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Article
Publication date: 7 October 2014

Peng Wang

This paper addresses the topic “The interaction between financial institutions and firms in the nonfinancial sectors” in the special issue of “Banking and finance in…

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Abstract

Purpose

This paper addresses the topic “The interaction between financial institutions and firms in the nonfinancial sectors” in the special issue of “Banking and finance in China.” The purpose of this paper is to examine the trading behavior and price effects of foreign institutions under the celebrated Qualified Foreign Institutional Investor (QFII) scheme on all non-financial firms in the Chinese A-share markets.

Design/methodology/approach

Using quarterly equity-level foreign institution transactions from 2005Q1 to 2011Q4 in the Chinese A-share market, the author finds a positive and significant contemporaneous relationship between foreign flows and equity returns. For each quarter, the author sorts the stocks into ten portfolios based on the percentage of foreign flows, and employs the bivariate vector autoregression (VAR) model to examine the contemporaneous association in detail.

Findings

Foreign institutions in the Chinese A-share markets do not show positive or negative feedback trading; however, their flows have a strong impact on future equity returns because of informational advantage. Additionally, different associations are found between foreign flows and equity returns.

Research limitations/implications

Constraints on data availability exist, and a quarterly dimension is too coarse to provide a statistically precise result, although certain related papers use quarterly dimension data. Further research is required using higher frequency data.

Originality/value

This paper provides a first look at foreign institution trading patterns and price effects on local equity returns in the Chinese A-share markets. Additionally, the equity level data allow the author to exclude the stocks that were not bought by foreign institutions and to detect the “pure effect” of foreign flows on equity returns.

Article
Publication date: 1 March 2013

Joseph J. French and Vijay Kumar Vishwakarma

The purpose of this paper is to dissect the dynamic linkages between foreign equity flows, exchange rates and equity returns in the Philippines.

Abstract

Purpose

The purpose of this paper is to dissect the dynamic linkages between foreign equity flows, exchange rates and equity returns in the Philippines.

Design/methodology/approach

Using a parsimonious SVARX‐GARCH model and unique daily equity flow data, this research models the relationship between net equity flows, conditional variance of stock returns and conditional variance of exchange rates.

Findings

The authors find several noteworthy results, which are unique to this study and several results that confirm existing literature. Much of existing literature on foreign equity flows into emerging economies find that foreign equity investors are trend chasers and equity flows are auto correlated. The authors confirm these finding in the Philippines and document two new and important findings. First, it was found that unexpected increases in foreign equity flows to the Philippines increases the conditional volatility of the Filipino stock market significantly over the next two weeks of trading. The second major finding is that unexpected shocks to foreign equity flows sharply increases the conditional variance of the USD/PHP exchange rate over the next two to three weeks of trading.

Practical implications

Taken together, the results indicate that foreign equity investment, while providing many benefits for small open economies such as the Philippines, does in the short run increase the conditional variance of both the equity market and exchange rates. Policy makers must weigh the benefits of increased risk sharing and the potential for lower costs of capital with the short‐run potential for increase swings in asset prices.

Originality/value

This paper is one of the only studies of its kind to test the impact of foreign equity flows on the conditional volatility of returns and exchange rates.

Details

Studies in Economics and Finance, vol. 30 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 1 May 2002

Doren D. Chadee

This paper investigates the foreign ownership structure of service equity joint ventures (EJVs) in China. In less than 20 years, China has emerged from a closed economy to…

4028

Abstract

This paper investigates the foreign ownership structure of service equity joint ventures (EJVs) in China. In less than 20 years, China has emerged from a closed economy to become the second largest recipient of foreign direct investment (FDI) in the world. Now that China is a member of the World Trade Organisation, liberalisation of FDI is expected to accelerate even further. Despite the fact that an increasing proportion of FDI in China is in the form of equity joint ventures in the service sector, little is known of the ownership structure of service EJVs. Using a database of 6,430 foreign EJVs, in China from 1984 to 1996, this paper shows that foreign equity ownership differs significantly between service and manufacturing EJVs with foreign ownership generally being higher in service EJVs. The overall results also suggest that the gradual liberalisation of FDI in the service sector by Chinese authorities has had a positive effect on foreign equity ownership.

Details

International Journal of Service Industry Management, vol. 13 no. 2
Type: Research Article
ISSN: 0956-4233

Keywords

Article
Publication date: 5 October 2010

Qiangbing Chen, Yali Liu and Lu Jiang

The paper aims to study the impact of cultural differences on the ownership structure of international joint ventures in China. It is reasoned that foreign investors, when…

1867

Abstract

Purpose

The paper aims to study the impact of cultural differences on the ownership structure of international joint ventures in China. It is reasoned that foreign investors, when faced with larger culture‐related investment uncertainties, may have the incentive to acquire more control rights to contain the risks by acquiring more equity shares in the joint ventures.

Design/methodology/approach

Data on international joint ventures in China were used to test the theory. The data contain 941 observations from Beijing, Shanghai, Shenzhen and Tianjing, covering a 13‐year time span. Pooled ordinary least square is used in the model estimation.

Findings

Cultural distance between China and foreign countries was found to increase the foreign equity share in the joint ventures, a finding contrary to traditional view. In addition, it was found that cultural distance in different dimensions does not play an equal role in affecting foreign equity shares. Last, there is significant evidence that the allocation of ownership between foreign and domestic investors in the joint ventures is influenced by the investor's relative importance in supplying different types of resources.

Originality/value

The paper introduces a new perspective into the study of culture and international joint venture. Foreign investors may be able to reduce investment risk by increasing equity shares, which gives them more internal control, in international joint ventures. In contrast, the traditional view is that larger cultural distance tends to discourage foreign equity ownership.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 3 no. 3
Type: Research Article
ISSN: 1754-4408

Keywords

Article
Publication date: 9 March 2010

Athanasios Koulakiotis, Katerina Lyroudi, Nikos Thomaidis and Nicholas Papasyriopoulos

The purpose of this paper is to examine volatility transmissions between portfolios of cross‐listed equities and exchange rate differences and also the volatility…

762

Abstract

Purpose

The purpose of this paper is to examine volatility transmissions between portfolios of cross‐listed equities and exchange rate differences and also the volatility persistence for home, foreign equities, and exchange rate differences in the UK and German markets.

Design/methodology/approach

A primary focus of this paper is to see if there is an impact first on the volatility persistence for foreign equities that are listed in the UK and German markets, second on the respective home portfolios of cross‐listed equities, and third on the exchange rate differences. In addition, whether there are any bilateral spillovers between the following equity portfolios: foreign cross‐listed equities, home cross‐listed equities, and also local or global exchange rate differences are investigated.

Findings

The paper finds that the volatility persistence is more prominent than error persistence from cross‐listed equities, foreign or home, and the exchange rate differences. Furthermore, the transmission mechanism indicates a bilateral integration process in some of the cases that were examined. Based on these results, it is concluded that in the UK market the foreign cross‐listings affect less the domestic equities compared to the German market.

Originality/value

This paper examines the interdependence of portfolios of home and foreign equities for cross‐listings that belong to the same stock exchange with two exchange rates, a local and a global one in order to provide more evidence in this area of literature.

Details

Studies in Economics and Finance, vol. 27 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 2 August 2011

Joseph J. French and Nazneen Ahmad

The purpose of this paper is twofold; first, to understand the long‐run dynamics between returns, valuation measures and foreign investment in the USA; second, to…

Abstract

Purpose

The purpose of this paper is twofold; first, to understand the long‐run dynamics between returns, valuation measures and foreign investment in the USA; second, to determine if these dynamics change following financial market upheaval.

Design/methodology/approach

To address long‐run dynamic nature of the variables, multivariate autoregressive models are fitted for the period of January 1977 to November 2008. To gain additional insight about the nature of equity flows its dynamics are analyzed over the periods containing the 1987 stock market crash and the two major asset bubbles, e.g. internet bubble and the housing bubble.

Findings

The authors find that foreign institutional equity flows are more sensitive to innovations in valuation measures than innovations to excess US market returns; and that foreign investors increase their purchases of US market capitalization following a positive innovation to measures of valuation. The results imply that the behavior of foreign institutional investors are not described by “return chasing” alone. The authors further find that in times of increased uncertainty the joint dynamics between foreign equity flows and valuation measures decouples. Finally consistent with existing literature it was found that equity flows to the USA are autocorrelated.

Originality/value

There is a broad literature on the dynamics of US investment in emerging and developed markets, but very little (if any) research that analyzes the dynamics of equity flows to the US, returns, and measures of valuation. Furthermore, the literature on the behavior of equity flows surrounding financial crises is scant, particularly for developed markets.

Details

Studies in Economics and Finance, vol. 28 no. 3
Type: Research Article
ISSN: 1086-7376

Keywords

Book part
Publication date: 1 June 2005

Stephen P. Ferris and Kwangwoo Park

We find a significant curvilinear relation between Japanese firm value and the percentage of equity held by foreign investors. Firm value rises until foreign ownership…

Abstract

We find a significant curvilinear relation between Japanese firm value and the percentage of equity held by foreign investors. Firm value rises until foreign ownership reaches approximately 40%, and then it begins to decline. It appears that large foreign institutional investors invest in well-performing firms and serve as effective monitors. Our results remain robust even after controlling for other corporate governance variables, such as equity ownership by main banks and board membership by foreign investors. It seems that most of the increase in firm value and the performance improvement are due to rising levels of equity ownership in non-keiretsu (independent) firms by foreign investors. We also show that an increase in foreign ownership is correlated with a rise in R&D expenditures, suggesting that foreign institutional investors contribute to the long-term viability and competitiveness of Japanese firms.

Details

Corporate Governance
Type: Book
ISBN: 978-0-7623-1187-3

Article
Publication date: 11 March 2004

Tao Gao

This paper delves into the mechanism of the contingency framework for foreign entry mode decisions and identifies two essential tasks that jointly determine the outcome of…

Abstract

This paper delves into the mechanism of the contingency framework for foreign entry mode decisions and identifies two essential tasks that jointly determine the outcome of the entry mode decision. It then recognizes a critical weakness in previous research pertaining to the comparison of entry modes along a key decision criterion, the degree of control. Existing studies generally treat equity involvement as the only source of entrant control, while largely ignoring non‐equity sources of control (i.e., bargaining power and trust). Non‐equity sources of control, when underutilized, amount to missed opportunities, increased resource commitments, and heightened risk exposures in foreign markets. Drawing from a pluralism perspective in transaction and relationship governance, the author presents a more integrative method for the ranking of entry modes along the degree of control. The central message is that companies entering foreign markets should make an earnest effort to identify trust and bargaining power situations and fully utilize their control potential in making entry mode decisions.

Details

Multinational Business Review, vol. 12 no. 1
Type: Research Article
ISSN: 1525-383X

Keywords

Article
Publication date: 11 April 2016

Katharina Laufs, Michael Bembom and Christian Schwens

Using arguments from the upper echelons perspective this paper aims to examine the impact of CEO characteristics on small and medium-sized enterprises’ (SMEs’) equity

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Abstract

Purpose

Using arguments from the upper echelons perspective this paper aims to examine the impact of CEO characteristics on small and medium-sized enterprises’ (SMEs’) equity foreign market entry mode choice and how these associations are jointly moderated by geographic experience of the firm and host-country political risk.

Design/methodology/approach

The empirical analysis draws on data gathered from German SMEs testing triple-interaction effects between CEO’s age, firm tenure and international experience, geographic experience of the firm (organizational level), and host-country political risk (environmental level).

Findings

Empirical findings validate that the influence of CEO’s age and firm tenure on SME foreign market entry mode choice varies by managers’ level of managerial discretion (i.e. latitude of action) as determined by the SME’s geographic experience and the level of political risks prevailing in the foreign market.

Practical implications

Empirical findings help SME owners and managers to understand how CEO’s age and firm tenure are related with individual’s risk-taking behavior and information-processing demands and how these contingencies vary by the context in which the individual CEO is nested.

Originality/value

This study contributes to the growing body of literature focussing on SME foreign market entry mode choice by emphasizing the important role of CEOs in the decision to internationalize. More specific, this study contributes by an examination of the interactive effect of CEO’s age, firm tenure and international experience, geographic experience of the firm and host-country political risk and, therefore, emphasizes the context and boundary conditions under which the association between CEO characteristics and foreign market entry mode choice is more or less pronounced.

Details

International Marketing Review, vol. 33 no. 2
Type: Research Article
ISSN: 0265-1335

Keywords

Article
Publication date: 28 October 2001

Mohammad S. Bazaz and David L. Senteney

This study uses an equity valuation model to investigate the extent to which SFAS No. 52 unrealized foreign currency translation gains and losses are reflected in levels…

251

Abstract

This study uses an equity valuation model to investigate the extent to which SFAS No. 52 unrealized foreign currency translation gains and losses are reflected in levels of equity security prices. Equity security price is used as the dependent variable in our selected model. Book value of equity (adjusted for the cumulative translation gain or loss), earnings, and cumulative translation gains and losses are used as independent variables. Our results indicate that, generally, translation gains and losses are valued, but losses have a greater impact than gains and the value seems to change over time in setting the levels of equity share prices of USbased MNCs. On a pooled basis, the results are clearly statistically significant, although the statistical significance of the results appears to vary with the annual time period examined. Our results are consistent with the SFAS No. 52 intention that these gains and losses be treated as unrealized as the net exposure is considered long‐term in nature for foreign currency functional currency subsidiaries. Our results appear consistent with extant literature suggesting that unrealized foreign currency translation gains and losses are directly valued ‐ although not dollar for dollar ‐ in a manner similar to earnings (i.e., unrealized gains are associated with positive equity returns and unrealized losses are associated with negative equity returns).

Details

American Journal of Business, vol. 16 no. 2
Type: Research Article
ISSN: 1935-5181

Keywords

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