American university and college endowments now hold close to one-third of their portfolios in private equity and hedge funds. We estimate the implied beliefs of endowments about alternative assets' returns relative to equities and bonds. At the end of 2012, the typical endowment believes that its private equity investments will outperform a portfolio of conventional assets by 3.9% per year and that hedge funds will outperform by 0.7% per year. Out-performance beliefs, particularly for private equity, have increased since 2006. There are significant cross-sectional differences in beliefs and trends: private universities are, on average, less risk averse and have more optimistic beliefs and universities with larger endowments, higher spending rates, and those that rely more on the endowment to meet operational budgets tend to believe that alternatives deliver higher alphas. Taking into account the implied equity exposures in alternative asset positions, the effective equity holding of endowments is approximately 60%.
{"title":"Investment Beliefs of Endowments","authors":"Andrew Ang, Andrés Ayala, W. Goetzmann","doi":"10.1111/eufm.12149","DOIUrl":"https://doi.org/10.1111/eufm.12149","url":null,"abstract":"American university and college endowments now hold close to one-third of their portfolios in private equity and hedge funds. We estimate the implied beliefs of endowments about alternative assets' returns relative to equities and bonds. At the end of 2012, the typical endowment believes that its private equity investments will outperform a portfolio of conventional assets by 3.9% per year and that hedge funds will outperform by 0.7% per year. Out-performance beliefs, particularly for private equity, have increased since 2006. There are significant cross-sectional differences in beliefs and trends: private universities are, on average, less risk averse and have more optimistic beliefs and universities with larger endowments, higher spending rates, and those that rely more on the endowment to meet operational budgets tend to believe that alternatives deliver higher alphas. Taking into account the implied equity exposures in alternative asset positions, the effective equity holding of endowments is approximately 60%.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"116 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"119732314","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 study addresses an important issue about the role of stock market in corporate finance by directly examining the effect of stock liquidity on firm value on a broad sample of firms from 53 countries for the period 1981-2010. Consistent with finance theory, we document a strong positive association between stock liquidity and firm value at both the firm and country levels. This finding is robust to alternative stock liquidity measures and is not driven by the endogeneity problem. We further explore how country characteristics on investor protection affect the value impact of liquidity. The results show that strong investor protection and transparent financial reporting environments magnify the importance of stock liquidity to firm value. However, global market integration weakens the effects of local country's investor protection regimes.
{"title":"The Value Impact of Stock Liquidity: An International Evidence","authors":"Tao Huang, Fei Wu, Jing Yu, Bohui Zhang","doi":"10.2139/ssrn.2208875","DOIUrl":"https://doi.org/10.2139/ssrn.2208875","url":null,"abstract":"This study addresses an important issue about the role of stock market in corporate finance by directly examining the effect of stock liquidity on firm value on a broad sample of firms from 53 countries for the period 1981-2010. Consistent with finance theory, we document a strong positive association between stock liquidity and firm value at both the firm and country levels. This finding is robust to alternative stock liquidity measures and is not driven by the endogeneity problem. We further explore how country characteristics on investor protection affect the value impact of liquidity. The results show that strong investor protection and transparent financial reporting environments magnify the importance of stock liquidity to firm value. However, global market integration weakens the effects of local country's investor protection regimes.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"59 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-01-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129162977","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}
Late 19th century investors demanded compensation to invest in countries with poor institutional protection of property rights. Using the monthly stock returns of 1,808 firms located in 43 countries but traded in London between 1866 and 1907, we estimate the country-specific cost of capital. We find a negative relationship between institutions that protect property rights and capital costs. Firms located in countries with weak institutions were charged a premium compared to similarly risky firms located in countries with strong institutions, and this penalty appeared to be costly in terms of future growth. Countries that paid a premium for borrowing in London during this period grew more slowly after 1913 and are poorer today. We thus identify the capital market as a channel through which strong institutions promote growth.
{"title":"Institutions, the Cost of Capital, and Long-Run Economic Growth: Evidence from the 19th Century Capital Market","authors":"Ron Alquist, B. Chabot","doi":"10.2139/ssrn.2190477","DOIUrl":"https://doi.org/10.2139/ssrn.2190477","url":null,"abstract":"Late 19th century investors demanded compensation to invest in countries with poor institutional protection of property rights. Using the monthly stock returns of 1,808 firms located in 43 countries but traded in London between 1866 and 1907, we estimate the country-specific cost of capital. We find a negative relationship between institutions that protect property rights and capital costs. Firms located in countries with weak institutions were charged a premium compared to similarly risky firms located in countries with strong institutions, and this penalty appeared to be costly in terms of future growth. Countries that paid a premium for borrowing in London during this period grew more slowly after 1913 and are poorer today. We thus identify the capital market as a channel through which strong institutions promote growth.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"123 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-12-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125520951","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}
M. Pęksyk, M. Chmielewski, Marek Panfil, K. Śledzik
When investing in emerging markets, investors face issues regarding the valuation of potential investments that may considerably affect the investment decision. This article discusses the challenges of valuing a company within the European emerging markets. We will focus on several issues regarding the reliability and fitness of Beta estimates with the use of peer groups in the context of cross-border investment valuation.
{"title":"Beta Calculation in Emerging Markets in the Cross-Border Context – Selected Problems","authors":"M. Pęksyk, M. Chmielewski, Marek Panfil, K. Śledzik","doi":"10.2139/ssrn.2183874","DOIUrl":"https://doi.org/10.2139/ssrn.2183874","url":null,"abstract":"When investing in emerging markets, investors face issues regarding the valuation of potential investments that may considerably affect the investment decision. This article discusses the challenges of valuing a company within the European emerging markets. We will focus on several issues regarding the reliability and fitness of Beta estimates with the use of peer groups in the context of cross-border investment valuation.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"94 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121469070","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 examines the relationship between stock returns and the sources of corporate debt during the financial crisis of 2008. In particular, using data on large-capitalization Russian firms, we investigate whether dependence on either bank debt or bonds affected stock returns during the credit crunch. Our results indicate that the firms which rely entirely on bank debt significantly outperformed the firms with public debt amidst the crisis. This finding suggests that bank debt may be particularly valuable in harsh times. However, we also document that the stock prices of the bank dependent firms recovered more slowly in the post-crisis period.
{"title":"Debt Source Choices and Stock Market Performance of Russian Firms During the Financial Crisis","authors":"D. Davydov, Sami Vähämaa","doi":"10.2139/ssrn.2131190","DOIUrl":"https://doi.org/10.2139/ssrn.2131190","url":null,"abstract":"This paper examines the relationship between stock returns and the sources of corporate debt during the financial crisis of 2008. In particular, using data on large-capitalization Russian firms, we investigate whether dependence on either bank debt or bonds affected stock returns during the credit crunch. Our results indicate that the firms which rely entirely on bank debt significantly outperformed the firms with public debt amidst the crisis. This finding suggests that bank debt may be particularly valuable in harsh times. However, we also document that the stock prices of the bank dependent firms recovered more slowly in the post-crisis period.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-11-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123430199","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 study evaluates the relationship between international cross-listings and shareholders’ wealth across different host markets and across time. For a sample of cross-listings by European companies in the US, in the UK, and within Europe, the findings show that US and UK cross-listings, on average, result in positive cumulative abnormal returns around the announcement of cross-listing. No such evidence exists for the rest of European cross-listings. In addition, the Sarbanes-Oxley Act (SOX) of 2002 affects negatively the wealth benefits of US cross-listings, while wealth creation around UK cross-listings is primarily concentrated in Alternative Investment Market listings rather than Main Market listings. There is no evidence that the introduction of the Euro affects the wealth effects of cross-listings within the Eurozone. Finally, this study provides evidence on the relative importance of alternative theories on the wealth effects of cross-listing, including market segmentation, legal bonding, liquidity, investor recognition, proximity preference, market timing and business strategy theories, after considering the effect of the introduction of the Euro and the adoption of SOX. The results show that significance of the alternative theories varies across host markets and over time.
{"title":"International Cross-Listing and Shareholders’ Wealth","authors":"O. Dodd, C. Louca","doi":"10.17578/16-1/2-3","DOIUrl":"https://doi.org/10.17578/16-1/2-3","url":null,"abstract":"This study evaluates the relationship between international cross-listings and shareholders’ wealth across different host markets and across time. For a sample of cross-listings by European companies in the US, in the UK, and within Europe, the findings show that US and UK cross-listings, on average, result in positive cumulative abnormal returns around the announcement of cross-listing. No such evidence exists for the rest of European cross-listings. In addition, the Sarbanes-Oxley Act (SOX) of 2002 affects negatively the wealth benefits of US cross-listings, while wealth creation around UK cross-listings is primarily concentrated in Alternative Investment Market listings rather than Main Market listings. There is no evidence that the introduction of the Euro affects the wealth effects of cross-listings within the Eurozone. Finally, this study provides evidence on the relative importance of alternative theories on the wealth effects of cross-listing, including market segmentation, legal bonding, liquidity, investor recognition, proximity preference, market timing and business strategy theories, after considering the effect of the introduction of the Euro and the adoption of SOX. The results show that significance of the alternative theories varies across host markets and over time.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"64 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130933373","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 proposes a methodological improvement to empirical studies of herd behavior based on investor transactions. By developing a simple model of trading behavior, we show that the traditionally used herding measure produces biased results. As this bias depends on characteristics of the data, it also affects the robustness of previous findings. We derive a new measure that is unbiased and shows superior statistical properties for data sets commonly used. In an analysis of the German mutual fund market, our measure provides new insights into fund manager herding that would have been undetected under the traditional statistic.
{"title":"Measuring Mutual Fund Herding - A Structural Approach","authors":"Stefan Frey, P. Herbst, A. Walter","doi":"10.2139/ssrn.984828","DOIUrl":"https://doi.org/10.2139/ssrn.984828","url":null,"abstract":"This paper proposes a methodological improvement to empirical studies of herd behavior based on investor transactions. By developing a simple model of trading behavior, we show that the traditionally used herding measure produces biased results. As this bias depends on characteristics of the data, it also affects the robustness of previous findings. We derive a new measure that is unbiased and shows superior statistical properties for data sets commonly used. In an analysis of the German mutual fund market, our measure provides new insights into fund manager herding that would have been undetected under the traditional statistic.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133406087","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 use a unique data set of more than 240,000 reported insider transactions across 15 European countries and the USA to analyze the link between country-level shareholder protection and abnormal returns following insider trades. We show that abnormal returns after insider transactions are positively correlated with country-level shareholder protection against expropriation by corporate insiders, which supports the information-content hypothesis. Market reaction to insider purchases increases with shareholder protection because shareholder protection enhances the transparency and trustworthiness of insiders’ actions, and limits possibilities for direct profit diversion, so that more information is eventually reflected in stock prices. For insider sales, shareholder protection decreases their negative information content. We conjecture that this is due to the effect of greater transparency and trustworthiness strengthening the diversification and liquidity reasons for selling in better shareholder protection countries. We find limited support for the rent-extraction hypothesis, which conjectures that shareholder protection is associated with insider trading dollar profits.
{"title":"Why does Shareholder Protection Matter for Abnormal Returns after Reported Insider Purchases and Sales?","authors":"J. Fidrmuc, Adriana Korczak, Piotr Korczak","doi":"10.2139/ssrn.1344042","DOIUrl":"https://doi.org/10.2139/ssrn.1344042","url":null,"abstract":"We use a unique data set of more than 240,000 reported insider transactions across 15 European countries and the USA to analyze the link between country-level shareholder protection and abnormal returns following insider trades. We show that abnormal returns after insider transactions are positively correlated with country-level shareholder protection against expropriation by corporate insiders, which supports the information-content hypothesis. Market reaction to insider purchases increases with shareholder protection because shareholder protection enhances the transparency and trustworthiness of insiders’ actions, and limits possibilities for direct profit diversion, so that more information is eventually reflected in stock prices. For insider sales, shareholder protection decreases their negative information content. We conjecture that this is due to the effect of greater transparency and trustworthiness strengthening the diversification and liquidity reasons for selling in better shareholder protection countries. We find limited support for the rent-extraction hypothesis, which conjectures that shareholder protection is associated with insider trading dollar profits.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122195644","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 investigate lead-lag relationships among country stock returns and identify a leading role for the United States: lagged U.S. returns significantly predict returns in numerous non-U.S. industrialized countries (after controlling for national economic variables and countries' own lagged returns), while lagged non-U.S. returns display little predictive ability with respect to U.S. returns. The predictive power of lagged U.S. returns is robust across a number of dimensions, including out-of-sample tests. Information frictions seem a ready explanation of the predictive power of lagged U.S. returns; indeed, structural estimation of a news-diffusion model indicates that return shocks emanating in the United States are only fully reflected in equity prices outside of the United States with a lag. Overall, our results indicate that predictive regressions for non-U.S. countries should be augmented with lagged U.S. returns to capture an important source of international return predictability.
{"title":"International Stock Return Predictability: What is the Role of the United States?","authors":"D. Rapach, Jack Strauss, Guofu Zhou","doi":"10.2139/ssrn.1508484","DOIUrl":"https://doi.org/10.2139/ssrn.1508484","url":null,"abstract":"We investigate lead-lag relationships among country stock returns and identify a leading role for the United States: lagged U.S. returns significantly predict returns in numerous non-U.S. industrialized countries (after controlling for national economic variables and countries' own lagged returns), while lagged non-U.S. returns display little predictive ability with respect to U.S. returns. The predictive power of lagged U.S. returns is robust across a number of dimensions, including out-of-sample tests. Information frictions seem a ready explanation of the predictive power of lagged U.S. returns; indeed, structural estimation of a news-diffusion model indicates that return shocks emanating in the United States are only fully reflected in equity prices outside of the United States with a lag. Overall, our results indicate that predictive regressions for non-U.S. countries should be augmented with lagged U.S. returns to capture an important source of international return predictability.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-05-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114228213","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}
Pub Date : 2012-05-01DOI: 10.1111/j.1467-8683.2011.00899.x
Yi-ping Kuo, Jung-Hua Hung
Manuscript Type: Empirical. Research Question/Issue: We explore the effect of family control on investment‐cash flow sensitivity and disentangle the effects of agency problems of free cash flow and asymmetric information. Excess control rights and board independence may moderate the relationship between family control and investment‐cash flow sensitivity by changing agency costs. Research Findings/Insights: Family control lessens investment‐cash flow sensitivity by mitigating the problem of asymmetric information. Investment‐cash flow sensitivity will be higher in family‐controlled firms with excess control rights because Type II agency problems predominate. Family control may affect investment‐cash flow sensitivity when firms lack independent directors. Having another blockholder in addition to the controlling family reduces the agency problem and improves the independent monitoring function of the board for family‐controlled firms. Theoretical/Academic Implications: This study provides a better understanding of the relationship between family control and investment‐cash flow sensitivity. It delineates the separate effects of agency problems stemming from free cash flow and asymmetric information and demonstrates that excess control rights and board independence can moderate the effect of family control on investment‐cash flow sensitivity. We show the significant role another blockholder plays in internal governance mechanisms. Practitioner/Policy Implications: Investors can better gauge firm value by examining the type of company control and linkages between investment distortion and firm value. Policy makers can better understand how excess control and board independence act as mechanisms to worsen or mitigate the effects of family control. Managers can understand the effects of control type and board independence on the firm's financial constraints.
{"title":"Family Control and Investment‐Cash Flow Sensitivity: Moderating Effects of Excess Control Rights and Board Independence","authors":"Yi-ping Kuo, Jung-Hua Hung","doi":"10.1111/j.1467-8683.2011.00899.x","DOIUrl":"https://doi.org/10.1111/j.1467-8683.2011.00899.x","url":null,"abstract":"Manuscript Type: Empirical. Research Question/Issue: We explore the effect of family control on investment‐cash flow sensitivity and disentangle the effects of agency problems of free cash flow and asymmetric information. Excess control rights and board independence may moderate the relationship between family control and investment‐cash flow sensitivity by changing agency costs. Research Findings/Insights: Family control lessens investment‐cash flow sensitivity by mitigating the problem of asymmetric information. Investment‐cash flow sensitivity will be higher in family‐controlled firms with excess control rights because Type II agency problems predominate. Family control may affect investment‐cash flow sensitivity when firms lack independent directors. Having another blockholder in addition to the controlling family reduces the agency problem and improves the independent monitoring function of the board for family‐controlled firms. Theoretical/Academic Implications: This study provides a better understanding of the relationship between family control and investment‐cash flow sensitivity. It delineates the separate effects of agency problems stemming from free cash flow and asymmetric information and demonstrates that excess control rights and board independence can moderate the effect of family control on investment‐cash flow sensitivity. We show the significant role another blockholder plays in internal governance mechanisms. Practitioner/Policy Implications: Investors can better gauge firm value by examining the type of company control and linkages between investment distortion and firm value. Policy makers can better understand how excess control and board independence act as mechanisms to worsen or mitigate the effects of family control. Managers can understand the effects of control type and board independence on the firm's financial constraints.","PeriodicalId":417524,"journal":{"name":"FEN: Other International Corporate Finance (Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123498497","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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