Empirical Analysis of Macro-Level Factors Leading to Companies’ Undervaluation in Emerging Financial Markets

Abstract

The article presents an empirical research of macro-level value factors in emerging markets. Quantitative analysis is offered of institutional environment’s maturity, infrastructure and economy structure influence on the value of companies and well-being of the countries as a whole. Despite certain disenchantment on the part of general public and active criticism by some prominent academics strategic value creation remains the major goal of corporate management throughout the market-oriented world. It is ever more important for developing market economies severely hurt by recent financial crisis. By no means being a panacea, fundamental value creation combined with stakeholder approach to corporate finance provide a solid brick in the foundation of the wall supporting social and political stability for the countries where sustainable democratic traditions are exception rather than a rule. In order not to be overwhelmed by the “nothing to lose” majority whose ability to create a civilized society was well illustrated by the Russian revolution of 1917, the developing market economies have no other choice but to support sustainable value creation. The sustainability of growth in financial asset value is dependent on a number of macro-level factors; the character of this dependence constitutes the subject of our research. The quantitative study of interdependence between companies’ value and the level of institutional development is of particular importance for Russia with its modernization agenda and declaration of political will for improvement of investment climate.