Investability and Firm Value

We study how investability, or openness to foreign equity investors, affects firm value in a sample of over 1,400 firms from 26 emerging markets. We find that, on average, investability is associated with a 9% valuation premium (as measured by Tobin's q). However, in firm-fixed effects regressions this valuation premium disappears, suggesting that investability does not have a causal effect on firm value. Analysis of the components of Tobin's q shows that firms that become investable experience significant increases in both market values and physical investment. These effects are strongest for firms that face country-level or firm-level financial constraints prior to becoming investableFinancial liberalization; Investability; Foreign investors; Tobin's q

Cronyism and Capital Controls: Evidence from Malaysia

The initial impact of the Asian financial crisis in Malaysia reduced the expected value of government subsidies to politically favored firms. Of the estimated $60 billion loss in market value for politically connected firms from July 1997 to August 1998, roughly 9$5 billion gain in market value for Mahathir-connected firms during September 1998, approximately 32% was due to the increase in the value of their connections. The evidence suggests Malaysian capital controls provided a screen behind which favored firms could be supported.

Propping and Tunneling

In countries with weak legal systems, there is a great deal of tunnelling by the entrepreneurs who control publicly traded firms. However, under some conditions entrepreneurs prop up their firms, i.e., they use their private funds to benefit minority shareholders. We provide evidence and a model that explains propping. In particular, we suggest that issuing debt can credibly commit an entrepreneur to propping, even though creditors can never take possession of any underlying collateral. This helps to explain why emerging markets with weak institutions sometimes grow rapidly and why they are also subject to frequent economic and financial crises.

Determinants of Vertical Integration: Finance, Contracts, and Regulation

We study the determinants of vertical integration in a new dataset of over 750,000 firms from 93 countries. Existing evidence suggests the presence of large cross-country differences in the organization of firms, which may be related to differences in financial development, contracting costs or regulation. We find cross-country correlations between vertical integration on the one hand and financial development, contracting costs, and entry barriers on the other that are consistent with these "priors". Nevertheless, we also show that these correlations are almost entirely driven by industrial composition; countries with more limited financial development, higher contracting costs or greater entry barriers are concentrated in industries with a high propensity for vertical integration. Once we control for differences in industrial composition, none of these factors are correlated with average vertical integration. However, we also find a relatively robust differential effect of financial development across industries; countries with less-developed financial markets are significantly more integrated in industries that are more human capital or technology intensive.

The Value of Connections in Turbulent Times: Evidence from the United States

We thank Isil Erel, Taylor Nadauld, and René Stulz for sharing data. For helpful comments we thank Josh Angrist, Caroline Hoxby, Suresh Naidu, Francesco Trebbi, and people who provided comments during or after our talks at MIT, Northwestern, Harvard Business School, the International Monetary Fund, the University of Alberta, BYU, Yale, the University of California at Berkeley, and the 2012 Econometric Society meetings. We are also grateful for constructive suggestions from some former officials.The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner’s confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small network of financial sector executives during a time of acute crisis and heightened policy discretion

ARMADA Middleware and Communication Services

Real-time embedded systems have evolved during the past several decades from small custom-designed digital hardware to large distributed processing systems. As these systems become more complex, their interoperability, evolvability and cost-effectiveness requirements motivate the use of commercial-off-the-shelf components. This raises the challenge of constructing dependable and predictable real-time services for application developers on top of the inexpensive hardware and software components which has minimal support for timeliness and dependability guarantees. We are addressing this challenge in the ARMADA project.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/48061/1/11241_2004_Article_204024.pd