firms. Without considering this fact in an empirical model, the testing results might suffer from aggregations bias.     

Price‐Setting Behavior of Korean Firms†

This paper investigates a pattern of price revision by firms in Korea and sheds light on the cause of price stickiness by providing reliable statistical estimates for calibration of the parameters of the widely‐used macro‐models. Based on firm‐level survey data and using a probit model, we identify the firm characteristics or market conditions that discourage firms from carrying out state‐dependent price adjustment. We also estimate the factors driving firms to engage in state‐dependent adjustment rather than wait until the next scheduled revision under three different shocks: demand, general cost and exchange rate shocks. We find a few interesting features, as follows. First, price revision by Korean firms tends to be time‐dependent rather than state‐dependent, with a sizable dispersion across sectors and firm sizes. Second, the pattern of price revision in Korea is not significantly different from that in selected advanced economies. Third, the reason why firms favor time‐dependent price adjustments appears to be endogenous, accounted for by a number of market institution variables. Fourth, in response to shocks, Korean firms tend to wait until the next periodically scheduled revision rather than make a state‐dependent price adjustment, unless marginal costs are affected significantly by the shock, and state‐dependent revisions are often significantly delayed when they do occur.     

研发密集度与跨国公司组织模式选择——基于金融市场摩擦的分析

本文探讨了在东道国金融市场不完善的条件下,行业研发密集度与跨国公司组织模式之间的关系。本文的基本逻辑是,因为研发密集度高的行业对东道国金融市场的依赖程度更高,而跨国公司可以通过选择组织模式和投资区位以消除金融市场不完全的影响,因此,不同的行业跨国公司的组织模式和区位选择会随行业研发密集度的不同而不同。本文分析结果表明:首先,在研发密集度较高的行业,更多的企业会选择在发达地区进行FDI,而在落后地区进行外包;其次,随着落后地区金融市场效率的提高,所有行业在发达和落后地区的外包都会变得更加普遍;最后,本文还进一步分析了行业生产率分布对企业组织模式的影响。本文的结论为现有经验研究结果提供了理论支持。     

Effect of agglomeration on technical efficiency of small and medium‐sized garment firms in Egypt

This study investigates the effect of agglomeration on technical efficiency of small and medium‐sized garment firms in Egypt. Using a sample of 502 firms, we estimated a translog stochastic frontier production function with inefficiency components. We also applied a switching regression model to address self‐selection in choice of agglomeration. Results confirm that agglomeration enhances technical efficiency of sampled firms through development of industrial linkages and accumulation of human capital. Given the increasing importance of cluster‐based development policies, we underscore the need to promote agglomeration of garment firms, and thereby foster forward and backward linkages to improve their efficiency and to develop global value chains.     

Tax‐Avoidance Activities of U.S. Multinational Corporations*

This paper investigates whether economies of scale exist for tax planning. In particular, do larger, more profitable, multinational corporations avoid more taxes than other firms, resulting in lower effective tax rates? While the empirical results indicate that, ceteris paribus, larger corporations have higher effective tax rates, firms with greater pre‐tax income have lower effective tax rates. The negative relation between effective tax rates (ETRs) and pretax income is consistent with firms with greater pre‐tax income having more incentives and resources to engage in tax planning. Consistent with multinational corporations being able to avoid income taxes that domestic‐only companies cannot, I find that multinational corporations in general, and multinational corporations with more extensive foreign operations, have lower worldwide ETRs than other firms. Finally, in a sample of multinational corporations only, I find that higher levels of U.S. pre‐tax income are associated with lower U.S. and foreign ETRs, while higher levels of foreign pre‐tax income are associated with higher U.S. and foreign ETRs. Thus, large amounts of foreign income are associated with higher corporate tax burdens. Overall, I find substantial evidence of economies of scale to tax planning.     

Reform of state‐owned enterprises and productivity growth in China

Using firm‐level data from a Chinese industrial survey covering 1999 to 2007, the paper analyses the impact of state‐owned enterprise (SOE) reforms on productivity growth in manufacturing. The results indicate that: (1) aggregate productivity of manufacturing increased rapidly, with an average annual growth rate of 10.6 per cent. Although the aggregate productivity of SOEs was lower than in other types of enterprises, their growth rate was the fastest. (2) The productivity growth due to SOE reform was mainly contributed by the improvements in resource allocation, rather than the growth of firm productivity. (3) The between‐firm effect and the impact of new firms contributed most to the total productivity growth, while the contribution from the exiting of firms was relatively small.     

Home Country Investor Protection,Ownership Structure and Cross‐Listed Firms' Compliance with SOX‐Mandated Internal Control Deficiency Disclosures

We examine whether home country investor protection and ownership structure affect cross‐listed firms' compliance with SOX‐mandated internal control deficiency (ICD) disclosures. We develop a proxy for the likelihood of cross‐listed firms' ICD misreporting during the Section 302 reporting regime. For cross‐listed firms domiciled in weak investor protection countries, we have three main findings. First, firms whose managers control their firms and have voting rights in excess of cash flow rights are more likely to misreport ICD than other firms during the Section 302 reporting regime. Second, there is a positive association between the likelihood of ICD misreporting and voluntary deregistration from the SEC prior to the Section 404 effective date. Third, for firms that chose not to deregister, there is a positive association between the likelihood of ICD misreporting and the reporting of previously undisclosed ICDs during the Section 404 reporting regime. We do not find similar evidence for cross‐listed firms domiciled in strong investor protection countries. Our findings are consistent with the hypothesis that, for cross‐listed firms domiciled in weak investor protection countries, managers who have the ability and incentive to expropriate outside minority shareholders are reluctant to disclose ICDs in order to protect their private control benefits. The results of our study should be of interest to regulators who wish to identify noncompliant firms for closer supervision, investors who wish to identify ex ante red flags for poor financial disclosure quality, and researchers who wish to understand the economic forces governing cross‐listed firms' financial disclosure behavior.     

How the Internet Promotes China's Exports: A Firm‐level Perspective

The development of information and communications technology (ICT), particularly the Internet, has reduced trade costs. However, it remains unclear whether these reduced costs are reflected in the “extensive margins” of firms’ exports (which refer to the probability of firms exporting) or the “intensive margins” (which refer to the value of firms’ export). To test this, we used the concepts of information cost and binary margins, an augmented trade model of firm heterogeneity, a two‐stage Heckman estimation, and data from the World Bank Enterprise Survey of Chinese firms in 2012. The results revealed that reduced trade costs from the use of ICT were positively related to extensive margins but that the connection with intensive margins was not significant. The results lead to the conclusion that reduced information costs related to a firm's exporting behavior were primarily reflected in variable trade costs. This study offers theoretical and empirical evidence for China's policies towards the Internet, which are relevant for the export of manufactured goods. The government should encourage the use of ICT to enhance firms’ export opportunities while facing current trade policy uncertainty.     

REGIONAL FINANCIAL INTEGRATION IN SUB‐SAHARAN AFRICA – AN EMPIRICAL EXAMINATION OF ITS EFFECTS ON FINANCIAL MARKET DEVELOPMENT

This article examines the effects of political agreements on regional financial integration (RFI) on financial market development and access to and cost of finance in Sub‐Saharan Africa (SSA). Our results suggest that RFI positively affects financial development – measured very broadly as ratio of liquid liabilities to gross domestic product (GDP) – when combined with a sufficient level of institutional quality. If institutional quality is below a threshold level, RFI apparently has negative effects on financial development. However, we cannot find any significant effects of RFI on the ratio of private credit to GDP or on the efficiency of the banking sector. Regarding the effects of RFI on access to and costs of finance of enterprises in SSA, our results are mixed. We can find no significant effect of RFI on access to finance for all firms in the aggregate, but the results indicate that RFI actually impedes small firms' access to finance. Furthermore, there is a significant positive influence of foreign bank involvement on the severity of the credit constraint for small enterprises, while we do not find such an influence for large enterprises. These results provide some support for the foreign bank barrier hypothesis in the context of RFI.     

Do Exporting Firms Pay Higher Wages? Evidence from Kenya's Manufacturing Sector

Abstract: When trade liberalization was first embarked on in Kenya some 20 years ago, a key argument against it was that it would reduce domestic wages, as exporting firms sought to remain competitive versus, for example, the low‐cost Asian countries. A counter argument was that manufactured exports require more elaborate design, supervision, packaging and handling, and thus a more educated labor force than production for the domestic market. To attract such skills, exporting firms would need to pay higher wages than non‐exporting ones. This paper uses data from Kenyan manufacturing to study the impact of trade liberalization on earnings, distinguishing between exporting and non‐exporting firms. In particular, it investigates whether exporting firms paid a wage‐premium to their employees. The study uses manufacturing firm survey data from a World Bank regional project. The study has three important findings: (1) There was a large and significant effect of exporting on wages in the first decade of trade liberalization. During the first half of the 1990s, workers in exporting firms earned up to 30 percent more than those engaged in non‐exporting firms. The results are robust even after controlling for individual and firm‐level characteristics such as employee demographics, productivity, firm location and occupation. (2) After a decade of trade liberalization, exporting ceased to be a significant determinant of wages in Kenyan manufacturing, after controlling for productivity and firm location. (3) During the 2000s, casual or irregular employment became a more common feature of exporting firms. The results suggest that while higher wages were important in attracting skilled labor to exporting firms at the beginning of trade liberalization in the 1990s, domestic competition has since reduced the wage premium. Cost cutting pressures are instead reflected in the substitution of casual and low wage labor for permanent and better educated labor and in increased automation.     

Managing Stock Option Expense: The Manipulation of Option‐Pricing Model Assumptions*

This paper examines whether firms that voluntarily recognize stock option expense in their financial statements manage that expense downward more than firms that do not recognize the expense by adjusting option‐pricing model assumptions. To examine this issue, I collect option‐pricing model assumptions from fiscal year 2002 for both a sample of firms that voluntarily recognize stock option expense (“recognizing firms”) and a sample of control firms that do not (“disclosing firms”). The empirical results suggest that recognizing firms manage the recognized stock‐based compensation expense reported in their financial statements downward more than do firms that only disclose the expense. Additional analyses reveal that recognizing firms assume a lower level of volatility than disclosing firms in the option‐pricing model calculations; however, I find no evidence that recognizing firms manage the dividend yield and risk‐free interest rate assumptions more than disclosing firms. The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards No. 123(R), which requires the expensing of the fair value of stock options, so these results may be of interest to capital‐market participants and the FASB as they assess the reliability of stock option expense as determined by option‐pricing models.     

Cross‐border Mergers and Acquisitions and Financial Development: Evidence from Emerging Asia

This paper examines the relationship between cross‐border mergers and acquisitions (M&A) and financial development in emerging Asian economies. Bilateral cross‐border M&A data for nine emerging Asian economies covering 2000–2009 are analyzed with a sample selection model and a panel data model. The estimation results show that although the banking sector still plays a crucial role in facilitating cross‐border M&A, the role of equity markets has increased in importance because, in addition to cash, the issuance of common stock and the exchange of stocks have become popular forms of payment for M&A deals. Because of the relatively thin market, the primary corporate bond market plays a limited role in supporting cross‐border M&A, which is in contrast to the primary public bond market. However, for the secondary market, the corporate bond market is more effective in facilitating cross‐border M&A. The results also show that financial development in terms of stock and bond markets in their home countries tends to become more important when the target firms reside in more developed countries. In addition to financial development, the paper shows that most cross‐border M&A are invested in technology‐related and resource‐based industries while cheap labor industries are relatively less attractive.     

Abstracts/Résumés

We investigate how private information and monitoring affect the role of accounting quality in reducing the investment–cash flow sensitivity. We argue that access to private information and direct restrictions on investments are likely to affect the extent to which accounting quality reduces financing constraints. Our results suggest that, for financially constrained firms, banks’ access to private information decreases the value of accounting quality. We further find that, for both financially constrained and unconstrained firms, covenants directly restricting capital expenditures also mitigate the importance of accounting quality. Our results suggest that, when information asymmetry problems are likely to be the largest, accounting quality is most important. However, the importance of accounting quality is mitigated if outside capital suppliers have access to private information and is eliminated if they impose contractual restrictions on investment. We also provide evidence that banks’ access to private information reduces the cash flow sensitivity of cash and mitigates the importance of accounting quality in reducing this sensitivity. This additional evidence suggests that our investment–cash flow sensitivity results are not driven by measurement error of the investment opportunity set.     

Auditor Reporting and Regulatory Sanctions in the Broker‐Dealer Industry: From Self‐Regulation to PCAOB Oversight

The financial security of the investing public relies on high‐quality service by broker‐dealers (BDs), investors' gateway to the financial markets. The SEC has long required auditors to attest to BDs' internal controls and compliance with regulations (including those privately owned). Following the unraveling of the Madoff Ponzi scheme in 2008, the SEC required auditors of all BDs to register with the PCAOB, and Congressional initiatives signaled imminent transition from private (AICPA) to public (PCAOB) oversight. We investigate whether audit quality increased following this transition by measuring whether auditors report material internal control and compliance problems for BD clients where a deficiency presumably existed (i.e., BDs sanctioned by the Financial Industry Regulatory Authority for transgressions against stakeholders). Overall, we do not find increased reporting quality following the regulatory shift but do observe variation by auditor group and BD ownership. While reporting quality for global network firms (GNFs) increases slightly, lower reporting quality observed prior to the regulatory shift for specialist audit firms (having large BD portfolios but small overall size) is exacerbated afterward. This finding complements results of PCAOB inspections and other research identifying audit quality problems among small, industry‐specialized firms in non‐public client settings. Focusing on deficiencies likely more difficult to detect, we find lower reporting quality for private relative to publicly affiliated BDs prior to PCAOB oversight, and lower reporting quality for very small audit firms relative to GNFs following the regulatory shift.