Corruption and valuation of multinational corporations

This paper examines the relationship between U.S. MNCs' valuation and corruption in countries where the MNCs' foreign subsidiaries are located. We uncover that country-level corruption has a multi-dimensional impact on MNCs' valuation. We find that the impact of intangibles is less pronounced for MNCs operating primarily in corrupt countries, consistent with the view that the lack of property rights protection and information asymmetry problems are more prevalent in corrupt environments. We also find that the expansion of a MNC network dominated by corrupt countries negatively affects MNCs' valuation, suggesting that investors may recognize it as an additional risk. However, more importantly, we find that geographic diversification in corrupt countries significantly increases firm value if the MNC has high levels of intangibles such as technological know-how and marketing expertise. Assuming that transactions costs in corrupt countries are higher, our findings are consistent with the notion that the advantages from internalizing the cross-border transfer of intangibles are greater in the presence of corruption. Our findings remain unchanged when we account for endogeneity at the country-and firm-level, when we use alternative corruption measures, and when we re-estimate models by omitting MNCs with operations in locations with big “negative” shocks during the sample period. Moreover, we show that firms with expertise in dealing with corruption enjoy greater benefits from internalization.     

What is the correct meaning of implied volatility?

This paper presents a closed-form solution for the valuation of European options under the assumption that the excess returns of an underlying asset follow a diffusion process. In light of our model, the implied volatility computed from the Black–Scholes formula should be viewed as the volatility of excess returns rather than as the volatility of gross returns. Using the SPX and the OMX options data, we test whether implied volatility obtained from Black-Scholes option price explains the volatilities of excess returns better than gross returns, even though the result is not statistically significant.     

Political geography and stock returns: The value and risk implications of proximity to political power

We show that political geography has a pervasive effect on the cross-section of stock returns. We collect election results over a 40-year period and use a political alignment index (PAI) of each state's leading politicians with the ruling (presidential) party to proxy for local firms’ proximity to political power. Firms whose headquarters are located in high PAI states outperform those located in low PAI states, both in terms of raw returns, and on a risk-adjusted basis. Overall, although we cannot rule out indirect political connectedness advantages as an explanation of the PAI effect, our results are consistent with the notion that proximity to political power has stock return implications because it reflects firms’ exposure to policy risk.     

Job Market Signaling: What Drives the Productivity of Finance Ph.D.s?

We study the research productivity of new finance Ph.D.s as measured by the number of quality publications. A commonly accepted notion is that the highest ranked schools produce the candidates with the greatest potential for high‐quality publications. Our results, however, find publications or revisions in top‐tier journals during the doctoral program are a stronger measure of potential research productivity than the school attended. Our findings demonstrate how candidates outside of the top schools can signal their future research productivity. Even though we examine the specialized labor market, our results have broader implications for markets outside academics.     

Corporate derivatives use policy and information environment

We provide evidence consistent with the notion that prudent use of financial derivatives improves firms’ information environment. We show that firms with sophisticated and comprehensive derivatives use policies display lower levels of uncertainty about future cash flows, volatility of future income and sales growth, and equity mispricing than those that do not use derivatives. However, we also show that policies that consist of large positions in a single type of derivative contract are not likely to produce similar benefits. These results remain intact even after accounting for the endogenous nature of derivatives use policy and information risk and mispricing.     

APEC and Asia‐Pacific regionalism: Conditions and prospects

After the Cold War and the financial crisis that wreaked havoc throughout Asia, the Asia‐Pacific region has realized the importance of their interdependence. Economic prosperity will be the cornerstone of how the world will prosper throughout the 21st century. Because of globalization, the world is changing very rapidly and thus trying to cope with adjustments. The world trade order has changed and regional trading blocs are emerging after the fall of a bipolar world, which were dominated by the communist bloc and the capitalist bloc. After the collapse of the Soviet Union, capitalism has changed how countries perceive their national interests. An analysis is provided for the growth of regionalism and the future possibilities of the Asia‐Pacific Economic Cooperation (APEC).     

Prospects for ASEAN-China Free Trade Area： A Qualitative and Quantitative Analysis

The current global financial and economic crisis is giving new life to initiatives that promote closer economic integration among East Asian countries. A significant example is the ASEAN- China Free Trade Area （.4 CFTA）, which is set to come into effect around 2010..4CFTA aims to boost trade between two economies that are partners as well as competitors： ASEAN and China. In the present paper, we use insights from customs union theory in a qualitative analysis considering whether,4CFTA would benefit both sides. We also apply a computable general equilibrium model to perform a quantitative analysis of the same issue. Both our qualitative and quantitative analyses provide grounds for guarded optimism regarding A CFTA ＇s prospects as a vehicle for strengthening the economic partnership between ASEAN and China.     

COLONIALISM AND INDUSTRIALISATION: FACTORY LABOUR PRODUCTIVITY OF COLONIAL KOREA, 1913–37

Unlike other colonial economies, Korea industrialised rapidly during its colonial period, which past scholars attributed to the industrialisation policy directed by the Japanese colonial government between 1930 and 1945. Our analysis of factory labour productivity from 1913 to 1937 suggests significant revisions to this claim. Factory labour productivity as well as total production grew rapidly before the active intervention of the colonial government. In addition, Korean entrepreneurs invested heavily in their firms and successfully competed with Japanese entrepreneurs. We conjecture that the pre-war experience of Korean entrepreneurs provided a critical foundation for the post-colonial economic growth.