CAPITAL FORMATION AND THE INTERNET

The Internet is expected to play a significant role in the capital-raising process. Internet investment banks like Wit Capital and WR Hambrecht are supposed to make the IPO process more equitable by giving retail investors access to deals and pricing deals more accurately, thereby leaving less "money on the table" and lowering the cost of going public.
This article argues that the Internet will not replace, but will likely "supplement," the current system. The certification function provided by traditional investment banks and their relationships with institutional investors will continue to be important determinants of a successful offering. Thus, although Internet banks will get pieces of IPO transactions, the lead managers of such deals will continue to be older firms with well-established reputations and ties with institutions.
Nevertheless, the Internet is expected to play a larger role in the case of public bond offerings. Because the issuance of bonds is a repetitive business and the pricing is much simpler, the authors predict that the Internet will significantly reduce the costs of issuing bonds and perhaps limit the role of traditional investment banks in this process.     

When is informed trading more prevalent?—An examination of options trading around Indian M&A announcements

This study examines the prevalence of informed trading around proximate-date versus far-date mergers and acquisitions (M&As). Further, different options strategies pursued by informed traders in proximate-date M&As are identified. The results highlight that proximate-date M&As are associated with a significantly higher level of informed trading vis-à-vis far-date M&As. Results on the choice of options strategies highlight that risk-averse, informed traders may pursue a straddle strategy to profit from their private information, while risk-seeking, informed traders may use a vertical call spread strategy. Informed traders desirous of hedging their existing positions may employ a protective put strategy.     

Does governance travel around the world? Evidence from institutional investors

We examine whether institutional investors affect corporate governance by analyzing portfolio holdings of institutions in companies from 23 countries during the period 2003–2008. We find that firm-level governance is positively associated with international institutional investment. Changes in institutional ownership over time positively affect subsequent changes in firm-level governance, but the opposite is not true. Foreign institutions and institutions from countries with strong shareholder protection play a role in promoting governance improvements outside of the U.S. Institutional investors affect not only which corporate governance mechanisms are in place, but also outcomes. Firms with higher institutional ownership are more likely to terminate poorly performing Chief Executive Officers (CEOs) and exhibit improvements in valuation over time. Our results suggest that international portfolio investment by institutional investors promotes good corporate governance practices around the world.     

Do remittances promote financial development?

Workers' remittances to developing countries have become the second largest type of flows after foreign direct investment. This paper uses data on remittance flows to 109 developing countries during 1975-2007 to study the link between remittances and financial sector development. In particular, we examine the association between remittances and the aggregate level of deposits and credit intermediated by the local banking sector. This is an important question considering the extensive literature that has documented the growth-enhancing and poverty-reducing effects of financial development. We provide evidence of a positive, significant, and robust link between remittances and financial development in developing countries.     

The Equity Performance of Firms Emerging from Bankruptcy

This study assesses the stock return performance of 131 firms emerging from Chapter 11. Using differing estimates of expected returns, we consistently find evidence of large, positive excess returns in 200 days of returns following emergence. We also examine the reaction of our sample firms' equity returns to their earnings announcements after emergence from Chapter 11. The positive and significant reactions suggest that our results are driven by the market's expectational errors, not mismeasurement of risk. The results provide an interesting contrast, but not a contradiction, to previous work that has documented poor operating performance for firms emerging from Chapter 11.     

The implications for suppliers of the spread of supermarkets in southern Africa

ABSTRACT

The growth of supermarkets in southern Africa opens local and regional markets to suppliers through participation in supermarket supply chains. Supermarkets in the region provide an important route to market for processed foods and household consumable products. Through a regional value chain lens, this article provides an assessment of the implications of the growth of supermarkets for the participation of suppliers in Botswana, South Africa, Zambia and Zimbabwe. The research finds that, while supermarkets provide important opportunities for suppliers, they also exert considerable buyer power that limits supplier development and upgrading. High private standards, onerous requirements and costly trading terms negatively affect supplier participation in value chains. Long-term investments are required to build the capabilities of suppliers to meet supermarket requirements in terms of quality, consistency, volume and cost-competitiveness.     

NEED FOR A SHIFT FROM A PHILANTHROPIC TO A HUMANISTIC APPROACH TO CORPORATE SOCIAL RESPONSIBILITY

As part of their business practices, the Indian government has made it mandatory for companies who have a turnover of 500 crores and above to spend 2 per cent of their net profits from the immediately preceding three financial years on corporate social responsibility (CSR). This article proposes to examine the issue of whether this enforced philanthropic responsibility of companies is helpful to both society and the organization. With the philanthropic approach it is not necessary for the organization to fulfill its responsibilities toward those who work in and for the organization, its customers and to the ecological system in general. Achieving both organizational growth and social development requires a shift from a philanthropic approach to a humanistic approach on the part of companies and the government, accommodating all its stakeholders.     

Demutualization and Public Offerings of Financial Exchanges

The recent merger of the New York Stock Exchange with Archipelago, a publicly listed electronic exchange, can be viewed as the final phase of a wave of organizational transformation that has swept across most of the world's major financial exchanges in the last ten years. Until the early 1990s, almost all stock and derivatives exchanges were organized as non‐profit, mutual organizations owned by their members. But starting with the demutualization of the Stockholm Stock Exchange in 1993, the number of stock exchanges that have adopted a for‐profit, publicly listed organizational form has grown steadily. At the same time, the largest derivative exchanges such as the Chicago Mercantile Exchange, the London International Financial Futures and Options Exchange, the Chicago Board of Trade, and Eurex are either already publicly listed or are part of publicly listed parent companies. In this article, after discussing the forces that are driving such change, the authors offer some early evidence on the profitability and stock market performance of listed exchanges. As the authors note, deregulation together with new developments in information technology have caused latent conflicts of interest within the mutual form of organization to become debilitating ones. And, as if to confirm the superiority of the new organizational form, the authors report that conversions to for‐profit status and public ownership have led to significant increases in operating performance and share values. But, as the authors also note, these results are preliminary, and the demutualization and listing of exchanges creates a new challenge for exchanges as self‐regulating institutions: managing the conflicts that may arise between the owners and those who transact on the exchange. The authors expect the next wave of transformation to produce both geographical consolidation as well as mergers/acquisitions across product lines (e.g. merger of leading equities and derivatives exchanges). In equities trading, given that North America is already dominated by the NYSE and Nasdaq, the most interesting arena will continue to be Europe, where one or two large exchanges are likely to emerge. The emergence of such megaexchanges, with scale comparable to that of U.S. exchanges, could have a significant impact on the corporate capital‐raising process and cost of capital.