Does Post‐ante Investment Experience Matter? Lessons from FDI in China

Ample efforts of FDI literature have researched on the motives and determinants of FDI flows based on ex‐ante conditions. Little has been studied with regard to the effects of post‐ante behaviour in determining future investment decisions. Post‐ante experience of FDI decisions with regard to foreign investors’ satisfaction or dissatisfaction and future profit expectations on recurrent decisions are critical. This paper, thus, attempts to investigate FDI in the context of an emerging market environment with emphasis on how environmental and institutional factors and the micro‐firm effects of how investors’ post‐ante views on profits expectations and investment experience would affect MNCs’ decisions on recurrent investment and firm relocation. Empirical results show that decisions in the short and long run were affected differently by the factors under study. Specifically, the short‐run decisions were more affected by profit expectations while the long run by post‐ante experience on investment satisfaction/dissatisfaction and environmental and institutional determinants.     

The China–United States Bilateral Trade Balance: How Big Is It Really?

There are huge discrepancies between the official Chinese and US estimates of the bilateral trade balance. The discrepancies are caused by different treatments accorded to re-exports through Hong Kong, re-export markups, and trade in services. Deficit-shifting between China, on the one hand, and Hong Kong and Taiwan, on the other, owing to direct investment in China from Taiwan and Hong Kong, is partly responsible for the growth in the China–US bilateral trade deficit. The 1995 China–US bilateral balance of trade in goods and services, adjusted by both re-exports and re-export markups, may be estimated as US$23.3 billion, a large deficit but considerably smaller than the often-cited official US figure of US$33.8 billion.     

Price discovery in the foreign exchange futures market

Examination is made of the relative contributions to price discovery of the floor and electronically traded euro FX and Japanese yen futures markets and the corresponding retail on‐line foreign exchange spot markets. GLOBEX electronic futures contracts provide the most price discovery in the euro; the on‐line trading spot market provides the most in the Japanese yen. The floor‐traded futures markets contribute the least to price discovery in both the euro and the Japanese yen markets. The overall results show that electronic trading platforms facilitate price discovery more efficiently than floor trading. Futures traders may also extract information from on‐line spot prices. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:1131–1143, 2006     

KEIRETSU AFFILIATION AND STOCK‐MARKET‐DRIVEN ACQUISITIONS

We examine misvaluation as a driver of takeover activity in Japan. Mirroring empirical results from the United States, we find that overvaluation is an important factor affecting the dichotomy between acquirers and nonacquirers in Japan. Being affiliated to a keiretsu group appears to reduce the probability that an overvalued firm will decide to acquire another firm. Misvaluation is also an important determinant of the likelihood of a firm becoming a target; however, there is no significant difference between keiretsu and nonkeiretsu firms in this regard. Shareholders of keiretsu‐affiliated acquirers do not gain from acquisitions, whereas acquisitions by nonaffiliated firms do seem to be value enhancing.     

Short-term debt maturity,monitoring and accruals-based earnings management

Most prior studies assume a positive relation between debt and earnings management, consistent with the financial distress theory. However, the empirical evidence for financial distress theory is mixed. Another stream of studies argues that lenders of short-term debt play a monitoring role over management, especially when the firm’s creditworthiness is not in doubt. To explore the implications of these arguments on managers’ earnings management incentives, we examine a sample of US firms over the period 2003–2006 and find that short-term debt is positively associated with accruals-based earnings management (measured by discretionary accruals), consistent with the financial distress theory. We also find that this relation is significantly weaker for firms that are of higher creditworthiness (i.e. investment grade firms), consistent with monitoring benefits outweighing financial distress reasons for managing earnings.     

Institutional Ownership and Corporate Investment Performance

This paper examines the role of institutional investors in improving firm performance through the channel of corporate investment decisions. We find that the interaction effect between institutional ownership and capital expenditures is significantly related to firm performance. We examine this relationship for different types of institutional investors, and find that investment advisors are most effective monitors in improving firm performance through corporate investment. Moreover, we find that the monitoring role of institutional investors becomes more important when internal governance is weak. Institutional ownership and other forms of corporate governance mechanisms (including CEO incentive compensation and control, shareholder right provisions, and board of director monitoring) operate as substitutes, rather than complements, in improving capital expenditure decisions. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.     

Evidence on the dynamic relationship between international trade and the stock market

This study uses vector autoregressive analysis to examine the dynamic interactions of monthly real stock returns, return volatility, exchange rates, export growth and import growth for Hong Kong, Korea, Singapore, and Taiwan for the period 1975–91. We find that exports and imports have significant interactions. The results also indicate that stock returns in Hong Kong and Singapore Granger-cause trade flows. Return volatility is found to react strongly to trade news in all four countries, a result supporting the efficient-market hypothesis.     

Lévy betas: Static hedging with index futures

This study considers calibration to forward‐looking betas by extracting information on equity and index options from prices using Lévy models. The resulting calibrated betas are called Lévy betas. The objective of the proposed approach is to capture market expectations for future betas through option prices, as betas estimated from historical data may fail to reflect structural change in the market. By assuming a continuous‐time capital asset pricing model (CAPM) with Lévy processes, we derive an analytical solution to index and stock options, thus permitting the betas to be implied from observed option prices. One application of Lévy betas is to construct a static hedging strategy using index futures. Employing Hong Kong equity and index option data from September 16, 2008 to October 15, 2009, we show empirically that the Lévy betas during the sub‐prime mortgage crisis period were much more volatile than those during the recovery period. We also find evidence to suggest that the Lévy betas improve static hedging performance relative to historical betas and the forward‐looking betas implied by a stochastic volatility model.     

Good deeds earn chits? Evidence from philanthropic family controlled firms

This study examines whether charitable family controlled firms have lower default risk. Using Taiwan data that provide clear information about firms’ benevolent intention and avoid endogeneity issue of risk and charitable activities, we show that charitable family controlled firms have lower default risk, which is proxied by value-at-risk and expected shortfall measures. Our finding shows that charitable activities bring benefits of lower risk to shareholders. This study also provides various channels that can lower default risk for the charitable firms. That is, these firms appear to have higher credit ratings, engage less in earnings management, and have higher worker productivity. This study argues that the benevolent mindset of decision makers at firms help lower default risk.     

What Drives Cost Efficiency of Banks in China?

This study uses stochastic frontier analysis to examine the factors that influenced cost efficiency of banks in China from 2005 to 2013. The results indicate that policy variables, such as the reserve requirement ratio, the interest rate spread and open market operations by the People's Bank of China, are effective in improving the cost efficiency of banks, but shadow banking variables may reduce cost efficiency. Among the various bank types, city commercial banks appear to be the most efficient and foreign banks are the least efficient. The present study suggests that policy‐makers can have a positive influence on bank cost efficiency by adjusting macro policy variables on different types of banks and by requiring more information on the shadow banking activities to improve monitoring.