While product market choices have been central to strategy formulation for firms in the past, the integration of financial markets makes the choice of capital markets an equally important strategic ...decision. We advance a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. We find that internal governance characteristics (founder-CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Our results suggest foreign IPO firms select a host market where the firms' governance characteristics and third party affiliations fit the host market's institutional environment.
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.
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.
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.
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.
Research summary
This article examines the effect of dedicated institutional investors on firms’ strategy uniqueness. We build on the uniqueness paradox where unique strategies are important drivers ...of economic rent, yet create an information problem whereby CEOs face discounts from the capital market, thus discouraging them from selecting unique strategies. We propose dedicated institutional investors as a partial remedy to the uniqueness paradox. Dedicated institutional investors invest in gaining private information about their investments, devote effort to understanding firms’ strategies, and reduce capital market pressure. Thus, dedicated institutional investors can encourage CEOs to pursue more unique strategies. Our empirical results show the positive influence of dedicated institutional investors on strategic uniqueness, which is even stronger when firms operate in industries that are hard to value.
Managerial summary
Unique strategies can be an important way for managers to create long‐term value. However, some managers shy away from implementing such strategies, fearing that the short‐term oriented capital market does not fully understand the long‐term benefits of unique strategies and hence punishes them. Our study shows that investors who are long‐term‐oriented, focused, and committed help resolve this issue. These owners gather in‐depth private information about their investments, devote effort to understanding firms’ strategies, and reduce capital market pressures. Hence, their commitment and patience can encourage CEOs to pursue more unique strategies. Our study reflects the high levels of responsibility that investors have on strategic decision‐making. Therefore, we recommend to intensify the communication between investors and firms on strategic topics (e.g., in form of stewardship policies).
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