Signaling strategic commitment for organizational transition: how to manage potential M&As through voluntary disclosures

To ‘transit or not’ often depends upon winning over investor opinion to large strategic initiatives. M&A is one such major realignment of an organization and yet once a bid for a company has been announced there is a period of uncertainty when the bid may not be completed. This depends on share price movements determined more by investor perceptions than fundamental values. This paper investigates whether these perceptions may be influenced by ‘voluntary’ corporate communications and so link managerial practices to strategic outcomes. Drawing upon two very large M&A data sets (USA and UK) (57,000 deals; 30,000 communications) we argue managerial practice (signaling strategic commitment) shapes market response and demonstrate communication characteristics, and the use of high-reputation intermediaries, play an important role in determining share price reaction

Voluntary disclosures as a form of impression management to reduce evaluative uncertainty during M&A

This study develops and tests a set of hypotheses on how to manage investors’ evaluative uncertainty during M&A through a specific form of impression management, namely, interim news events. We suggest that voluntary disclosures are key in influencing investors’ reactions during M&A. Empirical support for our theoretical arguments is shown in a sample of 36,376 deals and 163,023 associated interim news events carried out by NYSE and NSDQ listed organizations over 10 years. Our research contributes to literature on voluntary disclosures, impression management, and managing M&A

Measuring Financial Fragility in China

This paper proposes a metric for a financial fragility index for the Chinese banking sector. This metric is a weighted average of two variables: bank profitability and multiple probability of undercapitalization. The weights of the two variables are assigned based on their effects on real output, estimated by a vector autoregressive model. The main contribution is two-fold: incorporating a capital adequacy ratio into a quantitative measure and aggregating insolvency risk through a multiple probability measure. We confirm that our metric successfully identifies three periods of financial turmoil accompanied by economic downturns and rules out one minor perturbation caused by side effect of the policy between 2007 and 2014. In particular, this study provides an economic rationale for the relationship among financial instability, policy, and economic activity

Business cycle and herding behavior in stock returns: theory and evidence

This study explains the role of economic uncertainty as a bridge between business cycles and investors’ herding behavior. Starting with a conventional stochastic differential equation representing the evolution of stock returns, we provide a simple theoretical model and empirically demonstrate it. Specifically, the growth rate of gross domestic product and the power law exponent are used as proxies for business cycles and herding behavior, respectively. We find stronger herding behavior during recessions than during booms. We attribute this to economic uncertainty, which leads to strong behavioral bias in the stock market. These findings are consistent with the predictions of the quantum model.</p

Dynamic stochastic general equilibrium models with money, default and collateral

This D.Phil. dissertation investigates the areas in financial stability. The three comprising essays have a common ground: money, default and collateral in the theory of finance. Chapter Two (co-authored with Prof. Dimitrios Tsomocos), which is titled “A Dynamic General Equilibrium Model to Analyse Financial Stability”, aims to refine and improve existing DSGE models in two ways. First, it incorporates hitherto neglected components such as endogenous default, money via cash-in-advance constraints and heterogeneous banking sectors. Thus, in contrast to the New Keynesian approach, here it is liquidity and default that are the driving forces behind our results. Second, in focusing on both monetary policy and fiscal policy, it elucidates how interactions between the two policy arenas affect macroeconomic fluctuations, particularly in regard to financial stability. Through these refinements, we put forward the policy response necessary to achieve a stable financial system using a calibrated DSGE model. Chapter Three, entitled “Monetary Policy in a Time of Natural Disaster”, investigates the appropriate monetary policy response to natural disasters in the DSGE framework. I develop a realistic model for financial turmoil by evaluating the impact of natural disasters on credit markets by including financial frictions such as endogenous default and liquidity constraints. I show that the standard Taylor rule (1993) response in models with money and default is to increase the nominal interest rate after a disaster shock. However, in fact an inflation-targeting policy (i.e. monetary contraction) is not compatible with mitigating financial fragility in the highly indebted economy with near-zero interest rate, and arguably the `Taylor Principle' does not hold in such as economy (e.g. Japan in 2011). Nevertheless, expansionary monetary policy induces a debt overhang even further. Chapter Four, “Collateral, Default and Asset Prices”, uses a DSGE framework to put forward a model of how agents adjust their asset holdings in response to deflationary shocks. By introducing collateral constraints in the default decision, I capture some original features of the early debt-deflation literature, such as distress selling and instability. The estimated model successfully delivers a procyclical feedback loop for the default channel, which consists of foreclosure, high borrowing costs, inefficient capital allocation, and a further decrease in the output level. I investigated recessionary shocks inducing deflation in commodity and/or asset prices for monetary policy experiments. This, therefore, underlines the importance of monetary policy in restoring financial stability during a deflationary period.</p

Dynamic stochastic general equilibrium models with money, default and collateral

This D.Phil. dissertation investigates the areas in financial stability. The three comprising essays have a common ground: money, default and collateral in the theory of finance. Chapter Two (co-authored with Prof. Dimitrios Tsomocos), which is titled “A Dynamic General Equilibrium Model to Analyse Financial Stability”, aims to refine and improve existing DSGE models in two ways. First, it incorporates hitherto neglected components such as endogenous default, money via cash-in-advance constraints and heterogeneous banking sectors. Thus, in contrast to the New Keynesian approach, here it is liquidity and default that are the driving forces behind our results. Second, in focusing on both monetary policy and fiscal policy, it elucidates how interactions between the two policy arenas affect macroeconomic fluctuations, particularly in regard to financial stability. Through these refinements, we put forward the policy response necessary to achieve a stable financial system using a calibrated DSGE model. Chapter Three, entitled “Monetary Policy in a Time of Natural Disaster”, investigates the appropriate monetary policy response to natural disasters in the DSGE framework. I develop a realistic model for financial turmoil by evaluating the impact of natural disasters on credit markets by including financial frictions such as endogenous default and liquidity constraints. I show that the standard Taylor rule (1993) response in models with money and default is to increase the nominal interest rate after a disaster shock. However, in fact an inflation-targeting policy (i.e. monetary contraction) is not compatible with mitigating financial fragility in the highly indebted economy with near-zero interest rate, and arguably the `Taylor Principle' does not hold in such as economy (e.g. Japan in 2011). Nevertheless, expansionary monetary policy induces a debt overhang even further. Chapter Four, “Collateral, Default and Asset Prices”, uses a DSGE framework to put forward a model of how agents adjust their asset holdings in response to deflationary shocks. By introducing collateral constraints in the default decision, I capture some original features of the early debt-deflation literature, such as distress selling and instability. The estimated model successfully delivers a procyclical feedback loop for the default channel, which consists of foreclosure, high borrowing costs, inefficient capital allocation, and a further decrease in the output level. I investigated recessionary shocks inducing deflation in commodity and/or asset prices for monetary policy experiments. This, therefore, underlines the importance of monetary policy in restoring financial stability during a deflationary period.This thesis is not currently available in ORA

Economic impacts of being close to subway networks: A case study of Korean metropolitan areas

Subway networks are often developed in densely populated metropolitan areas that have enough potential passengers to merit their operation. Once a network has been constructed, it provides mobility to passengers and improves local accessibility to various destinations, thereby having economic, social, and public health impacts. This study aims to examine the economic impacts of subway networks in metropolitan areas among the various, wide-ranging effects of provision of transit networks. The association between actual transaction prices of condominiums and accessibility to subway networks in four metropolitan areas in South Korea is examined. Condominiums make up the dominant housing type in South Korea, so they provide a valid proxy for housing prices. In the modeling process, factors known to have a close relationship with housing prices are integrated along with the accessibility of subway networks, and spatially lagged models are utilized to effectively deal with the spatial patterns. The results of this research show that the expected positive effects of transit accessibility exist in the majority of cases in metropolitan areas, though one metropolis was an exception. These findings enhance our understanding of the economic impacts of public transit systems in relatively small metropolitan areas with less complex subway systems