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The purpose of this study is to gain some insights into how managers perceive and achieve financial flexibility and its value in coping with the 2008 global financial crisis. The study focuses on the following questions: What are the sources and measures of financial flexibility? Do financially flexible firms suffer a lower impact from the crisis? Is financial flexibility related to business flexibility? and Is financial flexibility important for the firm's capital structure decision?

This paper employs two methods: a questionnaire survey and interviews with chief financial officers (CFOs). The results are used to examine the relation between the firm's financial flexibility level and the impact of the global financial crisis on its liquidity, investments, capital structure and business operations. The results are used to analyze the robustness of different financial flexibility measures constructed from the survey data to identify an appropriate financial flexibility measure.

The main finding is that firms with high financial flexibility suffer lower impact from the crisis. The results show that firms with greater internal financing are likely to have lower leverage, higher cash ratios, and suffer a lower impact from the crisis on their business operations. The analysis indicates that an index based on the firm's leverage, liquidity, and operating ratios, similar to the Altman Z‐score, might be a better financial flexibility measure than long‐term debt ratio. The evidence also suggests that financial flexibility is a part of the firm's business strategy and is important for its capital structure decisions.

A major challenge for researchers is how to measure the firm's financial flexibility level, as it is unobservable and difficult to quantify. The innovation of this paper is to directly ask managers about the firm's financial flexibility, from both internal and external financing, construct several financial flexibility variables based on the survey data, and examine their correlations with the global financial crisis impact, to identify a robust financial flexibility measure. The research also provides unique data to investigate the value of financial flexibility during a severe credit crisis.

Evaluation of the foreign listing decision involves many complexities since it impacts a firm's financing, investment, and marketing decisions. In this paper, we identify major costs and benefits of foreign listing based on the available evidence and suggest evaluation of the foreign listing decision using an Adjusted Present Value method. We also discuss implications of some recent regulatory changes on the costs and benefits of foreign listing.

The financial crisis starting in 2008 made many European countries opt for a change of exchange rate regime. The choice of price measure as an entry requirement to the European Economic and Monetary Union (EMU) and as input in the monetary policy decision process re‐appeared as an important political and research issue. This paper aims to argue that, considering the importance of producer prices in international competition, their role is underplayed by policy makers and researchers.

Producer prices are analyzed in the transition from national exchange‐rate regimes to the EMU for 13 two‐digit manufacturing sectors in the first 11 countries to adopt the Euro.

It was found that significant price convergence before 1993‐1998, but no or modest evidence of convergence after 1998‐2005 when the Euro was introduced. This pattern is partly different from what prior studies have found for consumer prices, and is consistent with the change of exchange rate regime to a monetary union anchoring inflation rates. A conditional β‐convergence analysis reveals effective exchange‐rate changes and differences in cyclicality as important determinants of price convergence, suggesting that import of inflation is an important determinant of price developments in the EMU.

The paper concludes that considering the role of producer prices and their deviating pattern from consumer prices, producer prices are underplayed in the research and deserve more attention. It is argued that increased attention to producer prices is warranted.

Focusing monetary policymaking on consumer prices alone appears inefficient. Rather, then, support for the trade‐off approach in monetary policy‐making is supported.

In considering different solutions to the financial crisis, increasing attention should be paid to the development of producer prices.

This is the first study to focus on producer prices in the research on the transition from a national exchange rate regime to a membership of a monetary union.

This paper aims to extend the Fama and French (FF) three‐factor model in studying time‐varying risk premiums of Sector Select Exchange Traded Funds (ETFs) under a Markov regime‐switching framework.

First, the original FF model is augmented to include three additional macro factors – market volatility, yield spread, and credit spread. Then, the FF model is extended to a model with a Markov regime switching mechanism for bull, bear, and transition market regimes.

It is found that all market regimes are persistent, with the bull market regime being the most persistent, and the bear market regime being the least persistent. Both the risk premiums of the Sector Select ETFs and their sensitivities to the risk factors are highly regime dependent.

The regime‐switching model has a superior performance in capturing the risk sensitivities of the Sector Select ETFs, that would otherwise be missed by both the FF and the augmented FF models.

This is the first research on Sector Select ETFs with Markov regime switching.

The purpose of this paper is to investigate the relationship between liquidity and credit risk, and employ the findings to estimate the Incremental Risk Charge (IRC), the new credit risk capital add‐on introduced by the Basel Committee for banks' trading books. The IRC estimates are compared with stressed market risk measures, derived from a sample of corporate bond indices encompassing the recent financial crisis. This can determine the extent to which trading book capital would change in stress conditions, under newly proposed rules.

The Basel II and the proposed Basel III capital requirements for banks' trading books, with a sample of bond portfolios, are implemented.

The findings show that, although the (incremental) credit risk in the trading book may be considerable, the capital needed to absorb market risk‐related losses in stressed scenarios can be more than ten times larger.

The data, methodology and purpose are all original.

This paper investigates the determinants of the capital structure of large corporations headquartered in the United States and Korea. We consider five explanatory variables: profit, company size, non‐debt tax shields, growth, and business‐risk, along with several industry indicator variables as independent variables and examine, for each country, the relationship to market value based leverage ratio. With our rigid criteria for inclusion in the study, we study the top thirteen companies (by size) in each of seven industries. The majority of our findings indicate that we can generalize to Korea what has been found for Japanese companies/industries relative to the U.S.

We examine the entry mode choice for Canadian firms entering the United States (U.S.). Entry options are categorized into three competing modes: mergers and acquisitions; joint ventures; and subsidiaries. The unit of analysis is the foreign direct investment (FDI) transaction between a Canadian firm and an American counterpart during the period from January 1980 through December 1989. Using canonical discriminant analysis, we develop a set of variables that characterize the entry mode choice. We find transaction specific information available to senior management provides important information regarding the entry mode choice. The importance of mergers and acquisitions is particularly apparent over this sample period. Empirical evidence strongly supports our measures of resource commitment, dissemination risk, and liquidity position as important measures determining mode of entry. Joint ventures display meaningful differences related to these measures in contrast to both mergers and acquisitions, and subsidiary investments.

The purpose of this paper is to examine how a firm’s investment behavior relates to its subsequent bank loan contracting.

Using a sample of US firms during the period 1992-2011, the authors examine the association between overinvestment (underinvestment) and three characteristics of bank loan contracts: loan spread, collateral requirement, and loan maturity.

The authors find that overinvesting firms obtain loans with higher loan spreads. Additional tests show that the effect of overinvestment on loan spreads is generally more pronounced in firms with lower reputation, weaker shareholder rights, and lower institutional ownership. The effect of overinvestment on collateral requirement is mixed, and investment efficiency has no significant relation to loan maturity.

The results are subject to the following caveats. First, while the study provides empirical evidence that investment efficiency affects bank loan contracting terms, especially the cost of bank loans, the underlying theory is not well-developed. The authors leave it up to future research to provide a theoretical framework to clearly distinguish the cash flow and credit risk effects of past investment behavior from those of existing agency conflicts. Second, due to data limitation, the sample size is small, especially when the authors control for corporate governance measured by G-index and institutional ownership.

The finding that overinvestment is costly to corporations suggests that managers should consider the potential trade-offs from such investment decisions carefully. The evidence also alerts shareholders and board members to the importance of monitoring management investment decisions. In addition, the authors find that corporate governance moderates the relationship between investment decisions and cost of bank loans, suggesting that it would be beneficial to design effective governance mechanisms to prevent management from empire building and motivate managers to pursue efficient investment strategies.

First, the findings enhance understanding of the potential economic consequences of overinvestment decisions in the context of a firm’s private debt contracting. The evidence suggests that lenders perceive higher credit risk from overinvestment than from underinvestment, likely because firms squander cash in the current period by investing in (negative net present value) projects that are likely to result in future cash flow problems. Second, the study contributes to the literature on the determinants of bank loans by identifying an observable empirical proxy for uncertainty in future cash flows that increases credit risk.