The Impact of the Introduction of the Euro on Foreign Exchange Rate Risk Exposures

This paper examines whether the introduction of the Euro in 1999 was associated with lower stock return volatility, market risk exposures and foreign exchange rate risk exposures for 12,821 nonfinancial firms in Europe, the United States, and Japan. We show that though the Euro led to a significant decrease in the volatility of trade-weighted exchange rates of European countries, stock return variances of nonfinancial firms increased after its introduction. However, the Euro was also accompanied by significant reductions in market risk exposures for nonfinancial firms in and outside of Europe. We show that the reduction in market risk was not as a result of changes in financial leverage, and that it is concentrated in firms with a high fraction of foreign sales in Europe, a high fraction of total foreign sales and larger market capitalizations. In addition to its impact on market betas, the Euro has a positive effect on the incremental foreign exchange rate exposures, particularly for multinationals.Foreign exchange rates, exposure, Euro, corporate finance, risk management, derivatives

Are Financial Assets Priced Locally or Globally?

We review the international finance literature to assess the extent to which international factors affect financial asset demands and prices. International asset pricing models with mean-variance investors predict that an asset's risk premium depends on its covariance with the world market portfolio and, possibly, with exchange rate changes. The existing empirical evidence shows that a country's risk premium depends on its covariance with the world market portfolio and that there is some evidence that exchange rate risk affects expected returns. However, the theoretical asset pricing literature relying on mean-variance optimizing investors fails in explaining the portfolio holdings of investors, equity flows, and the time-varying properties of correlations across countries. The home bias has the effect of increasing local influences on asset prices, while equity flows and cross-country correlations increase global influences on asset prices.

Why Do Countries Matter So Much for Corporate Governance?

This paper develops and tests a model of how country characteristics, such as legal protections for minority investors, and the level of economic and financial development, influence firms' costs and benefits in implementing measures to improve their own governance and transparency. The model focuses on an entrepreneur who needs to raise funds to finance the firm's investment opportunities and who decides whether or not to invest in better firm-level governance mechanisms to reduce agency costs. We show that, for a given level of country investor protection, the incentives to adopt better governance mechanisms at the firm level increase with a country's financial and economic development. When economic and financial development is poor, the incentives to improve firm-level governance are low because outside finance is expensive and the adoption of better governance mechanisms is expensive. Using firm-level data on international corporate governance and transparency ratings for a large sample of firms from around the world, we find evidence consistent with this prediction. Specifically, we show that (1) almost all of the variation in governance ratings across firms in less developed countries is attributable to country characteristics rather than firm characteristics typically used to explain governance choices, (2) firm characteristics explain more of the variation in governance ratings in more developed countries, and (3) access to global capital markets sharpens firm incentives for better governance, but decreases the importance of home-country legal protections of minority investors.

Why are Foreign Firms Listed in the U.S. Worth More?

At the end of 1997, the foreign companies listed in the U.S. have a Tobin's q ratio that exceeds by 16.5% the q ratio of firms from the same country that are not listed in the U.S. The valuation difference is statistically significant and largest for exchange-listed firms, where it reaches 37%. The difference persists even after controlling for a number of firm and country characteristics. We propose a theory that explains this valuation difference. We hypothesize that controlling shareholders of firms listed in the U.S. cannot extract as many private benefits from control compared to controlling shareholders of firms not listed in the U.S., but that their firms are better able to take advantage of growth opportunities. Consequently, the cross-listed firms should be those firms where the interests of the controlling shareholder are better aligned with the interests of other shareholders. The growth opportunities of cross-listed firms will be more highly valued than those of firms not listed in the U.S. both because cross-listed firms are better able to take advantage of these opportunities and because a smaller fraction of the cash flow of these firms is expropriated by controlling shareholders. We find that our theory explains the greater valuation of cross-listed firms. In particular, we find expected sales growth is valued more highly for firms listed in the U.S. and that this effect is greater for firms from countries with poorer investor rights.

Has New York Become Less Competitive in Global Markets? Evaluating Foreign Listing Choices Over Time

We study the determinants and consequences of cross-listings on the New York and London stock exchanges from 1990 to 2005. This investigation enables us to evaluate the relative benefits of New York and London exchange listings and to assess whether these relative benefits have changed over time, perhaps as a result of the passage of the Sarbanes-Oxley Act of Congress (SOX) in 2002. We find that cross-listings have been falling on U.S. exchanges as well as on the Main Market in London. This decline in cross-listings is explained by changes in firm characteristics rather than by changes in the benefits of cross-listings. We show that, after controlling for firm characteristics, there is no deficit in cross-listing counts on U.S. exchanges related to SOX. Investigating the cross-listing premium from 1990 to 2005, we find that there is a significant premium for U.S. exchange listings every year, that the premium has not fallen significantly in recent years, that it persists even when allowing for unobservable firm characteristics, and that there is a permanent premium in event time. In contrast, there is no premium for London listings for any year. Cross-listing in the U.S. leads firms to increase their capital-raising activity at home and abroad while a London listing has no such impact. Our evidence is consistent with the theory that an exchange listing in New York has unique governance benefits for foreign firms. These benefits have not been seriously eroded by SOX and cannot be replicated through a London listing.

Why do markets move together? An investigation of U.S.-Japan stock return comovements

This study explores the fundamental factors that affect cross-country stock return correlations. Using transactions data from 1988 to 1992, we construct overnight and intraday returns for a portfolio of Japanese stocks using their NYSE-traded American Depository Receipts (ADRs) and a matched-sample portfolio of U.S. stocks. We find that U.S. macroeconomic announcements, shocks to the Yen/Dollar foreign exchange rate and Treasury bill returns, and industry effects have no measurable influence on U.S. and Japanese return correlations. However, large shocks to broad-based market indices (Nikkei Stock Average and Standard and Poor's 500 Stock Index) positively impact both the magnitude and persistence of the return correlations

The U.S. Left Behind: The Rise of IPO Activity Around the World

During the past two decades, there has been a dramatic change in IPO activity around the world. Though vibrant IPO activity, attributed to better institutions and governance, used to be a strength of the U.S., it no longer is. IPO activity in the U.S. has fallen compared to the rest of the world and U.S. firms go public less than expected based on the economic importance of the U.S. In the early 1990s, the declining U.S. IPO share was due to the extraordinary growth of IPOs in foreign countries; in the 2000s, however, it is due to higher IPO activity abroad combined with lower IPO activity in the U.S. Global IPOs, which are IPOs in which some of the proceeds are raised outside the firm’s home country, play a critical role in the increase in IPO activity outside the U.S. The quality of a country’s institutions is positively related to its domestic IPO activity and negatively related to its global IPO activity. However, home country institutions are more important in explaining IPO activity in the 1990s than in the 2000s. The evidence is consistent with the view that access to global markets helps firms overcome the obstacles of poor institutions. Finally, we show that the dynamics of global IPO activity and country-level IPO activity are strongly affected by global factors.

Risk, Uncertainty, and the Perceived Threat of Terrorist Attacks: Evidence of Flight-to-Quality

© 2013 World Scientific Publishing Company and Midwest Finance Association. Information provided by the US Department of Homeland Security regarding potential terrorist attacks significantly affects US Treasury securities markets. When the government announces heightened terror alert levels, investors\u27 perceptions of risk increase and investors purchase 1-month and 1-year Treasury bills and 3-year, 5-year, 7-year, and 10-year US Treasuries in a flight-to-quality episode. Partial anticipation of increased threat level announcements is stronger than the anticipation of announcements regarding the federal funds rate during the 10 days prior to an announcement

Can innovations in traditional pork products help thriving EU untapped pig breeds? A non-hypothetical discrete choice experiment with hedonic evaluation

The EU is supporting measures that stimulate enhanced value-added products in order to conserve local and threatened livestock breeds. Several Traditional Pork Products (TPP) and Innovative Traditional Pork Products (ITPP) with health innovations from four untapped pig breeds in Spain (Porc Negre Mallorquí), Croatia (Turopolje), Italy (Cinta Senese) and Slovenia (Krškopolje) were analysed. Consumers' “Non-hypothetical” willingness to pay (WTP) and hedonic evaluation were investigated. An integrated experimental approach using two Non-Hypothetical Discrete Choice Experiment (NH-DCE) was carried out before and after a hedonic evaluation test. Results showed that the health innovative products (ITPP) received similar and even lower WTP than the “control” products (TPP) from the untapped pig breeds. The TPP outperformed products enriched with healthy ingredients or with reduced undesirable compounds. The potential demand for traditional and “unaltered” product from the rustic pig breeds could contribute to their conservation. A market niche exists, where consumers appreciate these high-quality products and where no “add-ons” are required to enhance their uptake.info:eu-repo/semantics/acceptedVersio