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.     

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.     

What is the value of corporate sponsorship in sports?

This paper investigates the stock market reaction to investor mood swings resulting from the Indian Premier League (IPL) cricket matches. We find that stocks listed on the Bombay Stock Exchange (BSE) that sponsor the IPL cricket are unaffected by the cricket matches. This finding is robust along two lines: (a) the effect is insignificant both statistically and economically which we demonstrate using a simple trading strategy; and (b) results hold across a wide range of portfolios. Our results, both statistical and trading strategy-based, suggest that the portfolios of companies that sponsor cricket in India are efficient. Our findings stand in sharp contrast to the evidence obtained by the broader sports literature suggesting that sports actually impact stock returns, driven principally by psychological factors.     

Does corporate governance risk at home affect investment choices abroad?

Disparity between control and ownership rights gives rise to the risk of tunneling by the controlling shareholder, and is prevalent in many emerging market economies and present in some developed countries. At the same time, international investors come from different countries whose home markets are characterized by varying degrees of control–ownership disparity. This paper studies whether this difference in investors' home countries affects their portfolio choice in an emerging market. It combines two unique data sets on ownership and control in business groups, and investor-stock level foreign investment in Korea. A key finding is that investors from low-disparity countries disfavor high-disparity stocks in Korea, but investors from high-disparity countries are indifferent. Moreover, investors from low-disparity countries became averse to disparity only after the Asian financial crisis. These results suggest that the nature of corporate governance in international investors' home countries affects their portfolio choice abroad, and therefore these investors should not be lumped together in the analyses of their portfolio choice.     

Can minority state ownership influence firm value? Universal and contingency views of its governance effects

Drawing on the literature of corporate governance and privatization, this study explores the elusive roles of a specific owner identity, namely, state ownership in its minority. With a sample of 68 Taiwanese companies with 5 to 49% state ownership during 1999-2003, the study examines the value-shaping effects of minority state ownership (MSO) and, furthermore, seeks to establish a contingency perspective suggesting that the internal and external contexts may moderate the influence of MSO on firm value. Using first-order autoregressive models to mitigate the problems of endogeneity, the study shows that the governance effect of MSO associates not only in a curvilinear relationship with firm value but also strengthened by corporate ownership ties and market competition. The non-monotonic performance effect and the context-dependent nature of MSO yield significant implications for government investments in the private sector.     

Does good governance matter for FDI inflows? Evidence from Asian economies

This paper examines the effects of the six components of good governance on foreign direct investment (FDI) inflows in 15 Asian economies for the period 1996–2007 using a fixed effect model for panel data with heteroskedasticity corrected standard errors. The study also employs the feasible general least square (FGLS) and Prais-Winstein panel estimation methods in order to check the consistency of the results with the fixed effect model. The empirical results reveal that of the six components of good governance, political stability and absence of violence, government effectiveness, rule of law, and control of corruption are the key determinants of FDI inflows, as they exhibit consistent results under different models. However, the study finds no significant evidence with voice and accountability and regulatory quality in FDI inflows. The study reveals that human capital, infrastructure, lending rate, and GDP growth rate also have a significant influence on FDI inflows. We conclude that a country which can enhance its governance environment in general is likely to attract more foreign direct investment despite offsetting deficiencies in other dimensions of good governance such as voice and accountability and regulatory quality.     

Does home bias affect firm value? Evidence from holdings of mutual funds worldwide

This study finds strong evidence that home bias affects firm valuation at both country and firm levels. At the country level, increasing the bias of domestic investors toward home equity lowers the market valuation of home equity. At the firm level, firm value increases as the compositions of local equities held by domestic and foreign investors tend toward the firms' global market capitalization weights, but decreases as their weights deviate from global weights. Overall, the evidence is consistent with the optimal global risk-sharing hypothesis that the greater risk sharing between domestic and foreign investors in international capital markets reduces the cost of capital and hence enhances market valuation.     

Does corporate hedging affect firm valuation? Evidence from the IPO market

Focusing on the IPO market, we examine the influence of corporate hedging on firm valuation. Consistent with the argument that hedging reduces information asymmetry, we find that hedging IPO firms are associated with lower price revisions and underwriting fees. More important, hedging reduces IPO underpricing, especially for informationally opaque firms. This provides strong evidence that corporate hedging increases firm valuation. We also show that corporate hedging lowers aftermarket idiosyncratic volatility, enhances aftermarket liquidity, and improves the long-term performance of IPO firms. We use both an instrumental variable approach and a regulation change on derivatives supply to address endogeneity concerns.     

Does parenting matter in subsidiary innovation in emerging economies? Exploring the role of parent superior competitiveness in affecting subsidiary contextual ambidexterity

Parenting in the multinational enterprises (MNEs) creates a dilemma when parent company manages the subsidiary contextual ambidexterity, in which parent superior competitiveness may nurture subsidiary exploitation while inhibit exploration. This study addresses this dilemma by developing an integrated framework and investigating how parent superior competitiveness affects the subsidiary contextual ambidexterity (innovation initiative and motivation of learning from the parent), which in turn increases subsidiary innovation performance. Furthermore, it is also examined that what tactics subsidiaries should take to resolve the dilemma. Using 296 survey responses from multiple informants of 111 subsidiaries in China, we find that parent superior competitiveness hinders subsidiary innovation initiative, but enhances subsidiary motivation of learning from the parent company. The negative effect of parent superior competitiveness on subsidiary innovation initiative becomes weaker when the strengths of subsidiary external tie and parent-subsidiary communication are enhanced. The positive effect of parent superior competitiveness on subsidiary motivation of learning is strengthened by subsidiary external tie, whereas no significant effect is found of parent-subsidiary communication. In addition, subsidiary innovation initiative contributes to subsidiary innovation performance through knowledge exploration and subsidiary motivation of learning from the parent positively affects innovation performance.     

Is environmental labeling certification a “green passport” for firm exports in emerging economies? Evidence from China

As the demand for more environmentally friendly products continues to increase, environmental label certification (ELC), as a voluntary environmental practice (VEP), has become a commonly used strategy by firms responding the green demands of the international market. While ELC is playing an increasingly important role in global trade, how ELC affects firms’ exports, especially how it affects the exports of those firms in emerging economies, remains unknown. This study explores the impact of ELC on firms’ exports. Insights are provided from resource-based views (RBV) by analysing China's A-share listed manufacturing firms to estimate the impact of China's ELC on exports. Our empirical results show that ELC can promote firms’ exports, because ELC emphasizes firms to reduce pollutant from the source, thereby, brings about cost advantage and green product differentiated advantage to boost high-quality exports. Using a series of robustness tests, we provide corroborating evidence for our hypotheses. The export-enhancing effect of ELC is impacted by the institutional context of emerging economies, as specialized market intermediaries and greater openness to the global market strengthen the export-enhancing effect of ELC. This research not only contributes to the literature, but also provides a reference for policy-makers and managers in using ELC to develop green trade.     

Does customer satisfaction influence the relationship between earnings and firm value?

The aim of this study is to examine the influence of customer satisfaction on the stock market’s response to current earnings. The study extends prior research on the value relevance of customer satisfaction to include the direct and indirect effects of customer satisfaction on firm value. Utilizing an earning-based valuation model and data from the American Customer Satisfaction Index (ACSI) and COMPUSTAT, the study shows that both satisfaction and the interaction between earnings and satisfaction have a significant influence on firm value. Stock market participants are sensitive to changes in customer satisfaction, and this is reflected in the market’s responsiveness to earnings performance.     

Does quality of innovation,culture and governance drive FDI?: Evidence from emerging markets

This study examines how technology, culture and corporate governance drive inward FDI in emerging economies. A study of 22 emerging economies shows that technology is the major attractive factor influencing inward FDI. Further, FDI increases as technology absorption and innovation capacity increase. The greater the quality of country governance, the greater the influence of corporate governance on FDI. Cultural dimensions such as individualism, masculinity and uncertainty avoidance exhibit a weaker influence on inward FDI, while power distance and indulgence have a stronger influence on inward FDI. Our results support the leapfrogging approach of emerging economies towards promoting innovation and enhancing technology adoption to drive FDI. Interaction effect of country governance further highlighted that the better the governance of a country the impact of technology, innovation, corporate governance and culture in attracting inward FDI also increases.     

Does corruption boost or harm firms’ performance in developing and emerging economies? A firm-level study

In the last decade, a growing number of studies have addressed the ongoing debate about whether corruption “sands” or “greases” the wheels of business at the firm level. This study revisits this debate and proposes a comprehensive theoretical framework to test whether corruption harms or boosts firm performance, as well as the extent to which this relationship is mediated by the countries’ institutional settings, the size and strategic behaviour of the firms, and market competition. Based on a sample of 21,250 firms located in 117 emerging and developing countries, and resorting to instrumental variable (IV) estimations, three main results were found: (a) regardless of the proxy used for corruption and firm performance, the former clearly harms the latter; (b) corruption “greases the wheels” of business for African firms but it “sands the wheels” for firms in Latin America, the Caribbean, Eastern Europe, Central Asia, and Southern Asia; and (c) the negative impact of corruption on performance is mitigated for larger and exporting firms.     

The bank–firm relationship during economic transition: The impacts on bank performance in emerging economies

We analyze the lending relationships between 1011 banks and 17,284 client borrowers across 11 emerging economies. We first demonstrate that a state-owned bank's risk appetite increases as its number of family business group-owned borrowing partners increases. Second, we show that a non-financial firm-owned bank's risk appetite also increases as its number of family business group-owned borrowing partners increases. Finally, we show that a bank is more likely to reduce its risk appetite and improve its operational cost efficiency as its foreign ownership ratio increases, regardless of the bank's lending partner. These findings suggest that, in the post-privatization period, the ownership structure changes of banks and/or borrowers affect the lending relationship and the bank's risk appetite and cost efficiency.     

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.     

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.     

Does rising import competition harm local firm productivity in less advanced economies? Evidence from the Vietnam's manufacturing sector

This paper examines whether rising import penetration has an effect on the productivity of domestic firms. The study uses data on a 10-year unbalanced panel of firms in the manufacturing sector in Vietnam from 2000 to 2009. Panel and instrumental variable methods are used to control firm heterogeneity and endogeneity of import penetration. We find statistically significant and negative effects of import competition on local firms’ productivity, but the effect in terms of magnitude is economically small. Further investigation shows no clear evidence of variations in the effects by firm size and technological level. However, we find that rising import penetration is associated with the likelihood of firm death.     

Does corporate advertising work in a crisis? An examination of inoculation theory

The primary purpose of this paper is to propose a conceptual framework of consumer evaluation of corporate advertising in a corporate crisis. It also suggests future research propositions by investigating how the so-called inoculation effect from pre-crisis corporate advertising influences consumer response to corporate advertising during a crisis. First, the paper describes how the inoculation effect confers resistance to negative news in a corporate crisis. Next, the paper determines whether the inoculation effect further reduces consumer resistance to corporate advertising during a crisis. Other factors that figure into the broader context of corporate crises are then discussed. These include four other types of external impacts on a crisis situation – the crisis, the corporation, the media, and individual differences. The article concludes with implications for research and practice.     

Synergy between R&D and advertising on shareholder value: Does firm size matter?

Using the hierarchical linear model, we examine whether R&D and advertising and their synergy influence firm value. We also investigate whether firm size moderates the market value effects of R&D, advertising, and the synergistic effect of R&D and advertising on firm value. We find that R&D and the synergy between R&D and advertising have significant positive effects on shareholder value. Moreover, we find that the effects of R&D and advertising are significantly higher in large firms than small firms, while the synergistic effect is significantly positive in small firms but not in large firms. These results offer important insight for executives on the implications of resource allocation on R&D and advertising expenditures to create firm value. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.