Persistence Characteristics of Latin American Financial Markets

The financial rates of return from Latin American stock and currency markets are found to be non-normal, non-stationary, non-ergodic and long-term dependent, i.e., they have long memory. The degree of long- term dependence is measured by monofractal (global) Hurst exponents from wavelet multiresolution analysis (MRA). Scalograms and scalegrams provide the respective visualizations of these wavelet coefficients and the power spectrum of the rates of return. The slope of the power spectrum identifies the Hurst exponent and thereby the degree of scaling dependence that cannot be determined by Box-Jenkins type time series analysis. Our dependency and time and frequency scaling results are consistent with similar empirical findings from American, European, and Asian financial markets, extending the domain of the empirical investigation of the dynamics and risk characteristics of financial markets and refuting the hypothesis of perfectly efficient markets.financial markets, long memory, Hurst exponent, scalegram, wavelets, multiresolution analysis, measurement accuracy

Internal capital networks as a source of MNC competitive advantage: Evidence from foreign subsidiary capital structure decisions

This paper documents multinational company (MNC) strategic advantages arising from its internal financial network. Using data from US multinational company affiliates in 62 countries, we show that MNC affiliates in countries with low credit availability, poor creditor protections, high political risks, and high inflation are found to bear high interest costs and multinational affiliate debt ratios are high in high tax countries. In addition, affiliates in countries with high (low) credit availability, a high (low) corruption index, low (high) political risks and high (low) currency depreciation are found to carry high external (parent) debt ratios. We also find that currency depreciation, credit availability, and location in common law countries are negatively associated with the use of parent (relative to external) debt. Thus, our findings suggest that affiliates substitute external debt with parent debt using internal capital markets to overcome weak external financial markets and institutional environments. This is important evidence of the strategic competitive advantage based on financial networks enjoyed by MNCs.

Factors in multinational valuations: Transparency, political risk and diversification

This paper examines the role of geographic diversification, transparency, and political risk, in the determination of the value of multinational corporations (MNCs). Using alternative measures for geographic diversification, this paper finds the evidence supporting the positive effect of the degree of multinationality on the firm value. The evidence also provides support for the theories that argue that political risk and transparency have negative impact on the MNC value.Multinationals Valuation Transparency Geographic diversification Political risk