Foreign Direct Investment in Brazil and Home Country Risk

This study looks into the factors that explain foreign direct investment in Brazil by country of origin of investment. Based on a sample of more than 100 countries that invested and have not yet invested in Brazil, multiple estimation techniques, such as the Tobit, Heckit and Probit, are used to isolate the effect of country risk on outward foreign direct investment. In sharp contrast to the findings of previous studies on the effect of home country risk on foreign investment in the United States, the findings in this paper reveal that less risky countries invest more in Brazil. These results are controlled for size of the home country, distance, trade intensity and previous investments abroad. A simple out of sample check shows that the model correctly predicts probability of investing for a large number of countries. The existing literature does not document these results.Foreign Direct Investment; Country Risk; Tobit and Heckit Estimation

The Determinants of Venture Capital in Europe—Evidence Across Countries

Abstract This article analyses the determinants of European venture capital activity. The main novelty of our work is in accounting for the idiosyncrasies of the European venture capital market. In particular, we investigate whether the size of the merger and acquisition market (M&A) is important in explaining venture capital. Moreover, our work is the first that analyses the impact of the degree of information asymmetry at the macro level, the direct impact of the level of entrepreneurial activity and the impact of the unemployment rate on venture capital activity. We use aggregate data from 23 European countries for the period 1998–2003 to estimate panel data models with fixed and random effects. Our results reveal that the size of the M&A market and the market-to-book ratio have a positive impact on venture capital activity whereas the unemployment rate influences the venture capital market negatively. These results highlight the importance of the exit environment and of the degree of asymmetric information for the venture capital market

Foreign direct investment in Brazil and home country risk

This study looks into the factors that explain foreign direct investment in Brazil by country of origin of investment. Based on a sample of more than 100 countries that invested and have not yet invested in Brazil, multiple estimation techniques, such as the Tobit, Heckit and Probit, are used to isolate the effect of country risk on outward foreign direct investment. In sharp contrast to the findings of previous studies on the effect of home country risk on foreign investment in the United States, the findings in this paper reveal that less risky countries invest more in Brazil. These results are controlled for size of the home country, distance, trade intensity and previous investments abroad. A simple out of sample check shows that the model correctly predicts probability of investing for a large number of countries. The existing literature does not document these results

The exit decision in the European venture capital market

This article analyses the exit decision in the European venture capital market, studying when to exit and how it interacts with the exit form. Using a competing risks model we study the impact on the exit decision of the characteristics of venture capital investors, of their investments and of contracting variables. Our results reveals that the hazard functions are non-monotonic for all exit forms and suggest that, in Europe, Initial Public Offering candidates take longer to be selected than trade sales. Moreover our results show that, in Europe, venture capitalists associated with financial institutions have quicker exits (stronger for trade sales), and highlight the importance of contracting variables on the exit decision. An unexpected result is that the presence on the board of directors leads to longer investment durations

Uma Análise do Mercado de Capital de Risco Português: Saídas Parciais Versus Saídas Totais

Este artigo analisa as saídas de investimentos de capital de risco em Portugal, abordando a relação existente entre as formas de saída e a assimetria de informação a elas associadas. A hipótese central é a de que a ocorrência de saídas parciais está associada à sinalização da qualidade do investimento e à redução do grau de assimetria. Os dados resultaram de um estudo elaborado pelas empresas Small Business Investment, S.A. e Price WaterHouse Coopers, para a APCRI, mediante questionário enviado às empresas de capital de risco residentes em Portugal. Utilizaram-se modelos Logit, nos quais a variável dependente é uma dummy que indica se ocorreu uma saída parcial e as variáveis independentes são: uma dummy que indica se o investimento foi do tipo arranque; uma dummy que indica se o investimento foi do tipo expansão; uma dummy que indica se o investimento foi do tipo late stage; uma dummy que indica se o investimento foi do tipo high-tech; uma dummy que indica se a saída foi do tipo aquisição; uma dummy que indica se a saída foi do tipo IPO; uma dummy que indica se a saída foi do tipo write-off; e, uma dummy que indica se a saída foi do tipo trade sale. Concluímos que no caso e IPO, investimentos do tipo expansão e para investimentos do tipo high-tech existe maior probabilidade de ocorrência de saídas parciais, enquanto que no caso de saídas sobre a forma de aquisições existe uma maior probabilidade de saída total. Por fim, concluímos que quanto maior for a duração menor é a probabilidade de ocorrer saída parcial.Capital de risco; Saídas Parciais; IPO; Vendas a Terceiros; Liquidações; Assimetria de Informação

What factors cause foreign banks to stay in London?

The banking literature focuses extensively on the phenomenon of bank entry and pays less attention to the factors driving the continuation of banking activities in foreign markets. In this paper, we analyze this important, but overlooked, issue by constructing a unique database of foreign banks that continue operating and those that have withdrawn from arguably the world’s most international banking center—London. This new data set comprises information on 408 offices from 77 countries spanning the period from 1945 to 1999, giving us 4643 observations, of which 2795 represent offices that continue operating and 1848 that withdrew from London during this period. Our empirical work shows that the continuation of international banking activity in London is positively related to: the setup of locally integrated organizational forms at entry; the experience in the local market; and the size of local operations. Continuation of banking activities is however negatively related to the setup of organizational forms integrated into the parent bank at entry and to the geographic distance of the home-country to London. We also find that higher global economic activity increases the likelihood of international banking operations continuing in London; however, the more volatile the global economic environment, the greater the prospect of a cessation of this activity

The effectiveness of the auditor's going-concern evaluation as an external governance mechanism: evidence from loan defaults

When there is significant doubt about a firm's ability to continue as a going concern, professional standards require independent auditors to disclose the uncertainty in their report. This study assesses the influence of the independent auditor's going-concern evaluation by examining default following the release of the auditor's report. We use a proprietary sample maintained by the Portuguese Central Bank on 12,199 audit reports relating to approximately 2000 firms that are liable by law to have their accounts audited on an annual basis. Empirical estimation of a logit model controlling for accounting cash- flow-related and nonaccounting variables shows that the likelihood of default for firms that received going concern opinion is 2.792 times that of firms that received a clean opinion. Likelihood ratio tests for omitted variable also confirm the incremental predictive ability of going-concern opinion over and above accounting and nonaccounting variables for the estimation and hold-out samples. In the nondefaulting group, the average default rate is 6.05%, in the defaulting group it is 17.78%. The default rate for firms in the nondefaulting group that received a going-concern opinion is 9.92% and for firms that received a clean opinion it is 5.96%. In the defaulting group, the rate for firms that received a going-concern opinion is 35.49% and for firms that received a clean opinion it is 16.96%. Checks for robustness across different asset classes, age, industries, and regions indicate that firms that receive a going-concern opinion on average default more than those that receive a clean opinion