Prior research in accounting and finance uses stock price synchronicity, based on R2s from market model regressions, to measure stock price informativeness. The premise underlying this literature is that low levels of R2 are indicative of share prices reflecting more firm-specific information. Yet, empirical studies often find low R2 to be associated with variables that reflect a relatively weak information environment. Our study posits and provides evidence that stock illiquidity biases downwards the measurement of R2. Exploiting an exogenous shock to illiquidity, we demonstrate how reductions in illiquidity reduce this bias and cause increases in R2 measures. Using an international sample, we document that illiquidity is the primary determinant of the variation in R2 across and within countries. We demonstrate how failing to control for illiquidity in synchronicity research using the R2 measure can lead to biased coefficients that either reduce the power of tests or induce potentially false rejections of a null hypothesis. Lastly, we introduce a new method that can be used in testing changes in synchronicity around an event. This method circumvents the estimation of a market model and thereby minimizes the bias in the R2 measure induced by illiquidity.
{"title":"Illiquidity and the Measurement of Stock Price Synchronicity","authors":"Joachim Gassen, H. A. Skaife, David Veenman","doi":"10.2139/ssrn.2405465","DOIUrl":"https://doi.org/10.2139/ssrn.2405465","url":null,"abstract":"Prior research in accounting and finance uses stock price synchronicity, based on R2s from market model regressions, to measure stock price informativeness. The premise underlying this literature is that low levels of R2 are indicative of share prices reflecting more firm-specific information. Yet, empirical studies often find low R2 to be associated with variables that reflect a relatively weak information environment. Our study posits and provides evidence that stock illiquidity biases downwards the measurement of R2. Exploiting an exogenous shock to illiquidity, we demonstrate how reductions in illiquidity reduce this bias and cause increases in R2 measures. Using an international sample, we document that illiquidity is the primary determinant of the variation in R2 across and within countries. We demonstrate how failing to control for illiquidity in synchronicity research using the R2 measure can lead to biased coefficients that either reduce the power of tests or induce potentially false rejections of a null hypothesis. Lastly, we introduce a new method that can be used in testing changes in synchronicity around an event. This method circumvents the estimation of a market model and thereby minimizes the bias in the R2 measure induced by illiquidity.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"67 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129532893","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a quantitative-oriented model that integrates the production and financing decisions of multinational corporations (MNCs). Firms can deploy their technology for production overseas and become MNCs. Due to frictions in obtaining external finance, the scale of the affiliates partially depends on the MNC’s internal capital market, giving rise to foreign direct investment (FDI). The model generates empirically consistent relationships between FDI, multinational production (MP), and the financial market conditions of the host and home countries. Model-based decompositions show that the changes in financial market conditions account for a sizable fraction of the rapid growth in global FDI prior to 2008 and the slowdown afterward. Overlooking the technology content of MNCs understates the welfare gains from FDI; overlooking the capital content misses the dynamic welfare effects.
{"title":"Financing Multinationals","authors":"Jingting Fan, Wenlan Luo","doi":"10.2139/ssrn.3355695","DOIUrl":"https://doi.org/10.2139/ssrn.3355695","url":null,"abstract":"We develop a quantitative-oriented model that integrates the production and financing decisions of multinational corporations (MNCs). Firms can deploy their technology for production overseas and become MNCs. Due to frictions in obtaining external finance, the scale of the affiliates partially depends on the MNC’s internal capital market, giving rise to foreign direct investment (FDI). The model generates empirically consistent relationships between FDI, multinational production (MP), and the financial market conditions of the host and home countries. Model-based decompositions show that the changes in financial market conditions account for a sizable fraction of the rapid growth in global FDI prior to 2008 and the slowdown afterward. Overlooking the technology content of MNCs understates the welfare gains from FDI; overlooking the capital content misses the dynamic welfare effects.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116149627","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We make use of the major credit reform and the new bankruptcy law empreended by Brazil at the end of 2004 and early 2005 to investigate the effect of a rise in collateral value in cash holdings. We find that more tangible firms reduced its cash holding after the passage of the law compared to less tangible firms. Also, our results suggest that more tangible firms reduced its short-term debt, corroborating the financial flexibility hypothesis.
{"title":"Cash Holdings and Collateral Value. Evidence from a Quasi Natural Experiment","authors":"M. Ermel","doi":"10.2139/ssrn.3330731","DOIUrl":"https://doi.org/10.2139/ssrn.3330731","url":null,"abstract":"We make use of the major credit reform and the new bankruptcy law empreended by Brazil at the end of 2004 and early 2005 to investigate the effect of a rise in collateral value in cash holdings. We find that more tangible firms reduced its cash holding after the passage of the law compared to less tangible firms. Also, our results suggest that more tangible firms reduced its short-term debt, corroborating the financial flexibility hypothesis.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130801635","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recent research suggests that unequal access to home country institutional resources affects firm internationalization strategies. We add to this debate, based on an analysis of state-owned (SOEs) and non-state-owned (NSOEs) Chinese mining firms, by developing a more dynamic and multi-layered understanding of this interplay. We find that home institutional support can be ownership-based or performance-based, whereby the former benefits SOEs and the latter favors high-performing NSOEs. Combined, these support structures serve as institutional control mechanisms in promoting competition, performance and loyalty to national policies. In addition, they establish a permanent link between firm- and home country-specific assets and incentivize firms to develop dynamic resource access capabilities at home and abroad. Our findings inform our understanding of the firms-institutions nexus and Chinese foreign direct investment dynamics, especially in industries of strategic importance to the state.
{"title":"Does State Ownership Really Matter? The Dynamic Alignment of China’s Resource Environment and Firm Internationalization Strategies","authors":"Monica Ren, S. Manning, S. Vavilov","doi":"10.2139/ssrn.3328297","DOIUrl":"https://doi.org/10.2139/ssrn.3328297","url":null,"abstract":"Recent research suggests that unequal access to home country institutional resources affects firm internationalization strategies. We add to this debate, based on an analysis of state-owned (SOEs) and non-state-owned (NSOEs) Chinese mining firms, by developing a more dynamic and multi-layered understanding of this interplay. We find that home institutional support can be ownership-based or performance-based, whereby the former benefits SOEs and the latter favors high-performing NSOEs. Combined, these support structures serve as institutional control mechanisms in promoting competition, performance and loyalty to national policies. In addition, they establish a permanent link between firm- and home country-specific assets and incentivize firms to develop dynamic resource access capabilities at home and abroad. Our findings inform our understanding of the firms-institutions nexus and Chinese foreign direct investment dynamics, especially in industries of strategic importance to the state.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117252548","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
India passed a comprehensive and new Insolvency and Bankruptcy Code (IBC) on May 28, 2016. Prior to this, institutional debt defaults were handled through a number of different laws and regulations, like SICA, 1985, Debt Recovery Act, 1993, SARFAESI, 2002 and Company Law, 2013. In addition, for companies above a certain size, the High Courts had to be involved, especially in winding up decisions. The IBC, being a uniform code, was meant to reallocate assets more efficiently and quickly. In this paper we develop a model that gives rise to credit rationing as a result of moral hazard and investigate the efficiency of three different possible priority rules: (a) when financial creditors have priority over operational creditors (b) when operational creditors have priority over financial creditors and (c) when both have equal priority. We argue that the extent of credit rationing is invariant under all three priority rules. We then show why a cost of business indicator that looks only at the price of inputs is flawed in determining efficiency.
{"title":"Efficient priority rules and the Indian IBC","authors":"Nisha Chadha, S. Gangopadhyay","doi":"10.2139/ssrn.3424354","DOIUrl":"https://doi.org/10.2139/ssrn.3424354","url":null,"abstract":"India passed a comprehensive and new Insolvency and Bankruptcy Code (IBC) on May 28, 2016. Prior to this, institutional debt defaults were handled through a number of different laws and regulations, like SICA, 1985, Debt Recovery Act, 1993, SARFAESI, 2002 and Company Law, 2013. In addition, for companies above a certain size, the High Courts had to be involved, especially in winding up decisions. The IBC, being a uniform code, was meant to reallocate assets more efficiently and quickly. In this paper we develop a model that gives rise to credit rationing as a result of moral hazard and investigate the efficiency of three different possible priority rules: (a) when financial creditors have priority over operational creditors (b) when operational creditors have priority over financial creditors and (c) when both have equal priority. We argue that the extent of credit rationing is invariant under all three priority rules. We then show why a cost of business indicator that looks only at the price of inputs is flawed in determining efficiency.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-01-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116908617","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We document that following a turnover of the Party Secretary or mayor of a city in China, firms (especially private firms) headquartered in that city significantly increase their "perk spending." Both the instrumental-variable-based results and heterogeneity analysis are consistent with the interpretation that the perk spending is used to build relations with local governments. Moreover, local political turnover in a city tends to be followed by changes of Chairmen or CEOs of state-owned firms that are controlled by the local government. However, the Chairmen or CEOs who have connections with local government officials are less likely to be replaced.
{"title":"In the Shadows of the Government: Relationship Building During Political Turnovers","authors":"Hanming Fang, Zhe Li, Nianhang Xu, H.-J. Yan","doi":"10.3386/W25300","DOIUrl":"https://doi.org/10.3386/W25300","url":null,"abstract":"We document that following a turnover of the Party Secretary or mayor of a city in China, firms (especially private firms) headquartered in that city significantly increase their \"perk spending.\" Both the instrumental-variable-based results and heterogeneity analysis are consistent with the interpretation that the perk spending is used to build relations with local governments. Moreover, local political turnover in a city tends to be followed by changes of Chairmen or CEOs of state-owned firms that are controlled by the local government. However, the Chairmen or CEOs who have connections with local government officials are less likely to be replaced.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131342617","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper develops a new intangible investment database that is consistent and internationally comparable for a set of 60 economies over the period 1995–2011. I find that over time a growing share of total investment consists of intangible assets, rather than investment in tangible assets, like machinery and buildings. Across countries, the level of economic development of a country is positively associated with its investment intensity in intangibles. By including intangible capital as an additional production factor, this paper finds that we can account for substantially more of the variation in cross‐country income levels. Depending on the assumptions regarding the output elasticities of factor inputs, the observed differences in intangible capital can account for up to 16 percentage points of the cross‐country income variation.
{"title":"Cross‐Country Income Differences Revisited: Accounting for the Role of Intangible Capital","authors":"W. Chen","doi":"10.1111/roiw.12305","DOIUrl":"https://doi.org/10.1111/roiw.12305","url":null,"abstract":"This paper develops a new intangible investment database that is consistent and internationally comparable for a set of 60 economies over the period 1995–2011. I find that over time a growing share of total investment consists of intangible assets, rather than investment in tangible assets, like machinery and buildings. Across countries, the level of economic development of a country is positively associated with its investment intensity in intangibles. By including intangible capital as an additional production factor, this paper finds that we can account for substantially more of the variation in cross‐country income levels. Depending on the assumptions regarding the output elasticities of factor inputs, the observed differences in intangible capital can account for up to 16 percentage points of the cross‐country income variation.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126321772","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In asset return predictability, realized returns and future expected returns tend to move in opposite directions. This generates a tension between tax- and market-timing incentives. In this study, ...
{"title":"Two Birds, One Stone: Joint Timing of Returns and Capital Gains Taxes","authors":"Yaoting Lei, Ya Li, Jing Xu","doi":"10.2139/ssrn.3057371","DOIUrl":"https://doi.org/10.2139/ssrn.3057371","url":null,"abstract":"In asset return predictability, realized returns and future expected returns tend to move in opposite directions. This generates a tension between tax- and market-timing incentives. In this study, ...","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-05-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121838138","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper is about the capital of the enterprises to the tax system. Thence, we have an analysis for the impact factor of the tax revenues of the countries subject to the capital of companies to the tax system. Thereupon from the view of the level of influence of the enterprises which participate in controlled transactions of transfer pricing to the global tax revenue, is plausible to identify the impact factor of capital, when there exists that factor with the case which that factor is avoided. Then the impact factor of capital in combination with the tax revenues is determined through the Q.E. method. Therefore, is clarified the behavior of the tax system subject to the capital of the tax system.
{"title":"Impact Factor of Capital to the Tax System","authors":"Constantinos Challoumis Κωνσταντίνος Χαλλουμής","doi":"10.2139/ssrn.3145388","DOIUrl":"https://doi.org/10.2139/ssrn.3145388","url":null,"abstract":"This paper is about the capital of the enterprises to the tax system. Thence, we have an analysis for the impact factor of the tax revenues of the countries subject to the capital of companies to the tax system. Thereupon from the view of the level of influence of the enterprises which participate in controlled transactions of transfer pricing to the global tax revenue, is plausible to identify the impact factor of capital, when there exists that factor with the case which that factor is avoided. Then the impact factor of capital in combination with the tax revenues is determined through the Q.E. method. Therefore, is clarified the behavior of the tax system subject to the capital of the tax system.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127679049","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper is about the costs of the enterprises to the tax system. Thence, we have an analysis of the impact factor of the tax revenues of the countries subject to the costs of companies on the tax system. Thereupon from the view of the level of influence of the enterprises which participate in controlled transactions of transfer pricing to the global tax revenue, it is plausible to identify the impact factor of costs, when there exists that factor with the case which that factor is avoided. The impact factor of costs in combination with the tax revenues is determined through the Q.E. method and the R.B.Q. model. Inasmuch as, is defined as the behavior of the tax system subject to the capital of the tax system. Then a quantitative simulation is used as a methodology for this work, to define the impact of costs on the enterprises. Research paper Keywords: transfer pricing; costs; tax revenue; transactions Reference to this paper should be made as follows: Challoumis, C. (2020). The Impact Factor of Costs to the Tax System, Journal of Entrepreneurship, Business and Economics , 8 (1), 1–14.
{"title":"Impact Factor of Costs to the Tax System","authors":"Constantinos Challoumis Κωνσταντίνος Χαλλουμής","doi":"10.2139/ssrn.3146573","DOIUrl":"https://doi.org/10.2139/ssrn.3146573","url":null,"abstract":"This paper is about the costs of the enterprises to the tax system. Thence, we have an analysis of the impact factor of the tax revenues of the countries subject to the costs of companies on the tax system. Thereupon from the view of the level of influence of the enterprises which participate in controlled transactions of transfer pricing to the global tax revenue, it is plausible to identify the impact factor of costs, when there exists that factor with the case which that factor is avoided. The impact factor of costs in combination with the tax revenues is determined through the Q.E. method and the R.B.Q. model. Inasmuch as, is defined as the behavior of the tax system subject to the capital of the tax system. Then a quantitative simulation is used as a methodology for this work, to define the impact of costs on the enterprises. Research paper Keywords: transfer pricing; costs; tax revenue; transactions Reference to this paper should be made as follows: Challoumis, C. (2020). The Impact Factor of Costs to the Tax System, Journal of Entrepreneurship, Business and Economics , 8 (1), 1–14.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"123 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130926659","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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