The MNC as an Agent of Change for Host-Country Institutions: FDI and Corruption

Most empirical research examines how the institutional environment of corruption shapes the behavior of MNCs. In this study, we would like to highlight the other side of the picture: how the presence of MNC may shape the institutional environment of corruption over time. We propose three avenues through which the MNC may have an impact on its host institutions: the regulatory pressure effect, the demonstration effect, and the professionalization effect. Based on extensive data on FDI and corruption for a large sample of countries over the last 30 years, the empirical results are consistent with our general hypothesis that foreign direct investment generates positive spillover effects on the institutional environment of host countries. Such findings provide a glimmer of hope for the future of the host country where corruption is most prevalent.http://deepblue.lib.umich.edu/bitstream/2027.42/57262/1/wp882 .pd

National Culture and Financial Systems

Countries differ in the way their financial activities are organized. In Anglo-Saxon countries such as the U.S. and the U.K., financial systems are dominated by stock markets whereas in Continental Europe and Japan, banks play a predominant role. Why do countries differ in the configuration of their financial systems? We argue that national culture plays a significant role. We find that countries characterized by higher uncertainty avoidance, as an attribute of their national culture, are more likely to have a bank-based system.http://deepblue.lib.umich.edu/bitstream/2027.42/57264/1/wp884 .pd

National Culture and Financial Systems

Countries differ in the way their financial activities are organized. In Anglo-Saxon countries such as the U.S. and the U.K., financial systems are dominated by stock markets whereas in Continental Europe and Japan, banks play a predominant role. Why do countries differ in the configuration of their financial systems? We argue that national culture plays a significant role. We find that countries characterized by higher uncertainty avoidance, as an attribute of their national culture, are more likely to have a bank-based system.Financial Systems, Bank-based, Market based, Culture, Uncertainty Avoidance

Collectivism and the Costs of High Leverage

Prior literature shows that high leverage is associated with losses in market share due to unfavorable actions by customers and competitors. Building on this literature, we investigate the effect of collectivism on the product market performance of highly leveraged firms. Using a sample of 46 countries over the 1989–2016 period, we find significantly lower costs of high leverage for countries with higher collectivism scores. Moreover, we find that the impact of collectivism on high leverage costs is more pronounced for firms with high product specialization and with financially healthy rivals. In additional analysis, we find that collectivism helps highly leveraged firms retain employees and obtain trade credit from suppliers. Our findings thus suggest that a country’s culture affects corporate financial outcomes by influencing the actions of firm stakeholders

Does Corporate Social Responsibility Reduce the Costs of High Leverage? Evidence from Capital Structure and Product Market Interactions

Research on capital structure and product market interactions shows that high leverage is associated with substantial losses in market share due to unfavorable actions by customers and competitors. We examine whether corporate social responsibility (CSR) affects firms’ interactions with customers and competitors, and whether it can reduce the costs of high leverage. We find that CSR reduces losses in market share when firms are highly leveraged. By reducing adverse behavior by customers and competitors, CSR helps highly leveraged firms keep customers and guard against rivals’ predation. Our results support the stakeholder value maximization view of CSR

Expectations Hypothesis of the Term Structure of Implied Volatility: Re-examination

Previous studies have tested the expectations hypothesis of the term structure of implied volatility using xed-interval time-series of at-the-money options. We show, using a stochastic volatility option pricing model, that even the implied volatilities of at-the-money options are not necessarily unbiased and that the xed-interval time-series can produce misleading results. We then suggest an alternative approach and test the expectations hypothesis using S&P 500 stock index options. Our results do not support the expectations hypothesis: long-term volatilities rise relative to short-term volatilities but the increases are not matched as predicted by the expectations hypothesis. In addition, an increase in the current long-term volatility relative to the current short-term volatility is followed by a subsequent decline.published or submitted for publicationnot peer reviewe