Journal of Multinational Financial Management最新文献

This paper examines the effects of negative screening on the financial performance of sovereign wealth funds (SWFs). SWFs have been under pressure to invest responsibly and divest from fossil fuel firms by their respective governments and citizens. Yet, such a strategy may reduce the financial performance of these funds. This study examines the extent to which excluding fossil fuel firms from SWF portfolios in order to comply with ethical standards reduces their financial performance. By using asset pricing models, namely the capital asset pricing model and the Carhart four-factor model, we find that excluding firms has a statistically insignificant impact on the financial performance of SWFs. We document similar results regarding the performance of SWF fossil fuel portfolios, suggesting that fossil fuel divestment will not impact SWF performance. We also test for differences between “extraction and production” and “refining and integrated” fossil fuel firms to explain why some SWFs divest only from extraction and production firms. Our findings indicate that, to some extent, extraction and production companies generate lower returns. We conclude that socially responsible investment, by negative screening of fossil fuel firms does not reduce SWF performance.

This paper investigates the flight to advanced economies by foreign investors at the onset of the COVID pandemic. Amid an overall decline of international positions, countries featuring higher GDPs per capita, and belonging to the groups of advanced, G7, or euro area countries, appear to have been significantly less severely hit by the pandemic than developing countries. Comparing the growth rates of foreign liabilities in the first quarter of 2020, the wedge between advanced and emerging countries is about 3%, and it is at least twice as large for G7 countries. This wedge is paired with evidence of momentum trading by foreign investors. Our results are robust to the inclusion, as controls, of government stringency measures, alternative indicators of the severity of the pandemic, and alternative sample specification and regression methods.

In this study, we analyse the effect of product differentiation on prices and client attraction in the socially responsible (SR) mutual fund industry. Using three proxies for differentiation, including a text-based indicator, a return-based indicator, and a portfolio-holding indicator, we analyse a sample of US SR equity mutual funds in the period 1999–2019. Our findings show that the text differentiation measure better explains the product differentiation impact on prices and flows than the measures based on fund characteristics. Our text differentiation results indicate that younger SR funds and funds belonging to smaller families are more differentiated. In addition, differentiation allows SR funds to charge higher fees and attract more money flows. Finally, our results indicate that SR fund investors are sensitive to differentiation regarding other funds implementing the same SR strategies, but not in relation to other funds in the same Morningstar financial style category.

This paper studies how covenants affect the speed of capital structure adjustment in Brazil, an environment with poor creditor rights. Unlike previous evidence for developed countries, we find that the existence of debt covenants increases the speed of capital structure adjustment by more than 20% for firms that are only domestically listed. For firms that are cross-listed in the US, this effect is smaller (if any), possibly because these firms “bond” to the stricter regulation and creditor protection of the US market. Our results suggest that in emerging markets with poor creditor protection, covenants are an imperfect substitute for strong creditor rights and employed as a signaling device, permitting firms to adjust their leverage towards optimal levels quicker.

This paper explores potential economic mechanisms through which fluctuations in exchange rates are priced in international stock returns. Our investigation focuses on two currency risk factors – a dollar-risk factor and a carry-trade-risk factor – and their explanatory power for a variety of test assets comprised of monthly returns for over 47,000 stocks from 46 countries and over four decades. We find that currency risk is more likely to be priced among firms producing tradeable goods, and especially during periods of heightened exchange rate volatility. This finding is robust with respect to the evaluating criteria on firm internationalization, the benchmark factor models chosen, and the sub-periods examined.

We investigate whether investor-state arbitration under investment protection treaties is valuable to foreign investors, and whether international arbitration has effects on firm value that are like those seen in domestic litigation. An event study of abnormal returns when claims for arbitration are filed and adjudicated show that firms gain in market value both at the time they file for arbitration and when they receive an award. These gains in value generally exceed the size of the awards, indicating that success in arbitration provides the foreign investor not only monetary compensation but also non-monetary reputational effects that reduce costs of doing business abroad. Stock markets anticipate the outcomes of the arbitration process when claims are filed and when awards are announced. The effects on firm value of domestic litigation and investor-state arbitration differ, reflecting the institutional differences between the two methods of resolving disputes.

This study focuses on productivity spillover effects of foreign direct investment (FDI) using firm-level panel data from Brazilian manufacturing firms. We seek to determine what attributes of foreign-invested enterprises (FIEs) and domestic firms are associated with the transfer and absorption of spillover effects, respectively. We find that when spillover effects are measured at the aggregate level only, (positive) horizontal and backward productivity spillovers can be identified. However, when FIEs are disaggregated, those horizontal and backward spillover effects are most closely associated with majority foreign ownership and high-export profiles. Moreover, we can now identify positive forward spillovers transmitted by low-importing and low-exporting FIEs exclusively to high-technology domestic firms. Finally, our investigation demonstrates that for domestic firms, low productivity levels and the absence of worker training preclude the absorption of certain types of spillover effects but still allow for the absorption of other types.

This study uses a TVP-VAR model to test whether gold is a safe haven for exchange rate risks. The five major world currencies are examined: the Chinese renminbi, euro, British pound, Japanese yen, and U.S. dollar. The empirical results show that (1) gold cannot hedge currency depreciation in the long run; (2) gold can hedge currency depreciation dynamic risk in the short run; (3) gold can act as a safe haven to hedge dynamic risk for the euro, dollar, and pound in the short run, but not for the renminbi and yen; and (4) the yen tends to appreciate significantly when international risks escalate, thus, it can be regarded as a safe haven currency.

We examine how political power, polarization, and economic policy uncertainty (EPU) in Canada and the US affect the Canadian equity market from 1985 to 2019. We document little evidence of significant liberal government return premiums and the corresponding risk for the overall market and many industry sectors. Only the IT sector witnesses the “second half effect” of election cycles. The Canadian equity market seems to outperform during strong Democratic control in the US, with mixed findings for the individual sectors. Political polarization in the two countries and trade uncertainty have little impact on Canadian equity returns except for the venture, small-cap, and IT sectors from the US polarization. The US EPU index affects the average returns of the overall Canadian equity market and the energy, industrials, retail, and transportation industries, while domestic EPU in Canada reduces the overall equity market, small-cap, and venture firm returns. The alignment of political ideology in the two countries has little impact on the equity market in Canada. Collectively, the results show that the impact of political environments on the Canadian equity market tends to be limited, dynamic, and industry-specific, suggesting that investors should not blindly mix their portfolios with their political views or affiliations.

We use data from 33 countries to study how a fund’s affiliation with large families shapes the flow–performance relationship internationally. Our results show that the effect of family size on the fund flows’ response to performance depends on the sophistication of investors in a country. While less sophisticated investors are persuaded by the great visibility and strategies of funds that are affiliated with large and established families, more sophisticated investors are not. Affiliation with a large family increases the convexity of the flow–performance relationship in countries where investors are less sophisticated, but decreases this convexity in countries with more sophisticated investors. These results are important for investors, mutual fund companies and regulators because the flow–performance sensitivity determines the assets under management, the level of fees, risk–taking, and the performance of the fund.