Foreign Investors' Reaction to Lower Profitability – The Role of Information Asymmetry*

Owners of firms in trouble are more exposed to moral hazard problems than owners of successful firms. Foreign owners who face higher costs to monitor the firm should be more vulnerable to these problems than domestic ones. Consequently, a downward revision in a firm's expected future earnings should push foreign investors to sell their shares to a larger extent than domestic investors. We test this hypothesis on profit warnings issued at the Helsinki Stock Exchange. Our results reveal that in the wake of profit warnings foreign investors will predominantly sell, while domestic investors pick up the net sales by foreigners. Differences in the scale of the foreign investor sell‐out reaction are explained by a number of variables. The most significant one is our proxy for the magnitude of surprise in the warning. The reaction also increases with the degree of perceived information asymmetry for the firm that issued the warning, while foreign members on the firm's board have a moderating impact. By contrast, a number of general corporate governance‐related variables have no statistically significant impact on the reaction.     

Household Production and Capitalist Development in Contemporary Russia

This essay reviews four recent books based on research on the development of capitalism and the position of household‐based farming in post‐Soviet Russia. Each of the books represents a different set of conceptual assumptions and is based on different methods of enquiry. It is argued that a problematic feature of much of the literature on this topic is that it begins from the assumption that successful capitalist development in Russian agriculture should be based on the development of small‐scale family farming. This tends to obscure the variety of forms of production that have emerged so far and the range of different relationships between them.     

中国经济政策重心转向促增长

正欧洲可能陷入衰退,美国正在勉强维持脆弱的复苏,而日本又遭遇沉重打击,在这种情况下,中国的出口增长持续低迷,预计未来的情况会更加糟糕。中国果断采取刺激经济的行动,在近三年来首次下调银行存款准备金率。这可能是一轮放松货币政策的行动之始,目的是在贸易和房地产领域双双疲弱之际提振中国经济。     

THE FOREIGN CURRENCY LOANS AFFAIR: SOME COMMENTS

Kingston (1995) discusses the legal complications arising out of the foreign currency loans taken out in the middle eighties. This note discusses a number of points of difference within Kingston's interpretations. The most important example of these is the predictability of the losses arising from the loans. Some potential solutions of the problems identified by Kingston, and in this note, are also canvassed.     

REGULATION OF BANK INTEREST RATE RISK

This paper argues that the direct control approach to regulating bank interest rate risk is not the most effective one. First, a bank's interest rate exposure cannot be summarised in a single measure. Rather there are a number of such measures, depending on the target adopted, and it is not possible to determine all of them simultaneously. Basing a capital requirement on any one of these measures can have ‘unintended consequences' for the others. Secondly, changes in interest rates have a range of complex effects on banks and these effects cannot be incorporated in any single numerical measure of interest rate exposure. The paper also raises doubts about the usefulness of disclosure requirements as a tool of prudential regulation of bank interest rate risk management. The preferred approach is a supervisory regime which ensures that banks have in place an effective system for managing their own interest rate exposures. One aspect of this supervision must be to ensure that banks are using simulation analysis to measure the effect on them of changes in interest rates.     

Theory and Behavior of Multiple Unit Discriminative Auctions

This paper reports the results of controlled experiments designed to test the Harris-Raviv generalization of the Vickrey theory of bidding in multiple unit discriminative auctions. The paper also discusses further development of the theory—in a way suggested by the experimental results—to include bidders with distinct risk preferences.