The determinants of outward foreign direct investment: a firm‐level analysis of Indian manufacturing

This paper analyses the determinants of the overseas direct investment activity of Indian manufacturing enterprises. In general, several firm‐specific characteristics such as age, size, R&D intensity, skill intensity and export orientation are observed to be important explanatory factors in the outward foreign direct investment (O‐FDI) activity of Indian firms. The impact of age and size on O‐FDI has been observed to be non‐linear. The product differentiation activities and the productivity of firms are other useful factors in overseas production expansion in certain industries. The study reveals that the performance of these firm‐specific variables is subject to sectoral dynamics. Internationalization of production activities of Indian firms has been observed to be partly fuelled by policy liberalization during the 1990s.     

Bank mergers and components of risk: An evaluation

The present study empirically examines the contribution of the acquired banks in only the nonconglomerate types of mergers (i.e., banks with banks), where the bulk of the payment is in the form of equity to the acquiring bank and finds overwhelmingly statistically significant evidence that nonconglomerate types of mergers definitely reduce the total as well as the unsystematic risk while having no statistically significant effect on systematic risk. Therefore, it seems that diversification may be a possible motive for bank mergers.     

A tax-based motive for the underpricing of initial public offerings

This paper presents a model of entrepreneurial wealth maximization for the pricing of initial public offerings (IPOs). It is an extension of one previously presented in the literature. The model shows that personal tax rates on ordinary income and capital gains may, in part, determine IPO pricing: an increase in the capital gains tax rate should lower the degree of underpricing. An empirical analysis of the effect of the Tax Reform Act of 1986, which raised the capital gains tax rate, shows that the average degree of underpricing did decrease as predicted, and that this occurs after controlling for other possible influences.     

Freeport-McMoRan Copper &; Gold,Inc.: An Innovative Voluntary Code of Conduct to Protect Human Rights,Create Employment Opportunities,and Economic Development of the Indigenous People

Environmental degradation and extractive industry are inextricably linked, and the industry’s adverse impact on air, water, and ground resources has been exacerbated with increased demand for raw materials and their location in some of the more environmentally fragile areas of the world. Historically, companies have managed to control calls for regulation and improved, i.e., more expensive, mining technologies by (a) their importance in economic growth and job creation or (b) through adroit use of their economic power and bargaining leverage against weak national governments, regional and international regulatory bodies. More recently, the industry has had to contend with another set of challenges that involved treatment of indigenous people and their traditional land rights, fair treatment of workers, human rights abuses, and bribery and corruption involving local officials and political leaders. These challenges currently fall outside the traditional areas of regulation and control. Nevertheless, they pose serious threat to the industry’s business practices because of their global scope, threat to company’s reputation, and long-term risks of political instability leading to increasing cost of capital. Industry has responded to these challenges by creating voluntary codes of conduct that would signify their intent to comply with higher standards of conduct, and assuage public opinion that no further action is called for. These codes, however, lack any monitoring mechanism and reporting integrity to assure the public that the industry members are indeed meeting their commitments. Consequently, pressure on the industry continues unabated and with ever increasing calls for mandatory regulation and oversight. This article examines the activities of one mining company, Freeport-McMoRan Copper & Gold, Inc., which has taken a radically different approach in responding to these challenges at its mining operations in West Papua, Indonesia. While cooperating with industry-based efforts of voluntary codes of conduct, Freeport also initiated a radically different response through its own voluntary code that would directly focus on issues of human rights, treatment of indigenous people on whose traditional land its mine was located; economic development and job creation and, improvements in health, education, and housing facilities, to name a few. Additionally, the company earmarked large sums of money and involved representatives of the indigenous people in their management and disbursement. The company took an even more radical action when it committed itself to independent external audits of the company’s compliance with the code, and that these findings and company’s responses would be made public without prior censorship by the company. We analyze the nature of corporate culture, vision and risk-taking propensities of its management that would impel the company to embark on a high risk strategy whose outcomes could not be predicted with any degree of certainty before the fact. The parent company also had to confront discontent among the management ranks at the mine site because of cultural differences and management styles of expatriates and local (Indonesian) managers. Finally, we discuss in some detail the extensive and intensive character of a two phase audit conducted by the outside monitors, their findings, and the process by which they were implemented and reported to general public. We also evaluate the strengths and challenges posed by such audits, their importance to the company’s future, and how such projects might be undertaken by other companies.     

On the welfare benefits of an international currency

Is it beneficial for a country's currency to be used internationally? And, if so, can we quantify the benefit? Since the emergence of the euro, there has been great interest in the consequences of a transfer of the dollar's premier international role to the euro. This paper presents a novel model-based approach towards assessing the welfare benefits associated with the international use of a country's currency. Apart from the familiar benefits associated with seigniorage, residents of the issuing country experience an increase in the purchasing power of their currency both at home and abroad. In the calibration exercise carried out in this paper, we find the benefits of an international currency to be quantitatively significant. The welfare gain for the Euro area in having the euro internationally used ranges from 1.9% to 2.3% of consumption depending on relative inflation rates. The rest of the world is not indifferent as to which currency circulates as the dominant international currency. Conditional on their currency not being used internationally, their preference is for the dominant international currency to be the one with the lowest inflation rate.     

Girls for Sale? Child Sex Ratio and Girl Trafficking in India

ABSTRACT

Illegal trafficking of girls results from their disadvantageous position in society, often reflected by preference for sons and neglect of daughters. India has both higher levels of illegal trafficking of girls and abnormal child sex ratios in favor of boys. This paper examines if the skewed sex ratio in India is associated with trafficking of girls. Using panel data from twenty-nine Indian states from 1980 to 2011, the study finds that a 100-unit increase in the child sex ratio is associated with a 0.635 percent increase in girl trafficking. Further, the association is heterogeneous by women’s empowerment, crime against women, and party rule in the state, and the association between the child sex ratio and trafficking of girls is stronger and larger in magnitude in states with greater women’s empowerment. Overall, it appears the results are driven both by greater reporting and a greater incidence of illegal girl trafficking.