Overseas Assets Research Articles

Remaking the Multinational Corporation: Geographically Dispersed Unbundling and Intangible Assets

AbstractOver the past decades, we have observed the emergence of multinational corporations (MNCs) that are increasingly characterized by their high levels of unbundling and geographic dispersion of their activities and by their greater reliance on intangible (vs. tangible) assets. We develop a novel typology of MNCs on the basis of these two characteristics and explore how different types of MNCs have been exposed and are likely to respond to the slowdown in the global economic integration since the 2008 global financial crisis. We argue that the degree to which MNCs have unbundled and geographically dispersed their activities and their reliance on intangible (vs. tangible) assets will affect the risks associated with cross-border transfers of goods and services and with holding overseas assets. We advance the international business (IB) literature and contribute to the global strategy literature by using our novel typology to examine MNCs’ exposure and their likely response to deglobalization pressures.

Research on criminal asset sharing system in overseas recovery of stolen goods

It is not only necessary for China to establish the system of sharing criminal assets in the recovery of overseas assets, but also has sufficient theoretical basis and clear legal basis. From the perspective of extraterritorial rule of law, the modes of criminal asset sharing include fixed agreement mode and individual agreement mode. The confiscated criminal assets shall be returned to the victim or the legal owner first, and reasonable fees shall be deducted before the assets are shared; The proportion of sharing is mainly determined based on the contribution of the assisting country, and factors such as the nature of the crime and the damage suffered by the requesting country are comprehensively considered. The sharing of criminal assets has become a common practice for overseas recovery of stolen goods, showing obvious characteristics of international cooperation and incentive. Based on the practice of foreign-related rule of law, China can gradually fix the experience of asset sharing into bilateral agreements on the basis of successful cases of individual cooperation. According to the different nature of the case, different sharing strategies should be adopted to determine the reasonable standard of asset sharing. External liaison agencies and competent authorities that specify the sharing of assets; Establish a sound procedure mechanism for the proposal, review, decision and implementation of criminal asset sharing.

Optimization of Government Regulation Paths in Cross-Border M&A of Chinese-Funded Listed Companies

Cross-border M&A has become the main content of overseas investment of Chinese enterprises. As an important subject of cross-border M&A, the government's regulatory measures on Chinese-Funded Listed Companies have particularity and the necessity of further optimization. At present, the Chinese government has issued a series of legal documents to improve the investment environment. Notably, there are still deficiencies in the process of the supervision of overseas assets, administrative approval, information sharing between departments and supervision of intermediaries, which have potential negative impacts on the implementation of M&A or subsequent operations. This paper argues that the reasons lie in the insufficiency of legislative authority, information sharing mechanism and supervision mechanism of some government departments. In view of this, this paper seeks effective measures to optimize the government's regulatory path for this kind of M&A. The measures from the aspects of institutional improvement, coordination of government departments, overseas investment supervision system and official cooperation between countries in special fields will be expounded. The investigation in this paper may has a potential reference value for the relevant government departments to optimize the regulatory path of cross-border M&A of Chinese-Funded Listed Companies.

European trajectory of USА direct investment

The present paper focuses on the U.S. direct investment in European countries. To date Europe attracted 60 % of the total volume of US global investment. These ties become more complex, covering a growing number of different fields of activities. The study of this issue implies the analysis of the modern features of outward FDI fl ows and the main directions of their placement in Europe. New technologies have made noticeable changes in the usual investment pattern. A global presence without significant FDI is becoming the most important trend in the international activities of companies. However, 2017 Tax Cuts and Jobs Act which fi rst turned capital outfl ows negative, and hen resolved the tax liability overhang on overseas assets, which have contributed to a jump in cross-border M&A purchases by United States MNEs. Thus, FDI fl ows have received a powerful impetus, including investment growth opportunities in European countries. The top countries receiving US FDI: аre Great Britain (identical US business conditions), Luxembourg and the Netherlands (minimizing tax bills), Ireland (export platform). France and Germany are also joining these countries. The most important directions in the industrial structure of US FDI are the information, the service sector, the chemical industry, including pharmaceuticals. The increased role of intangible assets forces branches of American companies to increase their attention to R&D. Europe remains one of the most competitive regions in the world in terms of scientific and technical potential.

Restructuring Business Trusts as Unregistered Companies

The use of alterative business forms harks back to the unincorporated joint stock company that was often a partnership with trust characteristics. REITs and business trusts form a large component of the Singapore Exchange but there are issues with their liquidation and restructuring, particularly involving overseas assets. A recent Delaware Chapter 11 case discussed what a business trust is and whether it is a separate entity. In turn, the concept of legal persona has been linked with affirmative asset partitioning by a UK Supreme Court veil piercing case. Such partitioning existed with partnerships and trusts and this was recognised by Victorian legislatures which crafted early company legislation. While Australian courts have focused on winding up trustees as there is no “trust” as such, restructuring poses more problems, especially for REITs with separate custodian-trustees and managers. They could be seen as “unregistered companies” and restructured in a way that paralleled an incorporated company.

Economy supervision mode of electricity market and its incentive mechanism

The analysis of a supervision environment is the first step for a company to enter the new electricity market. Transmission and distribution assets are the main investment targets of a company. The overseas power market belongs to the regulated industry; whether it is a stock M&A project or a green land bidding project, the regulatory environment determines the assets. The level of return and investment risk that guides the operation strategy of existing overseas assets, has a significant impact on the investment and operations of international companies. A comprehensive and rapid assessment of the regulatory environment can help the project teams of international companies understand the macroenvironment of the target electricity market within a short period, quickly identify investment risks, qualitatively analyze the return level of the underlying assets, shorten the decision time, capture investment opportunities, and enhance the team. Efficiency and quality of work are factors of great importance.

Corporate Power and Expansive U.S. Military Policy

AbstractMilitary defense is generally treated in economics texts as a “public good” because the benefits are presumed to be shared by all citizens. However, defense spending by the United States cannot legitimately be classified as a public good, since the primary purpose of those expenditures has been to project power in support of private business interests. Throughout the course of the 20th century, U.S. military spending has been largely devoted to protecting the overseas assets of multinational corporations that are based in the United States or allied nations. Companies extracting oil, mineral ores, timber, and other raw materials are the primary beneficiaries. The U.S. military provides its services by supporting compliant political leaders in developing countries and by punishing or deposing regimes that threaten the interests of U.S.‐based corporations. The companies involved in this process generally have invested only a small amount of their own capital. Instead, the value of their overseas assets largely derives from the appreciation of oil and other raw materials in situ. Companies bought resource‐rich lands cheaply, as early as the 1930s or 1940s, and then waited for decades to develop them. In order to make a profit on this long‐range strategy, they formed cartels to limit global supply and relied on the U.S. military to help them maintain secure title over a period of decades. Those operations have required suppressing democratic impulses in dozens of nations. The global “sprawl” of extractive companies has been the catalyst of U.S. foreign policy for the past century. The U.S. Department of Defense provides a giant subsidy to companies operating overseas, and the cost is borne by the taxpayers of the United States, not by the corporate beneficiaries. Defining military spending as a “public good” has been a mistake with global ramifications, leading to patriotic support for imperialist behavior.

China’s Geopolitical Economy of Energy Security

AbstractChina’s transition to an urban-industrial society relies predominantly on its abundant domestic coal supplies and, secondly, on an increase in oil and gas imports. For this reason, China’s strategic investments in the oil and gas industries of resource-rich, energy-exporting countries have vastly increased. Given the high levels of import-dependency, the domestic power-wealth structures in China rely on uninterrupted supplies from beyond state borders. In their search for supply security, major import-dependent actors have two options. One is to reduce dependency by, for instance, higher energy efficiency. Another option is to increase the security of energy imports. This requires improving supply security from resource-rich oil- and gas-exporting countries and regions. The significant growth in the overseas assets and activities of China’s state-led National Oil Companies (nocs) are crucial to China’s energy supply security. In this study we argue that the transnational activities of Chinesenocs are part of the country’s so-called ‘statist’, state-led economic globalization, in the course of which some developing economies have become global political powers.In this paper we outline the approach and the conceptual foundations to understand geopolitical economy of energy security in China based on the following section: [1] the unit of analysis in the Political Economy of Energy. [2] Sequential industrialization and its global impacts, [3] Fossil fuel security and resource-scarcity, [4] China’s power structure, state class, and industrialization, [5] Industrialization, lateral pressure, the geopolitical economy and China’s external relations [6] National oil companies: changing the game.

Japan 2016: Slow Economic Growth but an Affluent Society

Japanese economy grew steadily in 2016. However, household consumption remained weak and inflation was far below the 2% target. The Japanese government substantially adjusted both monetary and fiscal policies to support economic growth. Despite a tight labour market, the meagre increase in base salary could not stimulate consumption. However, Japan remains an affluent society, with a large amount of liquid assets and relatively low debts. Japanese overseas assets have risen significantly and is a major source of national income.

The Balance of Payments, Russia's External Debt and the Exchange Rate of the Ruble: A Fragile Equilibrium

Russia’s balance of payments data for Q3 2015 show a considerable decline in her current account balance. In monetary terms, the decline in imports during Q3 was faster than that in exports (relative to Q3 2014). By comparison with Q2 2015, it even demonstrated a slight increase, notwithstanding the weakening of the ruble in July and August. In Q3, for the first time in five years, Russia saw a noteworthy capital inflow into banks and enterprises resulting from a considerable reduction in the volume of overseas assets (which were sold on a major scale in order to raise funds for looming external debt repayments) and the sale of foreign exchange by the population. On the whole, the trends observed during the period January-September 2015 make it possible to conclude that, unless any new external shocks take place, Russia’s current account balance by the end of 2015 will be large enough to guarantee the stability of the ruble’s exchange rate against major world currencies in spite of the huge external debt repayments to be made at the end of 2015.

The global expansion of Chinese oil companies: Political demands, profitability and risks

PetroChina, Sinopec, and China National Offshore Oil Corporation (CNOOC) have been prominent instruments used by the Chinese government in its policies to ensure greater security of oil and gas supply in the face of growing domestic shortages. Chinese overseas acquisitions and activities have diversified, with a greater emphasis on offshore, gas and the Americas. Both parent and listed daughter companies are run by CCP-appointed managers who have to balance political and commercial goals. Their lacklustre financial performance can be attributed to domestic and institutional constraints, such as state-set social goals, low pricing, and government controls over their monopolies. Not only have state companies sustained losses from refining activities, but financing their rapid expansion has also increased their debts and dependency on the government. Cases of corruption have further weakened their political influence. Long-term supply contracts have made a greater contribution to the security of energy supply as compared with equity oil and gas. Nationalistic preferences for investment over trade increase company risks but are somewhat mitigated by an integral economic package approach and political backing in weak countries. Recent policies to reduce monopoly power are unlikely to produce viable commercial alternatives, but may increase the focus on listed daughter companies, overseas assets and international trading. Because of these developments and the recent fall in oil prices, a better evaluation of political and economic risks is required.

Comments by Deborah Swenson, on A Multiple-Goal Investment Strategy for Sovereign Wealth Funds: An Application to China

The primary question in this paper is how should SWF managers allocate their assets, when their SWF is tasked with investing on behalf of multiple objectives? To answer this question the authors develop a new technical approach to provide guidelines that could be used by SWF managers. Then, to illustrate how their approach affects asset allocation decisions, the authors apply their model to the case of China. They also explore how their asset allocation recommendations are affected by the timeframe for the SWF goal structure (short-, medium-, and long-run) and how their asset allocation recommendations depend on the degree of risk aversion. I appreciate the clarity of the question, and the directness of the answer. Because the application of the problem is clean and the model and application matches the authors’ intended goals, the paper cannot be criticized for lacking internal consistency, or for failing to match the question and its analysis.

Malaysia: Financial Sector Assessment Program Financial Sector Performance, Vulnerabilities and Derivatives-Technical Note

This Technical Note focuses on financial sector performance, vulnerabilities, and derivatives in Malaysia. The note highlights that banking sector has undergone consolidation while competition has increased following measures implemented under the Financial Sector Master Plan 2001–2010. Malaysian banks are presently well capitalized with comfortable Tier 1 capital ratios. Stronger financial positions and risk management capability have enabled domestic banking groups to pursue overseas expansions, mostly within the region. The importance to some banks of overseas assets and earnings is reaching levels which, based on international experience, warrant a review of internal controls.

The Coming Wave

Private investors from emerging market economies are increasingly putting their funds in overseas assets. Understanding the volumes and patterns of the various outflows — sovereign and private — and analyzing what influences them will help shed light on how the landscape of international capital flows is likely to change as emerging market economies become more integrated into global financial markets. We look at the types of capital outflows from emerging markets and describe some preliminary results.

Chinese overseas M&A performance and the Go Global policy1

AbstractIt is well known that government plays an important role in the business activities of Chinese firms. Less certain is the effect this influence has on the wealth of those firms’ shareholders. We contribute to the literature by analysing stock market reactions to announcements by Chinese firms of overseas mergers and acquisitions (OMAs). OMAs are of particular interest because there can exist a conflict between the interests of the public sector in acquiring overseas assets, and the interests of the private sector in maximizing shareholder wealth. Our main dataset consists of 213 observations of 157 OMA events that occurred between 1994 and 2009, using share market returns from the Shanghai, Shenzhen, Hong Kong and US markets. The aggregation of share price data across multiple markets, and the listing of firms in multiple exchanges, raise econometric issues for the standard event‐study methodology. To address these, we use a new, feasible generalized least squares (GLS) procedure developed by Gu and Reed (2012). On the basis of an analysis using both aggregated and disaggregated samples, and of daily and cumulative abnormal returns, we find consistent evidence that (i) Chinese OMAs have not lowered the wealth of shareholders of Chinese acquiring firms, and (ii) shareholders of Chinese acquiring firms have not fared worse under under China's ‘Go Global’ policy of encouraging outward investment by Chinese firms.

FDI as an outcome of the market for corporate control: Theory and evidence

Much foreign direct investment (FDI) takes the form of mergers and acquisitions (M&A). It is commonplace in finance to view acquisitions as manifestations of the market for corporate control. Following on that insight we propose a model of FDI in which headquarters bid to control overseas assets. We derive an equation for bilateral FDI stocks that resembles the recently developed fixed effects approach to modelling bilateral trade flows. We estimate the model and use its parameters to construct benchmarks for evaluating multilateral inward and outward FDI.

Do Investors Still Benefit from International Diversification With Investment Constraints?

The benefits of global diversification have been documented by financial economists over the past four decades. Since the correlations of asset yields across countries are lower than within a country, the volatility of a portfolio's return can be reduced, without sacrificing its expected return, by investing in overseas assets. Due to the lack of investibility of stocks in certain countries, however, investors may not necessarily be able to allocate assets by completely following the unrestricted efficient frontier suggested by Markowitz (1952). Previous studies investigate the strategies of asset allocation and the diversification benefits with short-selling constraints. Yet, the impact of over-weighting investment restrictions on the global diversification benefits remains unclear. Furthermore, while in theory the inclusion of more securities in a portfolio will help to diversify, in practice investors may wish to determine the optimal complementary investing areas in which securities generate the maximum marginal contribution to the portfolio. The answers to these issues provide critical insights for professionals of asset management. This paper empirically explores the potential advantages brought about by international diversification with various investment constraints such as short-selling, over-weighting, and investing regions for U.S. domestic investors. Our finding suggests that adding short-sales and over-weighting constraints reduces but does not eliminate the diversification benefits to the U.S. domestic investor. For cross-regional comparison, the greatest diversification benefits come from adding assets from the Central/West European and Latin American countries. The over-time analyses show that the absolute values of diversification benefits reduce over time as international markets become more integrated. However, the relative values of benefits suggest that international diversification is still desired by the U.S. investor.

FDI as an Outcome of the Market for Corporate Control: Theory and Evidence

Much foreign direct investment (FDI) takes the form of mergers and acquisitions (M&A). It is commonplace in finance to view acquisitions as manifestations of the market for corporate control. Following on that insight we propose a model of FDI in which headquarters bid to control overseas assets. We derive an equation for bilateral FDI stocks that resembles the recently developed fixed effects approach to modelling bilateral trade flows. We estimate the model and use its parameters to construct benchmarks for evaluating multilateral inward and outward FDI.

The equity premium and market integration: Evidence from international data

This paper examines the equity premium puzzle by looking at stock market data from 39 countries. For each of these countries, average total return as well as excess returns was estimated for the past 20–30 years. I find that emerging markets have higher excess returns than developed markets, but when adjusted for risk developed markets have higher returns. I test the theory that degree of integration with global markets is a major explanatory factor for differences in excess returns, as the demand for domestic equities may be greater in countries that are less integrated and thus have less access to alternative overseas assets. I find a positive relationship between degree of integration and excess returns, which is evidence in favor of this theory.

Multinational Financing Strategies in High Political Risk Countries

This paper investigates the importance of various issues in relation to the financing of U.K. and U.S. multinationals' subsidiaries in high political risk countries. It is discovered that multinationals with operations in high risk countries adopt strategies which are nationally responsive to the host nation. The matching of assets with liabilities is considered to be an effective method for reducing exchange rate risk and political risk. Local debt is viewed as crucial to the management of political risk by harnessing local participants in the ownership structure of the firm. In addition, it is found that firms with operations in high risk countries tend to be relatively less centralised. Although, expropriation of multinationals' overseas assets has become a past occurrence, multinationals need to recognise the time-varying nature of political risks that they encounter.