Host country executives' assessments of international joint ventures and divestitures: An experimental approach

A large body of research examines the modes by which multinational firms enter foreign markets, yet little work has considered how host country executives evaluate alternative modes of accepting inward foreign direct investment (FDI). This study adopts the host country firm's perspective to investigate the factors that affect Chinese executives' assessments of international joint ventures (IJVs) and divestitures as different modes for engaging inward FDI opportunities. We use an experimental approach to test our argument that executives' preferences for IJVs versus divestitures are driven by multinational firms' resources as well as potential transaction hazards and available remedial mechanisms. This study complements extant research on firms' entry mode choice by offering a direct test of comparative economic organization by explicitly comparing the attractiveness of alternative modes. Copyright © 2013 John Wiley & Sons, Ltd.     

Crop‐Level Supply Response by Agro‐Climatic Region in Ethiopia

Using farm‐level survey data from Ethiopia, this paper estimates a quadratic restricted profit function to assess the supply response of smallholder farmers. All major crops are identified in the analysis and variations in agro‐climatic and farming systems are accounted for. Peasant farmers, at least in the more commercial Central and Southern zones, do respond positively and significantly to price incentives. Farmers in the Northern zone are least commercial and least responsive to prices, and in fact the model based on profit maximisation does not adequately capture their behaviour. In general, non‐price factors, especially rainfall and market access, are more important than prices in affecting poduction, and which factors are most important varies depending on the crop and region in question. We conclude with suggestions regarding which crops appear most suitable to each agro‐climatic region, and identify the most relevant policy interventions in each case.     

Transatlantic trade and investment partnership: sectoral and macroeconomic perspectives for Germany,the EU and the US

The EU and the US have started negotiations on a Transatlantic Trade and Investment Partnership Agreement (TTIP) which could bring a considerable increase of exports and output as well as changes in the composition of output and employment. Thus export simulation studies in combination with input output analysis and employment analysis is useful. In the analysis presented the focus is mainly on sectoral output and employment effects where the key sectors are the automotive sector, chemical industry, information and communication technology production, pharmaceuticals and machinery and equipment. Backward sector links are analysed and found to be quite important in the automotive sector, the chemical industry, the machinery and equipment sector in both Germany and the US; in Germany also in ICT production. However, most of the observed sectors have weak forward linkage. Input output analysis is also used to identify employment effects in various sectors: the pure employment effect of a 20 % export expansion in Germany amounts to about 800 000 new jobs. Looking only at the US and German perspective turns out to be misleading—the high imports of intermediate inputs of German firms from EU partner countries suggests that a comparison EU-US is analytically required for some key issues and that considering the effects on EU partners is also useful. There is a host of key policy issues, including the issue of extended sustainability reporting.     

Dual-class share structure and innovation

Using a sample of dual-class firms matched with single-class firms possessing similar antitakeover protection, we find a positive association between disproportionate insider control and patent output, quality, creativity, research and development efficiency, and chief executive officer innovative risk taking. We also find, however, that the positive effects of disproportionate control on innovation are concentrated in financially constrained firms and firms in highly competitive industries, and that the positive effects dissipate within 10 years after the initial public offering. Most important, the positive effect of dual-class structures for innovation is conditional on the presence of innovative insiders in the firm. These findings imply that entrenchment through concentrated control in the hands of uniquely innovative corporate insiders provides a positive environment for innovativeness beyond the entrenchment effects of alternative antitakeover measures.     

Predicting long-run risk factors of stock returns: Evidence from Australia

This study utilises the stock market data provided by the Australian Equity Database to analyse the long-run relationship between Australian stock returns and key macroeconomic variables over the period 1926–2017. To measure the diverse risk factors in the stock market, we examine the possible determinants in four main categories: real, financial, domestic and international. Our results reveal that historical stock returns are strongly connected to financial and international factors as compared to real and domestic factors. Both the 1973–1974 OPEC Oil Price Crisis and 2007–2008 Global Financial Crisis had dampening effects on stock returns. There is a positive association between the US and Australian stock markets in the long-run. These findings on stock market dynamics and their linkages with domestic and international macroeconomic policy changes in the long-run have important implications for traders and practitioners.     

Corporate codes of ethics and cash holdings: International evidence

In the presence of agency costs, managers retain cash for their own benefit at the expense of shareholder wealth. Extending prior literature on the role of corporate governance in mitigating the effects of agency conflicts on corporate cash holdings, we study a governance mechanism that has largely been overlooked, namely, corporate codes of ethics. We find a negative association between code of ethics quality and cash holdings, which suggests that managers hold less cash when the firm has a strong code of ethics in place. The effect is greater when agency costs are elevated due to weaker country-level investor protections. We also find that payouts and the marginal value of cash holdings to investors are increasing in code quality. Overall, our results are consistent with codes of ethics helping to limit opportunistic behaviour from managers when determining the firm's level of cash holdings.     

Does the threat of takeover affect default risk?

We examine the impact of the threat of takeovers on default risk. Using a sample of 50,189 firm-year observations for US firms over the period 1990–2015, we find that the threat of takeovers has a negative relation with default risk. We use difference-in-difference analysis to address potential endogeneity concerns and propensity score matching to control for self-selection bias. The results are robust to alternative measures of default risk and exclusion of the dot com and financial crisis periods. Our results also hold after controlling for Governance Index and Entrenchment Index. We identify improvement in performance and earnings quality in response to the threat of takeovers as channels underlying our main result. The effect of the threat of takeovers on default risk is more pronounced for firms with opaque information environment and low institutional ownership. Our findings provide important insights for the market for corporate control as a disciplining mechanism in reducing default risk.     

Reassessing the dependence between economic growth and financial conditions since 1973

Adrian, Boyarchenko and Giannone ((2019), ABG) adapt quantile regression (QR) methods to examine the relationship between US economic growth and financial conditions. We confirm their empirical findings, using their methodology and their pre-2016 sample. Mindful of the importance of the Covid-19 pandemic, we extend the sample to 2021Q3 and find attenuation of the key estimated coefficients using ABG's empirical methods. Given the pandemic observations, we provide robust QR analysis of dependence based on ranked data and explain the relationship with extant copula modelling methods.     

Institutional investor distraction and innovation

Prior studies suggest high institutional ownership provides stable funding for firm managers supporting long-term innovation. However, we hypothesize that the level of holdings can also proxy for institutional attention. We address this question and find that institutional distraction negatively impacts board monitoring and advisory support for management, reducing R&D, patent filings, citations and creativity. Distraction is concentrated in (1) firms owned by institutions providing low attention before the shock and (2) industries facing low substitute monitoring through competition. Distraction also affects information flow in firms facing high labour mobility and high peer firm innovation (technology spillovers).