Essays in international finance.

ADR share prices tend to deviate from their parity values under foreign ownership restrictions and other capital barriers. Time series of ADR premiums or discounts under such capital barriers provide an opportunity to examine the existence of a U.S. specific factor or U.S. investor sentiment. The first chapter studies a sample of ADRs from emerging countries and finds that ADR premium changes tend to comove with the aggregate U.S. market returns. This result suggests the existence of a U.S. specific factor or U.S. investor sentiment, echoing Bodurtha, Kim and Lee's result in their study of closed-end country fund premiums. The second chapter studies the equity home bias puzzle by examining international portfolios recommended by institutional investors. These recommended portfolios from the Economist quarterly poll allow us to isolate the role of information asymmetry in international portfolio investments. The results show that home bias is observed both in the level of portfolio holdings and in the frequency of portfolio adjustments. Specifically, institutions recommend their home markets more than they do foreign markets and they change their home market weights more frequently than they change foreign market weights. The evidence in this study is consistent with the information asymmetry story of home bias.Ph.D.Business administrationFinanceSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/132898/2/9990995.pd

Payout policy and cash-flow uncertainty

The importance of cash-flow uncertainty in payout policy has received little attention in empirical studies, while survey studies such as [Lintner, J., 1956. Distribution of incomes of operations among dividends, retained earnings, and taxes. American Economic Review 46, 97-113.] and [Brav, A., Graham, J., Harvey C., Michaely, R., 2005. Payout policy in the 21st century. Journal of Financial Economics 77, 483-527.] indicate its importance. With worldwide firm-level data, we present evidence that cash-flow uncertainty is an important cross-sectional determinant of corporate payout policy. Our results show that across countries, cash-flow uncertainty, as proxied by stock return volatility, has a negative impact on the amount of dividends as well as the probability of paying dividends. The impact of cash-flow uncertainty on dividends is generally stronger than the impact of other potential determinants of payout policy--such as the earned/contributed capital mix, agency conflicts, and investment opportunities. We also find that the effect of cash-flow uncertainty on dividends is distinct from the effect of a firm's financial life-cycle stage.Cash-flow uncertainty Dividend Repurchase

Capital Investment and Earnings: International Evidence

In this paper, we examine dynamic relations between earnings and capital investment in an international context. Using firm level data from 40 different countries, we examine the causality relationships and cumulative impact of lagged earnings (capital investment) on capital investment (earnings) both for individual countries, and for country groups categorized as G7 vs. non-G7, civil law vs. common law, and financially developed vs. undeveloped. Overall, we find that earnings Granger-cause investment, and there is weaker evidence on the causation in the reverse direction. There are differences between G7 vs. non-G7, financially developed vs. undeveloped, and civil law vs. common law groups. Our results suggest that internal financing is a significant constraint for investment for most countries, and that legal environment (e.g., corporate governance) and financial development are important in the profitability of capital investment. The results are robust to including year dummies, using cash flows in place of earnings, and using changes in the variables in lieu of levels