NO‐ARBITRAGE PRICING FOR DIVIDEND‐PAYING SECURITIES IN DISCRETE‐TIME MARKETS WITH TRANSACTION COSTS

We prove a version of First Fundamental Theorem of Asset Pricing under transaction costs for discrete‐time markets with dividend‐paying securities. Specifically, we show that the no‐arbitrage condition under the efficient friction assumption is equivalent to the existence of a risk‐neutral measure. We derive dual representations for the superhedging ask and subhedging bid price processes of a contingent claim contract. Our results are illustrated with a vanilla credit default swap contract.     

Ownership,financial strategy and performance: the Lancashire cotton textile industry, 1918–1938

This article assesses the validity of John Maynard Keynes' claim that the Lancashire cotton industry failed to restructure because the banks as debt holders prevented firms exiting the industry, creating persistent over-capacity. Using case studies from a substantial sample of Lancashire firms, the article explores archival evidence to establish their financial characteristics, to examine their equity and debt finance and the governance roles of directors and outside ownerhip groups. On the basis of this review the article develops hypotheses to suggest alternatives to the view that bank debt was the dominant explantion of firm level behaviour and industry failure. Applying these to a statistical dataset, results show that syndicates of local shareholders, not banks, were an important impediment to the exit of firms. Moreover, syndicates milked firms of any profits through dividends, thereby limiting reinvestment and re-equipment possibilities. Our results show that where laissez-faire fails in response to a crisis, incumbent investors, particularly block-holders, can be an important impediment to corporate restructuring.     

Principal–principal–agency relationships and the role of external governance

This paper explores agency problems associated with mutual and joint stock organizational forms. It examines whether the independent mode of distribution acts as a governance factor that reduces principal–agent and principal–principal costs. By analyzing a 1990–1997 panel of life insurance companies this paper provides evidence that mutuals have higher principal–agent costs, but lower principal–principal costs, compared with stocks. Independent distribution mitigates both agency problems by reducing managerial expenses while safeguarding interests of policyholders. These relationships are positively moderated by product complexity and free cash flow. This is consistent with the assumption that companies that use independent agents exhibit lower levels of manager and shareholder opportunism. Copyright © 2009 John Wiley & Sons, Ltd.     

Oil at 150$—The tipping point for changing course of civilizations?

The present work offers a systemic perspective on post conventional oil futures. It is based on the model that accounts for a causal relationship between a dominant worldview in a society and the societal choice of technology and institutions, which then constrain and direct dynamics at the level of production and consumption. The Business as usual scenario provides an idea as where the world might be heading under the assumption of a myopic and unchanging worldview. The Western group leads the process of change scenario describes an evolutionary cascade of change in the Western group, which starts with a substantial change in a dominant worldview. Note that this substantial change is not a revolution – although its institutional solutions appear very challenging today, they do not necessarily stand out of the capitalist democracy. Finally, the third scenario is about global governance – a future that would leave least unknowns and least threats to Western civilization.     

The effects of corporate governance and audit and non-audit fees on IPO Value

This paper examines the effects of non-executive board members, audit committee composition and financial expertise, and fees paid to audit firms on the value of 375 UK initial public offerings (IPOs). Empirical findings show that underpricing decreases in audit fees whereas it increases in non-audit fees. A higher proportion of non-executive directors on the firm’s board and audit committees with a higher proportion of non-executive directors and financial accounting expertise of their members positively moderate the inter-relationships between underpricing and both audit and non-audit fees paid by companies going through an IPO. Further investigations using the adjusted price-to-book value as a proxy for firm value at IPO confirm our main findings that internal governance mechanisms may complement services provided by the auditors in terms of generating higher valuations. Controlling for the simultaneous determination of audit and non-audit fees, our results remain consistent.     

Family control,multiple institutional block-holders,and informed trading

This paper investigates how large family shareholders and institutional block-holders jointly influence informed trading and firm valuation in the Hong Kong stock market. It combines market microstructure research with studies on the governance roles of multiple block-holders and finds that institutional block-holders rely on their relative controlling power vis-à-vis family owners to mitigate problems associated with informed trading. They also use their ownership rights to improve the structure of informed trading. However, these governance roles are predominantly exercised by pressure-resistant institutional block-holders. Informed trading reduces firm valuation, while an improvement in its structure increases valuation. Therefore, the governance roles of controlling families and pressure-resistant institutional block-holders may have different implications in terms of investors’ perceptions of private information risk.     

Enterprise Adjustment

MOCT-MOST: Economic Policy in Transitional Economies -     

Contracting on the Stock Price and Forward-Looking Performance Measures

Abstract

We examine the use of earnings, forward-looking performance measures and stock prices in managerial compensation. When the firm's owner and its manager have identical time preferences, the stock price is not useful for motivating the manager, as it is a noisy aggregation of a forward-looking measure and future earnings. In contrast, when the owner and the manager have conflicting time preferences, the noisy stock price is useful for contracting. If the manager has no access to banking and cannot trade the firm's shares, the timeliness of the stock price dominates the extra risk imposed by its noise. At the same time, forward-looking performance measures (such as customer satisfaction) can induce a desirable allocation of management effort between the short term and long term more efficiently than the stock price can. Forward-looking performance measures and the stock price are thus not direct substitutes in rewarding farsighted effort.     

The cul-de-sac of foreign industrial investments to Russia

Abstract

The aim of this article is to determine the rationale for the ‘irrational’ investment behaviour of multinational corporations (MNCs) in Russia. During the on-going recession in a number of major sectors, MNCs have undertaken only a very limited number of divestments and, instead, have commissioned a record number of new manufacturing facilities (by opening new plants and expanding the capacities of existing plants). To explain this phenomenon, we first provide an overview of existing theoretical and empirical studies on investments in difficult locations and divestments of foreign subsidiaries, and identify the major weaknesses of the prevailing approaches and underlying assumptions of such studies. Next, we present a detailed picture of both industrial investments and divestments in Russia from January 2015 to March 2017. Finally, we indicate how a combination of systemic and contingent factors (pressure from the host country’s government, subsidiaries’ orientation towards the host country’s markets, and the absence of potential local and international acquirers for existing Russian manufacturing facilities of Western MNCs) has created ‘cul-de-sac’ conditions for foreign-owned industrial assets in Russia.     

Is the European integration speeding up the economic convergence process of the Central and South-Eastern European countries? A shock perspective

In the current context of continuous reassessment of the sustainability of the single currency and gradual enlargement of the euro area during the last decade, the objective of this research is to obtain new insights into the factors that determine the synchronisation of shocks in the Central and South-Eastern European countries vis-à-vis the euro area. The research contributes to the previous work by making a novel use of error correction model in a dynamic panel context which is extended by adding several important omitted variables related to the trade structure and policy coordination. We find that an increase in trade intensity, intra-industry trade and financial integration leads to less frequent asymmetric shocks. On the other hand, divergent fiscal policies are estimated in some model specifications to increase the shock divergence process, although the estimated impact is rather small to counteract the positive effects associated with trade and financial integration. The identified relationships in this research are affected by the significant trade and growth slowdown in the crisis period; while the global economic turmoil has boosted a demand shock convergence, its impact on the supply shocks is in the opposite (diverging) direction.