The interaction between Export and FDI: Central-Eastern Europe and EU15

Historically, FDIs have long been considered as an alternative means for firms to internationalize. According to this line of thought, a substitution relationship between exports and FDIs would be expected. However, recent developments in new trade theory, emphasize that exports and FDIs can be positively correlated. On the home country side, the relevant question is whether national share of exports towards destination markets has been affected by FDIs undertaken in the same, in other words whether outward FDI raises or lowers home country exports. Taking into account that the prevalent type of FDI seems to be horizontal, we would expect that a substitution relationship prevails in empirical findings. This study adds to previous work presenting a review of the existing theoretical and empirical studies and underlining the discrepancy between the two. Finally, it tests the relationship between FDI and exports bilateral flows from EU15 towards CEEC countries using an extended gravity approach that includes labour costs. The results support the complementarity' hypothesis.FDI, Multinational enterprises, Gravity Model, Europe.

FDI and Growth in Central and Southern Eastern Europe

This paper examines the role of FDI in promoting growth in 25 Central and Southern Eastern Europe (CSEE) using a dynamic panel approach that includes lags of involved variables to mitigate the problem of serial correlation. It adopts also a ‘general-to-specific' approach to deal with the problem of the omitted variable and uses different estimation methods to control for heterogeneity and autocorrelation. The main finding is that FDI has a positive and significant impact on economic growth in accordance with theory.Foreign Direct Investment, economic growth, transition economies.

What Do Outside Directors Know? Evidence From Outsider Trading

Sarbanes-Oxley and other regulatory reform have advocated to put more outsiders on the board. The rationale of this measure is that outsiders are more independent, while a potential drawback is that they might not know enough about the firm to be effective monitors. Having information about the firm is a necassary condition to be an effective monitor. This paper investigates whether outside directors have information about the firm and its conditions. Using a comprehensive sample of executives' and board of directors' transactions from 1986 to 2003 in U.S. companies, we compare the trading profits of three types of individuals: (i) insiders (executives of the firm), (ii) non executive directors who are large blockholders, and (iii) directors who are neither employees of the firm, nor large blockholders (outside directors). Insiders and outside directors earn higher abnormal returns than the market. Insiders generally perform better than outsiders in purchases transactions. These results suggest that outside directors do have substantial inside information about the firm, even though they know less than the executives. We also find that in better governed firms the difference in performance between outsiders' and insiders' returns is lower, suggesting that firms with better governance structure may have better mechanism in place that allows outsiders to receive more informationEmpirical Corporate Governance; Monitoring; Insider Trading

The Real Effects of Investor Sentiment

We study how stock market mispricing might influence individual firms' investment decisions. We find a positive relation between investment and a number of proxies for mispricing, controlling for investment opportunities and financial slack, suggesting that overpriced (underpriced) firms tend to overinvest (underinvest). Consistent with the predictions of our model, we find that investment is more sensitive to our mispricing proxies for firms with higher R&D intensity suggesting longer periods of information asymmetry and thus mispricing) or share turnover (suggesting that the firms' shareholders are short-term investors). We also find that firms with relatively high (low) investment subsequently have relatively low (high) stock returns, after controlling for investment opportunities and other characteristics linked to return predictability. These patterns are stronger for firms with higher R&D intensity or higher share turnover.

Does local financial development matter?

We study the effects of differences in local financial development within an integrated financial market. We construct a new indicator of financial development by estimating a regional effect on the probability that, ceteris paribus, a household is shut off from the credit market. By using this indicator, we find that financial development enhances the probability an individual starts his own business, favors entry of new firms, increases competition, and promotes growth. As predicted by theory, these effects are weaker for larger firms, which can more easily raise funds outside of the local area. These effects are present even when we instrument our indicator with the structure of the local banking markets in 1936, which, because of regulatory reasons, affected the supply of credit in the following 50 years. Overall, the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements

Trusting the stock market

We provide a new explanation to the limited stock market participation puzzle. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function not only of the objective characteristics of the stock, but also of the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. The calibration of the model shows that this problem is sufficiently severe to account for the lack of participation of some of the richest investors in the United States as well as for differences in the rate of participation across countries. We also find evidence consistent with these propositions in Dutch and Italian micro data, as well as in cross country data. Klassifikation: D1, D