Initial and Long-Run IPO Returns in Central and Eastern Europe

ABSTRACT

This article provides original evidence on IPO underpricing and long-run underperformance in Central and Eastern Europe (CEE) and compares results to the European Union’s developed capital markets from 2000 to 2009. Using both index-adjusted and CAPM-adjusted returns, we find significant underpricing that is significantly higher than underpricing of comparable IPOs in the European Union’s developed capital markets. We show that the CEE’s initial IPO returns also exhibit significantly higher volatility. In line with the asymmetric information theory, we indicate that smaller IPOs in the CEE region have greater underpricing than the larger IPOs. Contrary to the literature, we unambiguously confirm long-run underperformance toward the benchmarks. In some model specifications, we also find that IPO long-run underperformance in the CEE region is less present than in the European Union’s developed capital markets.     

Households’ foreign currency borrowing in Central and Eastern Europe

Foreign currency loans represent an important feature of recent financial developments in CEECs. This might pose a serious challenge for macroeconomic stability. Against this background, we study the determinants of foreign currency loans of households, using data on the behavior of households in nine CEECs. Our results reveal that foreign currency loans are driven by households’ lack of trust in the stability of the local currency and in domestic financial institutions. Moreover, special factors including remittances and expectations of euro adoption play an important role in selected regions. The financial crisis reduced foreign currency borrowing, but there is some indication this effect might be only temporary.     

Ownership,interest rates and bank risk-taking in Central and Eastern European countries

We examine the impact of interest rates on bank risk-taking in 10 CEE economies and the Russian Federation for the 1997–2011 period taking explicitly into account the ownership status of banks, i.e., domestic vs. foreign owned. The results show that the risk-taking behavior differs between foreign and domestic banks. Foreign banks increased their risk-taking appetite as long run interest rates declined during the 2000s in all countries, while they behaved more aggressively in the 10 CEE countries, responding to the decline of the short term rates as well. This behavior stemmed mainly from higher capitalized banks. In turn, the risk-taking nexus is absent for domestic banks in the 10 CEE economies. Moreover, the solvency status of foreign banks remained essentially unaffected by monetary conditions in all countries while this does not hold for domestic banks in the Russian Federation.     

Connectedness structures of sovereign bond markets in Central and Eastern Europe

The main goal of this research is to identify the direction and scale of connectedness of selected post-communist countries from Central and Eastern Europe (CEE) and major global and European sovereign bond markets, covering the period 2008–2020, including the COVID-19 pandemic. We verify the volatility spillovers in bond markets via directional method and dynamic conditional interconnectedness modelling perspectives. Unexpectedly, we discovered that CEE countries are more interlinked with each other than with global markets. Therefore, our results suggest that it is useful to look separately at advanced and developing bond markets in European countries, as it has a significant implication for bond's portfolio management.     

拉丁美洲、中东欧及东亚新兴市场国家金融部门外国直接投资研究

20世纪90年代中期以后,新兴市场国家金融部门吸收的FDI数量迅速增长。本文认为,从FSFDI迅速兴起的直接原因与主要特征来看,拉丁美洲国家与东亚新兴市场国家的FSFDI属于"冲击诱导型"或"危机导向型",而中东欧转轨国家的FSFDI则属于"改革推进型";从FSFDI的来源与布局结构上看,新兴市场国家FSFDI的来源国在区域上相对固定但集中程度不尽相同。中国金融部门在引进FDI的过程中应注意避免外资来源国过于集中,应在银行部门构建外资、民资与国资共存的股权结构,积极引导本土银行对外投资,并加强审慎有效的金融监管。     

Determinants of the Export Structure of Countries in Central and Eastern Europe

The growth in exports from Central and Eastern Europe to Westernmarkets suggests that entrepreneurs have responded to changedincentives by restructuring their production to capture newmarkets. The absence of change in the structure of exports,however, suggests that these restructuring efforts have notbeen significant. This article analyzes the magnitude of thechange in export structure across the Central and Eastern Europeancountries in 1990–95, focusing in particular on tradewith the European Union. It finds that imports of intermediateinputs and machinery are an important determinant of the changesin export structure. Sourcing of inputs from abroad is a majorfactor underlying the expansion of exports to the European Union.Outward processing (subcontracting) arrangements and foreigndirect investment have a smaller impact. Except for Poland,inflows of foreign direct investment are statistically insignificantor negatively associated with measures of revealed comparativeadvantage. This suggests that foreign investors have chosensectors in which the Central and Eastern European countrieswere not relatively specialized under central planning.     

Equilibrium exchange rates in Central and Eastern Europe: A meta-regression analysis

This paper analyses the ever-growing literature on equilibrium exchange rates in the new EU member states of Central and Eastern Europe in a quantitative manner using meta-regression analysis. The results indicate that the real misalignments reported in the literature are systematically influenced, inter alia, by the underlying theoretical concepts (Balassa–Samuelson effect, behavioral equilibrium exchange rate, fundamental equilibrium exchange rate) and by the econometric estimation methods. The important implication of these findings is that a systematic analysis is needed in terms of both alternative economic and econometric specifications to assess equilibrium exchange rates.     

Efficiency and productivity growth in the banking industry of Central and Eastern Europe

We employ the directional technology distance function and provide estimates of bank efficiency and productivity change across Central and Eastern European (CEE) countries and across banks with different ownership status for the period 1998–2003. Our results demonstrate the strong links of competition and concentration with bank efficiency. They also show that productivity for the whole region initially declined but has improved more recently with further progress on institutional and structural reforms. Input-biased technical change has been consistently positive throughout the entire period suggesting that the reforms have induced favorable changes in relative input prices and input mix. However we find evidence of diverging trends in productivity growth patterns across banking industries and that foreign banks outperform domestic private and state-owned banks both in terms of efficiency and productivity gains. Overall, we find that productivity change in CEE is driven by technological change rather than efficiency change.     

Stock market contagion in Central and Eastern Europe: unexpected volatility and extreme co-exceedance

We examine whether there is contagion from the US stock market to six Central and Eastern European stock markets. We use a novel measure of contagion that examines whether volatility shocks in the US stock market coupled with negative returns are followed by higher co-exceedance between US and emerging stock markets. Using our approach and controlling for a set of market-related variables, we show that during the period from 1998 to 2014, financial contagion occurred, that is, unexpected negative events in the US market are followed by higher co-exceedance between US and Central and Eastern European stock markets. Even though contagion is stronger during the financial crisis, it also occurs in tranquil times.     

Corporate Reporting in Central and Eastern Europe: Issues,Challenges and Research Opportunities

The purpose of this paper, building upon the papers included in this special section of Accounting in Europe on Corporate reporting in CEE countries and on our knowledge of the region, is to broaden out and open up dialogue and debate about how local institutions are evolving and impact the corporate reporting practices in this under-researched region. We begin by discussing the institutional context for conducting research on corporate reporting by entities in Central and Eastern Europe (CEE), within the broader context of emerging, transitional economies. We also reflect on how research conducted on CEE countries can make a relevant contribution to the international literature, and exemplify by summarizing the research questions and findings of the papers included in the special section. A future research agenda emerges, given the gaps in the international literature and the future research implications suggested in the papers constituting the special section.     

Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis

We examine whether foreign and domestic banks in Central and Eastern Europe react differently to business cycles and banking crises. Our panel dataset comprises data of more than 250 banks for the period 1993–2000, with information on bank ownership and mode of entry. During crisis periods domestic banks contracted their credit base, whereas greenfield foreign banks did not. Also, home country conditions matter for foreign bank growth, as there is a significant negative relationship between home country economic growth and host country credit by greenfields. Finally, greenfield foreign banks’ credit growth is influenced by the health of the parent bank.     

Equity culture development in Central and Eastern Europe: The role of institutional and managerial factors

In this paper we argue that the development of equity culture in the CEECs is dependent on the presence of a combination of factors stemming from the external institutional and internal managerial environments of the firm. We adopt an inductive approach by firstly analysing two levels of data followed by a conceptualisation based on gained results. We examine data for ten CEECs (all current EU members) for four years 1996, 2000, 2004, and 2008. To examine the characteristics of the institutional and managerial environments of the CEECs and assess their similarities to four benchmarks (UK, USA, Germany, and Japan) we apply a Co-Plot methodology. We find that the presence of an advanced and well developed institutional framework together with the existence of specific managerial conditions is a necessary condition for equity culture development. One could argue that in the CEECs the transition process of institutional conditions necessary for the development of a sound financial system is in place but with some limitations. Furthermore, we find that managers in countries with the best potential for equity culture development are highly motivated, high-skilled people with international corporate experience.     

Investments,Credit, and Corporate Financial Distress: Evidence from Central and Eastern Europe

Although they are instrumental for economic development, productivity-enhancing corporate investments may increase the financial vulnerability of companies, especially in an economic and financial crisis. We employ an instrumental probit model with the aim of finding evidence for the investment and credit patterns that led companies into financial distress during the global financial crisis 2009–2010. The company-level micro-data for our study on three Central and East European countries—Hungary, Bulgaria, Romania and two Baltic countries, Latvia and Lithuania—originates from two independent surveys, the Business Environment and Enterprise Performance Survey conducted in 2008 and the Financial Crisis Survey conducted in 2009/2010. Both were carried out jointly by the EBRD and the World Bank. Our results emphasize a substantial adverse impact from investment intensity and debt financing on company financial soundness during a crisis. On top of that, we discover a strong non-linear pattern in the sensitivity of company distress to its investment-financing nexus.     

Macroeconomic Factors in the Dynamics of Corporate and Household Saving: Evidence from Central and Eastern Europe

This article uses panel data estimations on annual data from 10 Central and Eastern European countries to assess the effect of different macroeconomic variables on the dynamics of corporate and household saving. The analyses show that changes in the macroeconomic environment affect the saving rates in both sectors, but with marked differences across the two sectors. The differences are most pronounced for the output gap, the real interest rate, the inflation rate, and the current account balance. Some variables, including the unemployment rate and changes in the real exchange rate, are unimportant in both sectors. The different results for the two sectors underscore the importance of analyzing the factors driving the dynamics of corporate and household saving separately.     

On the determinants of SME capital structure in Central and Eastern Europe: A dynamic panel analysis

The purpose of this paper is to test how firm characteristics affect SMEs’ capital structure using a unique dataset of micro, small, and medium-sized firms (SMEs) in Central and Eastern Europe (CEE). We carry out a panel data analysis of 3175 SMEs from seven CEE countries during the period 2001–2005, modeling the leverage ratio as a function of firm specific characteristics hypothesized by capital structure theory. By using the cash flow as an explanatory variable, we test some of the predictions of the pecking order theory. According to this theory, firms with more available internal funds should use less external funding. We do find strong evidence in favor of the pecking order theory, given that there is a negative and significant correlation between profitability and leverage. When we control for other firm specific characteristics such as future growth opportunities, liquidity, sales growth, size and assets structure, the cash flow is found to be a strong determinant of firm leverage. We also argue that the determinants of firm leverage may be considerably different depending on firms’ size and age. The empirical results show that cash flow coefficient remains negative and statistically significant only for medium-sized firms, thus suggesting that larger firms with sufficient internal funds use less external funding than comparable smaller firms. We obtain similar results when we estimate the model by firm age; older firms demonstrate similar behavior as larger firms.     

Credit growth in Central,Eastern, and South-Eastern Europe: The case of foreign bank subsidiaries

In this paper, we investigate the credit growth of foreign-owned banks in Central, Eastern, and South-Eastern Europe from 2000 to 2014. We intend to show whether foreign capital in the banking sector should be treated as a monolith, as it currently is in the literature. To this end, we analyse credit growth based on the status of the parent company (global systemically important banks, or G-SIBs, vs. non-GSIBs) and European Union membership of the countries of the subsidiaries. The analyses are carried out on a panel of banks with the use of the panel corrected standard error methodology. Additionally, we differentiate between the pre-crisis and crisis/post-crisis periods to identify whether the policy of parents changed after the outbreak of the crisis. We find important differences in the determinants of the credit growth of subsidiaries, indicating that foreign capital in the banking sector should not be treated as a monolith.     

Transition from authoritarian/totalitarian systems: Recent developments in Central and Eastern Europe in a comparative perspective

In this article the method of the comparative prognosis is used to compare the transitions from an authoritarian system to a democratic one in the countries of Southern Europe and Latin America with those of Central/Eastern Europe. Since such a comparison makes more sense in some areas than in others, a distinction is made between the realm of the nation-state, of economics and of politics. The aim of this exercise is to show what the countries of Central/Eastern Europe can learn from the experiences of the other two regions. What are the chances, but also what are the pitfalls of such a rapid transition to democracy and a market economy? Much attention is given here to the role of outsiders, and especially to the USA and the EC countries.     

Ownership, board structure, and performance in continental Europe

This study examines the empirical validity of claims that the composition of boards of directors and ownership structures affect firms' profitability ratios (ROE, ROA, MTB) using data from 87 European firms, which were foreign U.S. registrants during 2000-2001. Results indicate a strong positive relation between the level of relational ownership and profitability ratios, and between the portion of independent directors on the board and profitability ratios. No strong relation was found between the portion of inside directors or level of managerial ownership and profitability in continental European companies.