Foreign Capital Market Research Articles

The Influence of The Asean Regional Capital Market on Asean-5 Countries' Foreign Exchange Reserves

The capital market sector is one area of economic activity that is expected to grow significantly following the adoption of the ASEAN Economic Community (AEC). As a result, integrating capital market activity in the ASEAN area must be a top priority in AEC implementation. The essential criterion for creating a seamless flow of cash and investment is the integration of ASEAN countries' capital markets. The total worth of all outstanding shares based on their normal closing price is reflected in the stock market capitalisation. A rise in the value of market capitalization indicates that the capital market is expanding. Capital flows into and out of the capital market are thought to have altered the value of foreign exchange reserves. Foreign capital market investment contributes to a balanced balance of payments. Foreign capital not only serves to cover the deficit in domestic capital that domestic savings cannot fill, but it also helps to fill the emptiness in the foreign exchange gap through asset sales.

International practice analysis of the negative list: Chinese Example of shipping market access

The international shipping industry is unique and important. The negative list related to the opening up of the shipping industry is an important part of the reform and innovation of China’s pilot free trade zones. In recent years, as countries around the world continue to promote the process of opening up in the fields of trade and services, the negative list system has been used more in international investment and trade agreements. In the field of International Shipping, how to correctly grasp and apply the negative list system is an important topic. Starting with the general concept of the negative list system of shipping market access, this paper reviews and summarizes the developmental processes of the negative list of foreign capital market access in the shipping field since the establishment of Shanghai Pilot Free Trade Zone. It compares and analyzes the international contracting practice of the European Union and the United States as reflected in the negative list of shipping market access. It equally points out that the system connection between the negative list still existing in China’s shipping field and the international high standard negative list is not enough. It argues that the transparency of the negative list still needs to be further strengthened, as the rules behind the list and the awareness of its risk prevention are weak. In view of these hitches, this paper makes some suggestions that are tilted towards improving the negative list system of China’s shipping market access. It also continues the optimization of the negative list of shipping market access and the improvement of a conscious awareness aimed at avoiding the possible risks of the negative list. Finally, it makes a strong argument for a continuous improvement of China’s international shipping competitiveness.

A földrajzi tér által kínált kockázatcsökkentési lehetőségek magyarországi perspektívából

This study illustrates the effectiveness of geographical diversification using mainly domestic and foreign capital market data. The paper uses twenty-five years of historical capital market prices to show how the neglect of geographical diversification results in a deterioration in investment decision-making. The study shows that even the world’s largest capital markets are worth investing in cross-border capital markets because geographical spatiality can offer significant diversification benefits.

Auditor liability and excess cash holdings: Evidence from audit fees of foreign incorporated firms

Auditors of foreign cross-listed firms face liability arising from the nature of the institutional monitoring framework of legal claims that can potentially be brought against the auditor in both the home country and the US. This paper is the first to document the relationship between auditor liability and auditor pricing of excess cash holdings for foreign firms cross-listed in the US. Our findings indicate that auditors demand a fee premium for foreign incorporated clients with greater excess cash holdings, consistent with auditors recognizing the potential for legal exposure to agency conflict arising from foreign listed US traded clients. Furthermore, we examine aspects of foreign capital market protections, such as disclosure requirements, the strength of legal enforcement, and the strength of shareholder rights to better understand auditor perception of the liability they incur due to the agency costs associated with excess cash holdings. We find that there is a significant positive association between audit fees and excess cash holdings for firms where the country of incorporation permits greater liability of auditors in criminal and civil litigation. In addition, auditors assign higher audit fees to firms holding greater excess cash incorporated in countries with greater required accounting disclosure, stronger legal enforcement and stronger shareholder rights.

The evolution of corporate governance and agency control: the effectiveness of mechanisms in creating value for companies with IPO on the Brazilian stock exchange

PurposeFrom the agency theory’s point of view, this paper aims to analyze corporate governance mechanisms about the characteristics of the companies quoted in the segments Bovespa Mais and Bovespa Mais 2 and their influence on the creation of value in preparation for the opening of the initial public offering (IPO).Design/methodology/approachA quantitative approach was adopted to achieve the proposed objective using the panel data with fixed effects and secondary data collected on the Comissão de Valores Mobiliários website, using statistical software Stata® 13.0 for statistical tests. The population comprises non-financial companies belonging to the Bovespa Mais and Bovespa Mais Level 2 groups, as the survey sample took into account the period of adhesion of the companies, totaled in 15 companies, which cover the period from 2008 to 2019. The selected variables correspond to the ownership structure’s characteristics, then the board’s composition and the fiscal council as the body responsible for supervising the administrators’ acts.FindingsThe main results indicate that the number of independent members on the board of directors and the supervisory board’s participation positively influence market performance. However, it also reveals that the concentration of ownership brings fundraising for other companies’ acquisitions, risk reduction concerning information asymmetry between investing powers.Research limitations/implicationsThe main results indicate that the number of independent members on the board of directors and the supervisory board’s participation positively influence market performance. Despite this, it also reveals that the concentration of ownership brings fundraising for other companies’ acquisitions, risk reduction concerning information asymmetry between investing powers.Practical implicationsThis paper advances a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. This paper finds that internal governance characteristics (founder-chief executive officer, executive incentives and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms.Social implicationsWhile product market choices have been central to strategy formulation for firms in the past, financial markets’ integration makes capital markets an equally crucial strategic decision. This paper advances a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market.Originality/valueThis situation generates value to shareholders and is perceived by the market and, ultimately, generates a direct relationship with the market performance of companies. While product market choices have been central to strategy formulation for firms in the past, financial markets’ integration makes capital markets an equally major strategic decision.

Auditor Liability and Excess Cash Holdings: Evidence from Audit Fees of Foreign Incorporated Firms

Auditors of foreign cross listed firms face liability arising from the nature of the institutional monitoring framework of legal claims that can potentially be brought against the auditor in both the home country and the US. This paper is the first to document the relationship between auditor liability and auditor pricing of excess cash holdings for foreign firms cross-listed in the US. Our findings indicate that auditors demand a fee premium for foreign incorporated clients with greater excess cash holdings, consistent with auditors recognizing the potential for legal exposure to agency conflict arising from foreign listed US traded clients. Furthermore, we examine aspects of foreign capital market protections, such as disclosure requirements, the strength of legal enforcement, and the strength of shareholder rights to better understand auditor perception of the liability they incur due to the agency costs associated with excess cash holdings. We find that there is a significant positive association between audit fees and excess cash holdings for firms where the country of incorporation permits greater liability of auditors in criminal and civil litigation. In addition, auditors assign higher audit fees to firms holding greater excess cash incorporated in countries with greater required accounting disclosure, stronger legal enforcement and stronger shareholder rights.

Financing benefit from exporting: An indirect identification approach

The signaling effect, sales diversification, and diversification of investment funding sources are three mechanisms through which exporting might alleviate financial constraints on a firm. In proposing an indirect identification strategy with application to Chinese privately owned enterprises (POEs), we first examine whether and how firms obtain such financing benefits from exporting. We find that although exporting can alleviate financial constraints, it does so mainly through the mechanism of sales diversification. This finding implies that Chinese POEs can obtain a financing benefit through exporting by improving cash flow stability but not by improving financing status in either the domestic or foreign capital market.

Foreign IPOs in the US: When EO meets Institutional Distance

An increasing number of foreign firms are seeking capital in foreign countries via IPO listings. While much research has discussed the effects of external institutions, little research has systematically analyzed how firm-specific characteristics such as entrepreneurial orientation interacts with institutional factors. In the current study, we investigate how the bundle of external institutions and firm-level EO would together affect IPO performance in a foreign capital market. Findings from data of foreign firms that went public in the U.S. stock market between 2002 and 2012 support our hypotheses. Implications are discussed.

Interest rate autonomy in the presence of exchange rate stability: evidence from 13 selected Asia Pacific countries

ABSTRACTA notable feature of the empirical research on the interest rate autonomy is that very few studies seek to determine whether the use of interest rate policy to fine-tune the exchange rate misalignments has been undermined by sterilised foreign exchange intervention. To overcome this deficiency, this study uses the open-economy Taylor rule as a policy reaction function in a standard macroeconomic model to specify the measures of independent interest rate policy reacts to the exchange rate and examines the empirical validity based on a sample of 13 selected Asia Pacific countries. Using the generalised method of moments, the findings provide some policy implications; the interest rate instrument can serve as a coordinating function to fine-tune the exchange rate misalignments for improving the macroeconomic stability and serve as an external shock absorber to avoid or mitigate impact of instability in the foreign capital market.

Effect Of Liability Of Foreignness And Family Ownership On Cross-Listing Location Choice

Firms incur liability of foreignness (LOF) when they expand their businesses to foreign countries. This study examines the applicability of LOF in the context of financing in a foreign capital market. Using an alternative-specific conditional logit model, we investigate the cross-listing decisions of firms from 28 countries that select among eight target destinations from 1994 to 2008. These firms target capital markets with lower LOF, which is measured by institutional, economic, geographic, and cultural distance. Such preference is particularly stronger for firms with higher levels of family ownership, suggesting family owners’ tendency to be averse to risk is also manifested in financing context.

The precise form of financial integration: Empirical evidence for selected Asian countries

A noteworthy attribute of the empirical studies on financial integration is that many published papers rely on the approximate form of financial integration by studying the degree of regional financial integration. Therefore, the approximate form of financial integration cannot be used to refute the precision of the financial integration simply because of complex data collection procedures and the misspecification of a commonly used model. To overcome this shortcoming, this study uses the precise form to specify the measures of financial integration and examines the empirical validity based on a sample of ASEAN-5 countries plus 3 additional countries. Using the panel error correction method, the findings provide a number of policy implications; the precise form of financial integration can characterise the capital mobility conditions and the degree of sterilised foreign exchange intervention, and serve as a guiding policy instrument for fine-tuning the disruptions in the foreign capital market through sterilised foreign exchange intervention in exchange rate misalignments without abandoning the role of domestic interest rate policy that eventually promotes orderly financial integration.

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

AbstractWhile product market choices have been central to strategy formulation for firms in the past, the integration of financial markets makes the choice of capital markets an equally important strategic decision. We advance a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. We find that internal governance characteristics (founder‐CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Our results suggest foreign IPO firms select a host market where the firms' governance characteristics and third party affiliations fit the host market's institutional environment. Copyright © 2012 John Wiley & Sons, Ltd.

An Endogenous Growth Model of a Financially Repressed Small Open Economy

The paper develops a monetary endogenous growth model of a financially repressed small open economy, characterized by curb markets, capital mobility, transaction costs in domestic and foreign capital markets, and a flexible exchange rate system, to analyze the impact of financial liberalization – interest rate deregulation and lower multiple reserve requirements – on growth and inflation. When the model is calibrated to match world figures, we find that interest rate deregulation enhances growth and reduces inflation in steady-state. For relatively smaller transaction costs in the curb market, the above result is, however, reversed. Under such circumstances, lowering the transaction costs in the foreign capital market tends to restore the growth-enhancing (inflation-reducing) capabilities of interest rate deregulation. Lower reserve requirements, though, always ensures lower (higher) steady-state inflation (growth).

PENGARUH KINERJA PASAR MODAL ASING TERHADAP KINERJA PASAR MODAL INDONESIA

Globalization has facilitated fund-flows from one capital market to other capital markets, thus it has united the capital markets in all countries. The research has a goal to know the impact of foreign capital markets performance to the Indonesian capital market performance. The capital markets performance is measured by stock price indexes of each capital market during two years.            The performance of all capital markets, simultaneously affect the performance of the Indonesian capital market significantly. Partially, however, only a few of foreign capital market performance affect significantly the Indonesian capital market performance. Keywords: performance, index, and capital market.

Financial Frictions and Business Cycles in Middle-Income Countries

A standard DSGE small open economy model can not generate the cyclical regularities of middle-income countries. It predicts excessive consumption smoothing, and procyclical, instead of countercyclical, real net exports. Previous studies have solved this problem by increasing the shocks’ persistence or by lowering the intertemporal elasticity of substitution. This paper tackles the problem by introducing market imperfections relevant for MICs into an otherwise standard model. More specifically, I build a model with limited access to the foreign capital market, identified as an external borrowing constraint, and asymmetric financing opportunities across nontradable and tradable sectors, identified as a sector-specific labor financing wedge. The key parameters associated to these frictions are deduced to replicate selected data for Chile between 1986 and 2004. I find that both frictions are necessary to replicate the cyclical regularities of middle-income countries as they help the model reproduce different features of the data: The external borrowing constraint makes investment and consumption of tradable goods more procyclical and volatile, and makes real net exports countercyclical, while the sector-specific labor financing wedge makes the model reproduce the cyclical moments of work hours and consumption of non tradable goods.

A Global View from a U.S. Exchange

Due to both the sheer amount and the rapid pace of accumulating capital, foreign capital market firms are targeting Asia, specifically China, to uncover growth opportunities. This article focuses on the potential for new business relationships within financial derivatives markets. Enormous financial reserves demand modern financial services. This, in turn, is accelerating demand for modernizing risk management techniques. <b>TOPICS:</b>Global, emerging, derivatives, options

SECURITIZATION: A FINANCING STRATEGY FOR EMERGING MARKETS FIRMS

With emerging markets now in crisis, companies in developing countries are finding it difficult to obtain financing. Securitization, a transaction structure in which the securities sold to investors are backed by a company's receivables, is one of the few vehicles with at least the potential to provide financing at economic rates in the current environment of uncertainty.Unlike U.S. securitization issues, emerging markets transactions often use a structure known as “future flows” securitization, in which the securities are backed by receivables that are not expected to be generated until after issuance. This article begins by describing how the process of future flows securitization carves out securities with levels of political risk acceptable to foreign capital market investors. Then it traces the history of emerging markets securitization from its origins in Latin America to its more recent uses during the Asian crisis. Securitization helped bring foreign investors back to Latin America after its debt crisis of the early 1980s. And while the Asian crisis has sharply reduced new issuance for all kinds of emerging market financings, the volume of securitization issues appears to have declined less precipitously than other types of transactions geared to foreign investors. Moreover, investment bankers are now hard at work planning new securitization issues for companies in both Latin America and Asia.In exploring the longer‐term effects of securitization on both domestic issuers and their economies, the author suggests that securitization could play a pivotal role in restoring emerging markets companies' access to global financial markets. Indeed, with a few exceptions such as Malaysia, most emerging markets are now responding to the crisis by taking measures to protect investors, such as requiring greater financial transparency and dispelling legal uncertainties that have discouraged securitization in particular and overseas investment more generally.

Valuation effects of international listings

This study examines the risk/return performance of a sample of U.S. firms which have their securities dually listed on the New York Stock Exchange and on either the London or Tokyo exchanges. The evidence indicates that stock prices generally react positively (though statistically insignificant) to the international listings. However, the findings reject the hypothesis that dual listing of a security on a foreign capital market is accompanied by a significant change in its risk behavior.