Global Financial Market Place Research Articles

Application of Machine Learning Models for Predictions on Cross-Border Merger and Acquisition Decisions with ESG Characteristics from an Ecosystem and Sustainable Development Perspective

From an ecosystem perspective, mergers and acquisitions (M&A) are one of the key paths for firms to foster complementary sectors and gain complementary assets. From the perspective of sustainable development, M&A can reallocate resources from target to asset to achieve better synergy and prolong the operation of a merged firm. However, M&A activities are characterized by high risk due to the high cost and uncertainty. Thus, a prediction model of M&A decisions is valuable for firms’ strategy design from an ecosystem and sustainable development perspective. By adopting a machine learning technique, this study measured the cross-border M&A decisions by analyzing firm-level cross-sectional data of the global financial marketplace under ecosystem mapping for the application of various country, deal and firm-level indicators related to sustainable development. Our paper can support the hypotheses of corporate governance, ecosystem stakeholder theory, ecosystem risk and institution theory in explaining that firms can increase their success rate of M&A to achieve sustainable development. Methodologically, we used AdaBoost to train several weak classifiers (decision trees) to achieve a strong decision-making model with a large financial transaction database of 215,160 deal activities. Results achieved 80.1% prediction accuracy by using the AdaBoost model through 10-fold cross validation. We found that differences exist on prediction features of M&A with different characteristics of sustainable development. For a robustness check, comparable results were obtained with a support vector machine (SVM) model. By analyses of the features during the cross-border M&A decision-making processing, this study is expected to contribute to the utilization of machine learning in ecosystem studies.

Global Network Finance: Organizational Hedging in Times of Uncertainty

The global financial crisis that began in 2007 revealed a fundamental weakness in the global financial system: Extensive financial interdependence of financial relations unmatched by a governance regime of similar reach. As multinational banks sought to fortify their capital base in the wake of the unfolding crisis, Sovereign wealth Funds (SWFs) and the banks’ home governments have become mutual stakeholders in some of the largest financial intermediaries with global reach. From the multitude of individual transactions has emerged a network of equity ties that spans the globe. These ties bridge institutional practices and governance regimes that previously operated largely independently of each other. They have the potential of fostering the emergence of a new governance regime for the global financial market place that deviates from earlier prognoses that globalization entails convergence on a single governance model. Instead, the newly created ties that jointly add up to a global financial network enable institutionally and organizationally diverse players to contribute their own perspectives as joint stakeholders in selected financial intermediaries, and indirectly, in the global financial system. This is likely to have important implications for the behavior of these actors in the future and the emergence of new governance solutions for the global market place. The paper discusses two recent cases of collaborative re-capitalization events to illustrate how this regime is evolving in practice.

Banking Reform in the Chinese Mirror

This paper analyzes the transactions that led to the partial privatization of China’s three largest banks in 2005/06. It suggests that these transactions were structured to allow for inter-organizational learning under conditions of uncertainty. For the foreign investors involved their participation in large financial intermediaries of central importance to the Chinese economy gave them an opportunity to learn about financial governance in China. For the Chinese banks partnering with more than one foreign investor allowed them to benefit from the input by different players in the global financial market place and to learn from the range of technical and governance expertise they offered. This model of bank reform contrasts with the privatization strategies pursued in Latin America and Central and Eastern Europe throughout the 1990s. These different experiences stand for alternative strategies of bank reform: One that relies on top down changes of the rules of the game; and another that focuses on inter-organizational learning by monitoring. It suggests that the latter model may be superior under conditions of uncertainty. The paper discusses the costs and benefits of these alternative models in the context of the global financial crisis.

Agent-Based Modeling for Complex Financial Systems

Todays global financial marketplace is best understood as a complex network of interacting market systems, in which events of world-wide significance unfold on timescales that are barely within the ability of humans to comprehend. Many researchers have concluded that the dynamics of networked market systems are better under-stood as complex adaptive systems, in which independent software components interact without centralized control or oversight.

Balance of Payments, with a Focus on Nigeria

As acknowledged in Bekaert and Hodrick (2012), to understand the concepts of foreign exchange markets, an understanding of the economic forces that cause exchange rate to fluctuate is required. Exchange rates respond to demand and supply to trade currencies. Demands and supplies to trade currencies arise from international trade flows and international capital flows. A lot of useful information about these international flows is provided by the balance of payments of countries. The balance of payments of countries record the payments between the residents of one country and the rest of the world over a given time period. It thus sheds light on the supply and demand for various currencies, the possible evolution of their exchange rates, and the health of the global financial marketplace in general (Bekaert and Hodrick, 2012).Balance of payments information are thus relevant to a slew of stakeholders. Stakeholders such as the press, economists and other academics, politicians, currency analysts, and currency traders, follow the trends in balance of trade information because they know that they influence the movements, either up or down, of exchange rates.In this essay, foreign exchange, international capital and trade flows, and the Balance of Payments of countries, are discussed. How balances on various subaccounts of the balance of payments, are linked to domestic and international saving and investment decisions; and the relationship between the Balance-of-Payments of a country and its GDP (which is an important indicator of a country’s financial and economic health); is discussed in the process.

Does Modern Portfolio Theory Need an Update? Analyzing Single-Country ETFs During Extreme Market Movements

This article investigates whether country characteristics can determine diversification benefits provided by single-country exchange traded funds (ETFs) to U.S.-based investors during crises and non-crises periods. We find several country-specific characteristics, including prior correlation, foreign direct investment, GDP growth rate, inflation rate, and inclusion in the G7 are significant in explaining diversification benefits during non-crises periods. We find that most of the coefficients lose significance during the crises periods in both raw and contagion corrected models, proving the choice of which international funds to invest is difficult for investors in today’s global financial marketplace. This study finds that investors seeking protection from extreme U.S. market returns are not able to identify which single-country ETFs will serve to diversify their portfolios during extreme market movements using easily accessible finance and economic variables. The results of this study further complicate the decisions investor face in creating a well-diversified portfolio and serve as a warning to individual investors and managers attempting to determine which country single-country ETFs will provide diversification benefits using traditional estimation tools.

Global network finance: Institutional innovation in the global financial market place

The global financial crisis that began in 2007 revealed a fundamental weakness in the global financial system: extensive financial interdependence of financial relations unmatched by a governance regime of similar reach. As multinational banks sought to fortify their capital base in the wake of the unfolding crisis, Sovereign Wealth Funds (SWFs) and the banks’ home governments have become mutual stakeholders in some of the largest financial intermediaries with global reach. From the multitude of individual transactions has emerged a network of equity ties that spans the globe. These ties bridge institutional practices and governance regimes that previously operated largely independently of each other. They have the potential of fostering the emergence of a new governance regime for the global financial market place that deviates from earlier prognoses that globalization entails convergence on a single governance model. Instead, the newly created ties that jointly add up to a global financial network enable institutionally and organizationally diverse players to contribute their own perspectives as joint stakeholders in selected financial intermediaries, and indirectly, in the global financial system. This is likely to have important implications for the behavior of these actors in the future and the emergence of new governance solutions for the global market place. The paper discusses two recent cases of collaborative re-capitalization events to illustrate how this regime is evolving in practice.

Geographically dispersed ownership and inter-market stock price arbitrage—Ahold's crisis of corporate governance and its implications for global standards

Scandals of corporate governance in the United States and Europe in the aftermath of the TMT bubble captured the public imagination. In play were the interests of senior executives in relation to investors, prompting debate over countries’ standards of corporate governance in the global market place. Ahold was (and is) an especially important instance, involving significant internal accounting and reporting failures and poor public disclosure of market-sensitive information. Ahold is also a global corporation crosslisted on major financial markets. In this paper, we report the analysis of market trading in Ahold stock between Amsterdam and New York. It is shown that greater volatility in Amsterdam daily closing prices presaged the crisis to come in Ahold shares implying leakage of information to privileged local insiders. It is also shown that in the aftermath of Ahold’s crisis, management responded to the lack of global investor confidence by improving transparency and governance standards consistent with the expectations of global investors. Implications are drawn for the pricing of corporate governance and the process of convergence in national standards of corporate governance. The continuity of different regimes of governance is subject to inter-market arbitrage especially if corporations seek to maintain and enhance their reputations in the global financial market place.

Economy of Faith

Economy of Faith Andrew Saldino (bio) Review of: Mark C. Taylor. Confidence Games: Money and Markets in a World Without Redemption. Chicago: U of Chicago P, 2004. In Confidence Games: Money and Markets in a World Without Redemption, Mark C. Taylor turns his attention to the topic of money and markets in order to shed light on what are undoubtedly among the most important and complex structures of the world in which we live. For, whatever else one understands, one is missing a crucial piece of the puzzle if one does not understand how money operates in the global economy. Taylor’s book represents an extraordinary attempt to do just that and, in the process, reminds its readers that no one book, no matter how smart, can put all the pieces of this puzzle together. For in its attempt to explain the profound theoretical complexities of financial marketplace, this book glosses over real issues of power that are fundamental to understanding the causes and effects of the ways that money get circulated in our world. In his preface, Taylor suggests that this book has its origin in two events: the suspension of the gold standard by Nixon in 1971 and the stock market crash of 1987. The first event occurred without Taylor’s knowledge while he was abroad in Denmark and left him bewildered when he converted his small stipend into Danish kroner and received $200 less than he had the previous semester. “Where did the money go,” he wondered, trying to process this first experience of money’s “virtuality.” Regarding the second event, Taylor recounts a conversation with his son, Aaron, in October 1987: “You know,” I said, “the past few days have been pretty amazing.” Aaron, who was fourteen at the time, asked, “Why, what’s going on?” “The stock market has crashed and billions and billions of dollars have vanished.” “Really? Where’s the money go?” Once again, I had no answer. But by this time, I had come to suspect that the issue was not merely a matter of economics. (xv) And a matter of mere economics it is not. Taylor spends the next 300 pages unpacking an entire history and philosophy of culture that is astounding in both its scope and depth. In taking account of this project, Taylor suggests that it “represents the culmination of an argument I have been developing for more than three decades” (xvi). And for those familiar with the richness of Taylor’s work during that period, that alone is reason enough to give this book some attention. While many elements of Taylor’s previous work are in evidence here, Confidence Games does mark a culmination in his attempt to develop a philosophy of culture consistent with the complexity of our world. In summarizing the goals of this book in a subsequent interview, Taylor says: I have three major objectives in this book. First, to explain how art displaces religion and then markets and finance displace art as the expression of spiritual striving during the past two centuries; second, to examine the interrelationship between postmodern philosophy and art on the one hand and finance capitalism on the other hand; third, to develop a model of global financial markets as complex adaptive systems. In the course of this analysis, the intricate interrelation of neo-liberal economics, neo-conservative politics and neo-fundamentalist religion becomes clear. (Taylor, Interview) In seeking to explain the development of the global financial marketplace and its relationship to culture, Taylor has set an enormous task for himself. How well does he succeed in accomplishing these goals? Well, sometimes Taylor’s broad historical arguments are persuasive, and other times they seem strained. Consider, for instance, Talyor’s argument that the last two centuries have witnessed a broad transition from religion to art to the market as the preeminent locus of spiritual meaning in our culture. Certainly many other genealogies could be constructed to account for the rise to prominence of global capital, and I suspect that this history records the development of Taylor’s own thinking over the last thirty years, as it has moved from philosophy of religion to art and now into broader cultural issues, as...

Corporate Governance, Cross-listing, and Managerial Response to Stock Price Discounting: Royal Ahold and Market Arbitrage - Amsterdam and New York, 1973-2004

Of the events signalling the end of the TMT bubble, scandals of corporate governance in the US and Europe captured the public imagination. In play were the greed and hubris of senior executives prompting further debate over countries' standards of corporate governance. If Enron and WorldCom were the US reference points, Ahold and Parmalat were the European instances. Ahold was especially important, being an instance of significant internal accounting and reporting failures and an instance of poor public disclosure of market-sensitive information. We report the analysis of market trading in Ahold stock in both Amsterdam and New York. It is shown that greater volatility in Amsterdam daily closing prices presaged the crisis to come in Ahold shares suggesting the leakage of information to privileged insiders. It is also shown that New York prices were inefficient not withstanding the advantages of a New York listing for the firm. Implications are drawn for the theory of global finance, and the nature and scope of convergence in national standards of corporate governance. It is argued that the co-existence of rather different regimes of governance may be undercut by the reaction of institutional investors in the global financial market place to the actions of corporate management.

Commercial Banking Structure, Regulation, and Performance: An International Comparison

The purpose of this paper is to compare and contrast the structure, regulation, and performance of banks in the EU and G‐10 countries. This enables one to identify any significant differences in the structure of banking in the nineteen separate countries comprising these two groups. The regulatory, supervisory, and deposit‐insurance environment in which banks operate in each of these countries is also compared and contrasted. This enables one to identify any significant differences in the regulatory environment that may help explain the structure of banking in the various countries. Beyond this, the effect of the overall structural and regulatory environment on individual bank performance is investigated in order to evaluate the appropriateness of existing regulations in individual countries and any proposals for reforming them. Hence, an exploratory empirical analysis based upon a sample of banks in the different countries is conducted to assess the effect of the different “regulatory regimes” on the performance of individual banks, controlling for various bank‐specific and country‐specific factors that may also affect bank performance. In this way, the paper attempts to contribute to an assessment of the appropriate balance between market and regulatory discipline to ensure that banks have sufficient opportunities to compete prudently and profitability in a competitive and global financial marketplace. In the process of conducting such an assessment, the paper necessarily provides information as to whether the U.S. is “out‐of‐step” with banking developments in other industrial countries.