The authors examine the conditions under which democratic events, including elections, cabinet formations, and government dissolutions, affect asset markets. Where these events have less predictable ...outcomes, market returns are depressed and volatility increases. In contrast, where market actors can forecast the result, returns do not exhibit any unusual behavior. Further, political expectations condition how markets respond to the political process. When news causes market actors to update their political beliefs, market actors reallocate their portfolios, and overall market behavior changes. To measure political information, Professors Bernhard and Leblang employ sophisticated models of the political process. They draw on a variety of models of market behavior, including the efficient markets hypothesis, capital asset pricing model, and arbitrage pricing theory, to trace the impact of political events on currency, stock, and bond markets. The analysis will appeal to academics, graduate students, and advanced undergraduates across political science, economics, and finance.
Using hand-collected carbon emissions data for 2006 to 2008 that were voluntarily disclosed to the Carbon Disclosure Project by S&P 500 firms, we examine the effects on firm value of carbon emissions ...and of the act of voluntarily disclosing carbon emissions. Correcting for self-selection bias from managers' decisions to disclose carbon emissions, we find that, on average, for every additional thousand metric tons of carbon emissions, firm value decreases by $212,000, where the median emissions for the disclosing firms in our sample are 1.07 million metric tons. We also examine the firmvalue effects of managers' decisions to disclose carbon emissions. We find that the median value of firms that disclose their carbon emissions is about $2.3 billion higher than that of comparable non-disclosing firms. Our results indicate that the markets penalize all firms for their carbon emissions, but a further penalty is imposed on firms that do not disclose emissions information. The results are consistent with the argument that capital markets impound both carbon emissions and the act of voluntary disclosure of this information in firm valuations.
This paper examines the circumstances under which collective and private corporate political actions are more likely to be substitutes or complements. Using data based on a series of nationwide ...surveys conducted on privately owned firms in China, I find that firms that are engaged in collective political actions are more likely to pursue private political actions. This positive relationship is stronger in less economically developed provinces and when there are greater opportunities for the state to redistribute economic resources in product and capital markets. Meanwhile, this relationship is weaker in the presence of heavier regulatory burdens and for firms in which the state has some equity or owned by individuals who had prior political careers. These findings contribute to the corporate political action literature.
This paper provides an in-depth analysis of small and medium enterprise (SME) access to capital markets across Eurozone countries. First, we determine which factors—at firm and country ...level—influence the likelihood of SME access to market-based finance. Second, we construct an index of
market suitability
to indicate the percentage of firms potentially fit for market-based finance. Our results suggest that while several Eurozone countries have realised SMEs’ ‘potential’ for capital market financing, a large number of firms fit for market-based finance remain unexploited. We also find that overall business conditions—measured by GDP growth, the development degree of domestic financial markets and the quality of the legal and judicial enforcement system—considerably influence a firm’s market suitability. In the studied period (2009–2014), macro-economic and institutional factors tended to reduce the likelihood of SMEs accessing market-based finance in most countries in our sample.
This paper analyzes the capital market and the evolution of Romania's economic growth, examining the correlation between the main indicators of the two economic and financial mechanisms. The purpose ...of this paper is to examine the relationship between financial development and economic growth in the period 2000-2020, using indicators for the development of the stock market sector and the macroeconomic environment. Most of the existing studies on this topic address the markets of developed economies, but we believe that the degree of correlation may differ in the case of less developed countries. This paper tries to bring its contribution to the specialized literature by studying the indicators in the case of Romania, during the period when this developing market aspires to the status of an emerging market and in the context in which this promotion took place in 2020.
Problem definition
: We examine how the presence of capital market frictions influences the decision to invest in production cost reduction and the resultant production volume. This investment can ...increase the firm’s cash flow by increasing the profit margin, but it can also decrease the firm’s risk-free cash reserves and thus affect its exposure to capital market frictions.
Academic/practical relevance
: Process improvement aimed at production cost reduction has generated myriad of theoretical questions about efficient investment options and capacity choices. From a managerial perspective, process improvement is a fundamental concern in operations strategy. Nevertheless, its analysis typically excludes financial constraints by assuming a perfect capital market.
Methodology
: We formulate a two-stage profit maximization model in which a capital-constrained firm commits to a cost-reduction investment in the first stage in anticipation of its production decision in the second stage of this two-stage decision process. The firm considers capital market frictions when making decisions at each stage, while considering uncertainty in demand for its offering and in reducing its unit production cost.
Results
: When a firm faces small initial capital and low preinvestment unit production costs, it can benefit from investing in production cost reduction in the presence of capital market frictions more so than in their absence. Moreover, uncertainty in the production cost reduction mitigates the impact of market frictions on the net benefit (i.e., additional profit), whereas demand uncertainty decreases the feasible parameter space, where investing in production cost reduction is optimal.
Managerial implications
: A firm’s decision to invest in production cost reduction affects its operational and financial capabilities. Managers should thus consider this investment as an operational hedge not only against the uncertainty of matching supply and demand but also against exposure to capital market frictions and the resultant financial risk.
Triumph of the optimists Dimson, Elroy; Dimson, Elroy; Marsh, Paul ...
2002., 20090411, 2009, 2002, 2002-01-01, 20020101
eBook
Investors have too often extrapolated from recent experience. In the 1950s, who but the most rampant optimist would have dreamt that over the next fifty years the real return on equities would be 9% ...per year? Yet this is what happened in the U.S. stock market. The optimists triumphed. However, as Don Marquis observed, an optimist is someone who never had much experience. The authors of this book extend our experience across regions and across time. They present a comprehensive and consistent analysis of investment returns for equities, bonds, bills, currencies and inflation, spanning sixteen countries, from the end of the nineteenth century to the beginning of the twenty-first. This is achieved in a clear and simple way, with over 130 color diagrams that make comparison easy.
Using the adoption of SFAS 131, I examine the effect of segment disclosure transparency on internal capital market efficiency. SFAS 131 requires firms to define segments as internally viewed by ...managers, thereby improving the transparency of managerial actions in internal capital allocation. I find that diversified firms that improved segment disclosure transparency by changing segment definitions upon adoption of SFAS 131 experienced an improvement in capital allocation efficiency in internal capital markets after the adoption of SFAS 131. In addition, I find that the improvement in internal capital market efficiency was greater for firms that suffered more severe agency problems before the adoption of SFAS 131 and also for firms whose managers faced stronger incentives to improve efficiency after the adoption of SFAS 131. My results suggest that more transparent segment information can help resolve agency conflicts in the internal capital markets of diversified firms, thus improving investment efficiency.
We provide firm-level evidence that credit constraints restrict international trade and affect the pattern of multinational activity. We show that foreign affiliates and joint ventures in China have ...better export performance than private domestic firms in financially more vulnerable sectors. These results are stronger for destinations with higher trade costs and not driven by firm size or other sector characteristics. Our findings are consistent with multinational subsidiaries being less liquidity constrained because they can access foreign capital markets or funding from their parent company. They further suggest that FDI can alleviate the impact of domestic financial market imperfections on trade.
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