The Determinants of Cross‐border M&As: The Role of Institutions and Financial Development in the Gravity Model

This paper examines the macroeconomic determinants of cross‐border mergers and acquisitions (M&As). Using a panel dataset of bilateral M&A deal values for 101 countries for 17 years ranging from 1989 to 2005, we investigate both home and host‐country factors that may play an important role in determining the size and direction of M&A flows. Overall, the empirical results suggest that legal and institutional quality and financial market development increase M&A volume across borders. The significant effect of institutions, however, may disappear for transactions between countries in similar stages of the development.     

Residents' Perception of the 2008 Beijing Olympics: Comparison of Pre‐ and Post‐Impacts

The purpose of this study is to explore any significant differences in residents' perception of the impacts before and after the 2008 Beijing Olympics. The findings of this study revealed that residents' perception of the positive impacts (community investment and improvement of city infrastructure) varied over two points in time, while two negative factors (inflation and tax increase) demonstrated little perceptual change. Residents had high expectations of the benefits that the Olympics would bring to the community, yet those expectations were not met. In fact, the problems caused by the Olympics were neither greater nor lesser than they expected. Copyright © 2012 John Wiley & Sons, Ltd.     

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.     

Rational expectations and the short-run Phillips curves

The purpose of the present paper is to study certain derivable implications of the rational expectations hypothesis (REH) in the context of a simultaneous wage-price model of the U.S. economy and to subject the REH to statistical tests. The empirical evidence indicates that implementation of the REH in the context of these models does wipe out the conventional short-run Phillips curves, and the assumption that public expectations of future rates of inflation are true conditional mathematical expectations based on all available information is indeed borne out quite well against its alternatives.     

The choice of a monetary instrument in a small open economy: The case of Korea

Using a small macroeconometric model of Korea, this paper evaluates the correct choice of a monetary instrument (either the money stock or the interest rate), the optimal multiperiod policy, and the value of current information on some monetary varialbles.     

Ownership structure and earnings informativeness: Evidence from Korea

This paper examines the relationship between corporate ownership structure in Korea and the informativeness of earnings. Korean ownership structure is characterized by the dominance of one primary owner who also participates in firm management. Existing literature offers two alternative perspectives on the behavior of such owner-manager firms, convergence of interests, and management entrenchment hypotheses. We tested the alternative views to see how they are reflected in earnings informativeness. The results show that earnings are more informative as holdings of the owner increase, supporting the convergence of interest explanation for the owner-manager structure. Second, we examine the role of institutional investors and blockholders. On the one hand, institutions/blockholders have incentives to actively monitor management. However, on the other hand, institutions/blockholders may not render effective monitoring because they lack expertise, suffer from freerider problems, or strategically ally with management. These opposing views predict conflicting signs on the relation between the earnings informativeness and holdings of institutions/blockholders. We find that earnings informativeness increases with the holdings of institutions and blockholders. This supports the active monitoring role of institutions/blockholders. Finally, we test the relationship between earnings informativeness for chaebol (Korean business group)-affiliated companies vs. that for nonchaebol-affiliated companies, and find no significant relationship between the owner-largest shareholder's holdings and earnings informativeness. This provides evidence that for chaebol companies, the negative effect of management entrenchment/expropriation of minority shareholders offsets the positive effects. This phenomenon is stronger for chaebol-affiliated companies than for nonchaebol affiliates.     

Evaluating competitiveness of air cargo express services

This paper explores the relative importance of factors that influence the adoption of air express delivery service, and evaluates the competitiveness of air cargo express carriers in the Korean market. Our AHP analysis shows that accuracy and promptness are the two most influential factors to competitiveness, and that DHL is most competitive in the Korean market, followed by FedEx, TNT, EMS, and UPS. We further examine both the factor importance and carriers’ competitiveness from the perspective of service users. While accuracy and promptness remain as important factors, price becomes the most important factor. Finally, an importance–performance analysis for each carrier is conduced, and managerial implications are drawn.     

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.     

Small Hubs,Large Spokes and Overlapping Free Trade Agreements

The proliferation of overlapping free trade agreements (FTA) in recent years has led to pair‐wise hub‐and‐spokes (HAS) throughout the world. Being avid subscribers to FTAs, many countries in the Asia‐Pacific region, including the United States, Japan, Singapore, South Korea, Thailand and Australia, have become trade hubs to their partners who are in turn relegated to spoke status. In this paper, we question whether being a hub is welfare optimal for a small and open economy such as Singapore compared to membership in a single bilateral FTA or a multi‐member free trade zone. Within this context, we use a computable general equilibrium model to examine the welfare implications of the triangular trade relationship of the United States, Singapore and Japan. This is facilitated by the Japan–Singapore Economic Partnership Agreement, the USA–Singapore Free Trade Agreement, and a hypothetical USA–Japan Economic Partnership Agreement. The analysis is extended to incorporate ‘super‐hub’ effects, that is, the spoke countries could be trade hubs in other HAS systems. Our experiment reveals that hub status generates positive welfare gain and is the highest Singapore can get from the trade configurations considered. Meanwhile, Japan loses more than the USA when both are relegated to spoke status. These findings prove to be robust under different market structures and production technologies, deeper economic integration, ‘super‐hub’ effects, as well as uncertainty in the key model parameters and the extent of trade liberalisation shocks.