The Financial Integration of the European Union: Common and Idiosyncratic Drivers

The purpose of this paper is to establish how far the process of financial integration has gone in the European Union. There is growing evidence that the appearance of the Euro has accelerated the integration of a number of financial markets among those countries who have adopted the Euro. We identify the growth in financial integration as the process by which idiosyncratic factors at the national level become less and less important for the behaviour of particular markets. While the Euro plays an important part because it eliminates currency risk, financial integration will still emerge between other European countries as long as the institutional and legal barriers are removed.

Macroeconomic Conditions and Business Exit: Determinants of Failures and Acquisitions of UK Firms

We study the impact of macroeconomic instability on business exit in a world where acquisition and bankruptcy are co-determined. Our objective is to discover how the processes that determine bankruptcies and acquisitions depend on the macroeconomic environment, particularly, macroeconomic instability. To this end we estimate competing risks hazard regression models using data on UK quoted firms spanning a thirty-eight year period that witnessed several business cycles. We find that macroeconomic instability has opposite effects on bankruptcy hazard and acquisition hazard, raising the former and lowering the latter. While it is not surprising that bankruptcy hazard is counter-cyclical and acquisition hazard pro-cyclical, it is noteworthy that the US business cycle is a better predictor of UK acquisitions and bankruptcies than the UK cycle itself.Bankruptcy, Acquisitions, Macroeconomic Instability, Competing Risks, Cox Proportional Hazards Model.

The Financial Integration of the European Union: Common and Idiosyncratic Drivers

The purpose of this paper is to establish how far the process of financial integration has gone in the European Union. There is growing evidence that the appearance of the Euro has accelerated the integration of a number of financial markets among those countries who have adopted the Euro. We identify the growth in financial integration as the process by which idiosyncratic factors at the national level become less and less important for the behaviour of particular markets. While the Euro plays an important part because it eliminates currency risk, financial integration will still emerge between other European countries as long as the institutional and legal barriers are removed

Equity Markets, Financial Integration and Competitive Convergence

We expect a firm's competitive advantage to manifest itself in a return on invested capital that is higher than the opportunity cost of capital. Deviations of returns from the cost of capital are a signal for competitive entry or for exit, while the speed of convergence indicates the strength of competitive forces. It is widely believed that, in some sense, the world is becoming more competitive, and that this is may be the effect of globalisation, facilitated by innovations in information technology. It also be the effect of determined actions by governments over two or three decades, to deregulate and open up markets to competition. So for example, in Europe one purpose of both the common currency and the Single Market project was to accelerate the process of economic convergence and, presumably, of competitive convergence. This paper examines the process of competitive convergence in profitability of listed companies in 7 countries of the European Union. We cast our examination of the convergence process in terms of three questions. The first is whether, and to what extent, we observe convergence in profitability through time. The second question is whether there are national differences in the extent of convergence or the speed at which it takes place. Thirdly, we look at the dynamics of convergence through time to see whether there is evidence that convergence in profitability has become more rapid, by which we mean above average or below average profitability persists for a shorter space of time because of increases in competition. The extent to which this can be related to economic and monetary convergence in the European Union remains an open question

Business Failure in UK and US Quoted Firms: Impact of Macroeconomic Instability and the Role of Legal Institutions

Firms exit through the mutually precluding events of bankruptcy and acquisition. We use a competing risks hazard regression model to identify the characteristics leading to each of these two outcomes using over thirty years of data on US and UK quoted firms. We find evidence about the way in which macroeconomic factors affect firm survival in these two economies, in addition to firm and industry-specific factors. Further, there are significant differences in the way in which firms in the US and the UK react to changes in the macroeconomic environment and, particularly to macroeconomic instability. We argue that these differences in response may be attributable to differences in bankruptcy codes in the US and the UK

The Incentive to Locate a Multinational Firm: The Effect of Tax Reforms in the United Kingdom

Abstract The advent of the single European market has focused attention on the structure of international tax incentives for the location of multinational business. Multinationals that channel foreign income through the United Kingdom have been likely to suffer double taxation in the form of surplus advance corporation tax when they subsequently distribute the income to a foreign parent. This paper shows that the 1993 UK tax reforms create a significant reduction in the tax cost of locating in the United Kingdom, relative to traditionally favourable tax regimes such as the Netherlands

The Business Cycle, Macroeconomic Shocks and the Cross Section: The Growth of UK Quoted Companies.

Co-movements and correlations in the major macroeconomic aggregates has been the focus of much recent literature in business cycle research. In this paper we provide another dimension to business cycle analysis. We examine the evolution of the cross sectional distribution of the growth rates of UK quoted companies from 1968 to 1997 and find correlations between aggregate business cycle fluctuations and the higher moments of the cross sectional distribution of growth rates. To explain this we analyse the sensitivity of firms to aggregate shocks, conditioning growth on firm size, age and industry. We find that the contemporaneous effects of aggregate shocks, both positive and negative, are significantly more pronounced for firms in the interior of growth rate range. This explains cycle-related patterns in the dynamics of the moments of the growth rate cross section. These findings are of importance in understanding firm level as well as business cycle dynamics

Macro Economic Instability and Business Exit: Determinants of Failures and Acquisitions of Large UK Firms

Using data over a 34-year span on UK quoted firms, this paper seeks to identify the factors that increase the likelihood of exit of firms. Firms may disappear through the mutually precluding events of bankruptcies and acquisitions. We use a competing-risks hazard model to determine characteristics leading to each outcome. Hazard models make use of the data on timing of these alternative outcomes and we exploit this to focus attention on how the hazards change over the business cycles, conditional on the post-listing age of the firm. We find that the volatility in macro environment has a role in determining, in different ways, the hazard of firms going bankrupt or being acquired