Can Commercialization Improve the Performance of Stock Exchanges Even without Corporatization?

We examine the performance of mutual, demutualized, and publicly listed exchanges and find evidence of improved performance along the exchange governance continuum, with publicly traded exchanges exhibiting better operating performance than demutualized exchanges. However, our robustness test, focusing on the corporatized exchanges that have gone through the three phases of the governance structure, shows that the listed exchanges do not exhibit evidence of incremental gains in efficiency and profitability beyond what they achieved at the demutualization phase. We conclude that commercialization provides sufficient freedom for exchanges to exploit monopoly rents before going public, while corporatization brings about proper valuation of the exchanges’ franchise.     

Partial acquisitions in emerging markets: A test of the strategic market entry and corporate control hypotheses

In this paper, we examine the motivations of acquirers undertaking partial acquisitions in emerging markets by testing two competing hypotheses: the market for corporate control hypothesis and the market entry hypothesis. We find that targets of cross-border acquisitions outperform targets of domestic acquisitions in the pre-acquisition period. While cross-border acquisitions have no significant impact on target firms' operating performance, targets of domestic acquisitions experience significant improvements in operating performance and substantial changes in ownership structure after the acquisition. The evidence suggests that domestic partial acquisitions in emerging markets serve as a market for corporate control, while cross-border partial acquisitions are motivated by the strategic market entry rationale.     

Dominance of hybrid contratum strategies over momentum and contrarian strategies: half a century of evidence

Financial Markets and Portfolio Management - The possibility of combining the ranking period logic of contrarian (momentum) strategies with the holding period logic of momentum (contrarian)...     

Index composition changes and the cost of incumbency

This paper provides evidence of information effects and portfolio rebalancing effects that occur when stocks are added to or excluded from the S&P 500 index and finds that incumbents in the index realize negative excess returns when S&P revises the composition of the index. We also find that for incumbents that are in the same industry as the added firm, the price-pressure effects are mitigated by positive industry-level information and momentum effects. For index exclusions, the magnitude of the loss sustained by incumbents from the same industry as the excluded firm is larger than that realized by the non-industry incumbents, as the negative information and momentum effects reinforce the price-pressure effects. Our results suggest that changes in the composition of the index are not information-free events; however, the portfolio rebalancing effects dominate the industry information effects.     

Institutional cross-ownership,heterogeneous incentives,and negative premium mergers

Review of Quantitative Finance and Accounting - Cross-owners, investors who have stakes in both the acquiring and target firms, are likely to focus on the total portfolio wealth effects from...     

Not all shadow banking is bad! Evidence from credit intermediation of non-financial Chinese firms

Review of Quantitative Finance and Accounting - Using data from 2009 to 2016 data, we investigate the relation between leverage and investment in listed firms in China against the backdrop of...     

Changing organizational form in the stock exchange industry and risk-taking

Recent developments in the stock exchange industry have compelled some exchanges to demutualize and become for-profit entities. We examine the risk-taking behavior of demutualized exchanges and find that prior to the conversion, the exchanges exhibited higher risk than their mutual counterparts. Following demutualization, however, the exchanges experienced a significant decrease in risk, which is not attributable to industry-wide effects. Our results are consistent with the conjecture that higher risk induced the conversion to equity ownership. Interestingly, we find that publicly listed exchanges that have gone through the three organizational structures exhibit risk-taking behavior somewhat similar to that of the mutual, demutualized, and publicly listed exchanges. We also document significant increases in nontraditional income after demutualization and this increase in nontraditional income is significantly related to the reduction in risk. We therefore attribute the risk reduction experienced by the converted exchanges to diversification.     

Competitive and value effects of bank privatization in developed countries

A special issue of the Journal of Banking and Finance (2005) devoted to the performance of privatized banks in middle- and low-income countries shows mixed results. In this paper, we present evidence that shows that privatized banks in developed countries have experienced significant improvements in operating performance. The improvement in performance remains significant after controlling for persistence in bank performance. A comparison of the performance of privatized banks in developed and developing countries suggests that privatization has encouraged excessive risk taking among privatized banks in developing countries, with the consequence that those banks carry large non-performing assets than their counterparts in the developed countries. We also observe that consistent with the competitive effects hypothesis, investors view privatization announcements as foreshadowing bad news for rival banks.     

FDI and Financial Market Development in Africa

The literature on the relationship between foreign direct investment (FDI), financial market development (FMD) and economic growth focuses mainly on two aspects: the relationship between FDI and economic growth, and the role played by FMD in that linkage. The literature is almost silent on the relationship and the direction of causality between FDI and FMD. Although it has been established that FDI contributes more to growth in countries with a more developed financial market, it is not clear how FDI and FMD interact with each other. The aim of this paper is to fill this gap in the African context. Particularly, in Africa, where stock markets experience low liquidity and less transparency, FDI can be an impetus for financial market reforms and serve as a mechanism to improve the transparency and the depth of the financial markets. Also, well‐functioning financial markets can help channel foreign investments more efficiently into productive sectors, and therefore create more value for investors, hence making the countries more attractive to FDI. In short, both FDI and FMD will impact each other simultaneously, which is confirmed by our findings. We document a bidirectional causality between FDI and FMD. Furthermore, the multivariate regression results of the system of simultaneous equations also confirm the positive relationship between FDI and FMD in Africa. We also find that FDI contributes to economic growth in Africa after controlling for endogeneity between FDI, FMD and economic growth.     

Has stock exchange demutualization improved market quality? International evidence

Review of Quantitative Finance and Accounting - We investigate the market quality effects of stock exchange demutualization and find that demutualized exchanges have achieved significant...