Investor Protection System Research Articles

Население как участник фондового и срочного рынков: ожидания, риски, перспективы

The relevance of the article is due to the fact that the instruments of the stock and futures markets are currently considered by the population as an attractive alternative to traditional investments in bank deposits. This category of inves-tors, which ten years ago did not have any noticeable weight on stock and fu-tures markets, is gradually turning into active participants in the securities market, capable not only of ensuring the efficiency of the Russian economy, but also of overcoming market risks. The subject of the study is the activity of retail investors in the domestic finan-cial market during the period of tightening anti—Russian sanctions. The pur-pose of the work is to consider the specifics of citizens' investment behavior, identify the main trends of the current period and factors contributing to the further development of the investor protection system and increase citizens' confidence in financial markets. The article identifies the peculiarities of the de-velopment of the retail segment of the domestic market in the period 2022–2023, and on this basis it is concluded that the sanctions regime has caused significant damage to the Russian financial market, however, the degree of im-pact of the negative processes constraining its development turned out to be less significant than predicted by most researchers. The continuation of the regulator's work in terms of developing additional measures to protect inves-tors' rights and improve financial culture, coupled with the implementation of initiatives by trade organizers and the professional community, will make it possible to counteract the spread of unfair trading and marketing practices, improve the investment climate in the country, and strengthen the confidence of private investors in financial market instruments and institutions.

Debt maturity structure and firm investment in the financially constrained environment

PurposeThe financial policies of the modern world corporations and their investment decisions are generally considered as interrelated because the agency problems, associated with the debt level and its maturity structure, give rise to incentives for overinvestment or underinvestment. The present study empirically investigates the linkage between debt maturity structure and firm investment in a financially constrained environment, using Pakistan as a case study, to determine how the institutional environment in which firms operate affect these decisions and their linkage.Design/methodology/approachThe empirical analysis is carried in a panel data setting using panel regression models as the baseline methods. Moreover, generalized methods of moments (GMM) estimators are used, coupled with the instrumental variables approach, for robustness and improving the efficiency and consistency of estimates.FindingsResults suggest that firms rely more on short financing in Pakistan. Thus, given the capital structure which is characterized by higher proportion of short-term financing, the higher level of leverage is less likely to cause underinvestment problem. However, the underinvestment problem do persists in the firms that have higher portion of long-term debt. These findings imply that the debt-overhang problem may persist even in the financially constrained environments where attractive investment opportunities are limited, and long-term financing is difficult to acquire.Originality/valueThis study contributes to the literature by revealing how corporate investment and financing decisions and their linkage is influenced by the institutional environment of the less developed countries which is characterized by underdeveloped financial markets, inefficient legal system and weak investor protection system.

ANALYSIS OF THE CURRENT STATE OF THE CORPORATE SECURITIES MARKET OF UKRAINE

The article indicates the importance of special attention that is required to study the development of a segment of the financial market as the corporate securities market. Obviously, one of the key problems of the national securities market is "deficit" of financing instruments for investment measures. The analysis of the main tendencies and regularities of the stock market development, as well as the dynamics of the volume of movement of the main instruments on it show that the largest volumes of trades on the stock market were in the month of the greatest political instability in the country.Particular attention is paid to the current state of the corporate securities market in Ukraine, in particular, the assessment of domestic market indices in the period from 2004-2016 is carried out in detail. Issue shares, which significantly influenced the overall structure of registered shares and their share in Ukraine’s GDP, are shown. The dynamics of volume and number of issues of corporate bonds issue are analyzed.It is revealed that the domestic stock market today is significantly lagging behind in the development of the stock markets of industrialized countries. Creating favourable conditions for the functioning of securities is an integral part of the economic policy of most countries of the world. The securities market of Ukraine needs a clear system of investor protection, support for the stability of the market infrastructure development in all areas and effective regulation. The conducted market analysis allows to predict its further development and helps to highlight the main aspects of determining the features of construction of other components of the financial market.

Protection of Foreign Investment in India and International Rule of Law: Rise or Decline?

This paper narrates the changes in the Indian policy towards foreign investment and analyses them in the backdrop of overall changes in the field of international law and particularly within the framework of the international rule of law. The policy changes that have taken place in India can be categorised into three periods. The first period commences after independence from colonial rule. This period is intriguing. At the international level, India insisted on national treatment for foreign investment and supported the New International Economic Order. Domestically, however, nationalisation was not pursued, and even when pursued, was not applied to foreign investors. This period continued until the 1990s when India faced serious economic problems and this coincided with the high point of the Washington consensus, often seen as the rise of the international rule of law. During this time, national treatment was abandoned and innumerable investment treaties granting liberal protection were entered into. This process ended abruptly after India lost the first investment case. This turn of events comments the third period, where efforts were made towards balancing between investor protection and conserving regulatory freedom. Although this period may appear to be a decline of the international rule of law, a nuanced approach shows that it is rather a rise. India has not withdrawn from the system of investor protection, as has been done by some other States. This period is characterised by extensive and detailed treaties to replace the prior sketchy treaty provisions. This is a move towards a more rule based investment protection.

Mandatory IFRS adoption and the cost of debt in Italy and UK

This paper analyses the effect of the mandatory adoption of International Financial Reporting Standards (IFRS) within the EU on the cost of corporate debt. In order to avoid the imprecision involved in a large-scale cross-country study, we examine the impact of IFRS in two very clearly different institutional settings, the UK and Italy. The UK is a common-law country characterised by strong enforcement and national generally accepted accounting principles (GAAP) which are equivalent to IFRS. Italy is a typical European code-law country, characterised by a weak outside investor protection system, and national GAAP significantly different from the IFRS model. No IFRS effect is observed in the UK, consistent with it having standards which are close to IFRS. During the post-IFRS period, in Italy more weight is placed on the accounting numbers to assess the cost of debt. We also find that accruals quality improves in Italy, thus suggesting that public financial reporting data are enhanced relative to privately held information about borrowers' credit ratings.

Making Credit Rating Agencies Accountable: Is Estoppel a Possible Solution?

Credit rating agencies (CRAs) have become the arbiters of financial markets. There is a strong argument to the effect that they have become too powerful, particularly in the context of the ongoing financial crisis where they seem to have power without responsibility. This paper sets out tentative suggestions for reforming the present regulatory framework by making CRAs liable for issuing inaccurate ratings. The analysis starts out by mapping the contours of the legal aspects of the ratings market before going on to address the major questions regarding CRAs' modus operandi. The fact is that credit ratings affect market confidence and influence both investment decisions and expectations. For this reason, CRAs are capable of bringing about potential distortions in the financial sector. There has been much scholarly debate about the need for a civil liability regime for CRAs and whether such a scheme would be feasible. A civil liability regime for CRAs could constitute a system of investor protection over and above classic regulation. In this context, this paper considers whether the doctrine of estoppel might not be a feasible way of making CRAs accountable. Although a conclusive finding cannot be made, it is possible that the implementation of an effective liability regime through estoppel, could be a valid option for holding CRAs responsible.

The Impact of the IFRS on the Debt Contracting Process: A Comparison Between UK and Italy

This paper analyzes the economic consequences of the accounting harmonization process in two different institutional settings, the UK and Italy. The UK is a common-law country characterized by low ownership concentration, strong outsider legal protection, and a GAAP which is considered to be roughly equivalent in disclosure quality to the IFRS. Italy is a typical European code-law country, characterized by a weak outside investor protection system, and a GAAP significantly different from the IFRS model. We find that, in the post IFRS period, accounting variables play a larger part in the determination of the cost of debt of Italian companies, enhancing the importance of financial reporting data relative to privately held information about borrowers’ credit ratings. In the UK there is no impact of mandatory adoption of IFRS on the cost of debt of listed companies.

Investor Protection and Ownership Decentralization

On the premise that the expropriation of corporate assets by controlling shareholders would generate a residual loss, we studied how the laws of investor protection influenced on the decentralization of corporate ownership and what role the litigation cost play in this story by continuous time finance model. There are several interested conclusions we reached. At first, the decentralization of ownership is the result of the effective legal protection of minority shareholders’ rights and interest, and this result is irrelevant to whether there is a litigation cost or who pays for this cost. Second, effective investor protection leads to lower private benefits of control. Third, our results demonstrated that an efficient investor protection system would evolve through a self-reinforcing pathway. This means that if the law can effectively protect the minority shareholders, then this protection will become increasingly strong. In contrast, if the investor protection system is ineffective, then this protection system will be practically dead in the end. Fourth, the conclusions about the judicial procedure of how to share the litigation cost means that if penalty remain unchanged, an effective investor protection would lead to the increase of litigation costs over time, while an ineffective investor protection would lead to a decrease over time. This result is independent of who will pay the cost. Finally, our results showed that if the minority shareholders within the legal timeliness of the investor protection law pay the litigation cost, an increase in the penalty rate would lead to an increase in litigation costs. The opposite result we obtain if the controlling shareholders pay the litigation cost; this will lead to a negative correlation between the penalty rate and litigation costs.

Are stronger executive incentives associated with cross-listing? Evidence from China

Abstract This study examines whether firms incorporated in mainland China benefit from cross-listing in Hong Kong, China. The Hong Kong Stock Market has more stringent rules regarding corporate governance and a better system of investor protection than the mainland market. Hong Kong companies generally provide strong incentives to executives via equity-based compensation. Have cross-listed companies learned from Hong Kong firms about adopting these strong executive incentives? The evidence from this study suggests that changes in top executive compensation are more sensitive to sales growth in cross-listed firms than they are in mainland firms without cross-listing. However, compared to Hong Kong firms, cross-listed firms are less sensitive to stock returns. Further, this study shows that it is necessary to differentiate between state-owned companies and private companies, as cross-listing may have a greater impact on executive incentives in state-owned companies than it does in private companies.

Private Authority and Transnational Governance: The Contours of the International System of Investor Protection

Conventionally, investors could not sue states directly under international law and arbitration tribunals did not have general jurisdiction over international investment disputes. This has changed, especially since the early 1990s, with the emergence of an international system of investor protection that combines investor-state arbitration and broad standards of investor protection. The system elevates the legal status of investors (but not other individuals) in international law by allowing them to make international claims for damages against host states. Although the system depends on state authority for its establishment and ongoing effectiveness, the system adopts private authority as a method of transnational governance by permitting private investors to make claims and by giving private arbitrators the power to resolve those claims. This provides significant advantages to multinational enterprises at the expense of governmental flexibility in both capital-importing and capital-exporting states, as revealed by the recent explosion of investor claims. This article examines the legal architecture of the system in order to demonstrate how it expands private authority in the context of transnational governance.

Private authority and transnational governance: the contours of the international system of investor protection

ABSTRACT Conventionally, investors could not sue states directly under international law and arbitration tribunals did not have general jurisdiction over international investment disputes. This has changed, especially since the early 1990s, with the emergence of an international system of investor protection that combines investor-state arbitration and broad standards of investor protection. The system elevates the legal status of investors (but not other individuals) in international law by allowing them to make international claims for damages against host states. Although the system depends on state authority for its establishment and ongoing effectiveness, the system adopts private authority as a method of transnational governance by permitting private investors to make claims and by giving private arbitrators the power to resolve those claims. This provides significant advantages to multinational enterprises at the expense of governmental flexibility in both capital-importing and capital-exporting states, as revealed by the recent explosion of investor claims. This article examines the legal architecture of the system in order to demonstrate how it expands private authority in the context of transnational governance.

Audit qualifications and corporate governance in Spanish listed firms

PurposeCorporate governance empirical studies have primarily focused on the effects of corporate characteristics on market value, discretionary accruals, voluntary disclosure and firm performance. Nevertheless, corporate governance characteristics and the legal system of investor protection may also influence the role of statutory auditors and the demand for audit quality. The aim of this study is to investigate the corporate governance role of external audits in the Spanish capital market context.Design/methodology/approachThis article measures this question by considering the conflicts of interests between managers and shareholders analysed in the agency theory. This article uses a logistic regression using a matched pair design, developed with the dependent variable indicating whether the firm receives a qualified opinion, and the independent variables representing ownership concentration, board ownership, board size and family members on the board. Empirical support for this study is gathered from a sample of Spanish listed firms during the period 1999‐2002.FindingsThe results support that higher insider ownership provides better corporate governance structure leading to higher quality of financial reporting and, therefore, less likelihood of receiving qualified audit reports. On the other hand, the presence of family members on the board increases the possibility of obtaining a qualified report.Originality/valueThis study focuses explicitly on the end result of the audit decision process: the presence or absence of a qualification, which is the central concern of the financial statement user.

Corporate Governance Convergence Through Cross-Border Mergers: The Case of Aventis

In this paper we illustrate the role of cross-border mergers in the process of corporate governance convergence. We explore in detail the corporate governance provisions in Rhone-Poulenc, a French company, and Hoechst, a German firm, and the resulting structure after the two firms merged in 1999 to create Aventis, legally a French corporation. We show that, despite the nationality of the firm, the corporate governance structure of Aventis is a combination of the corporate governance systems of Hoechst and Rhone-Poulenc, where the newly merged firm adopted the most protective provisions of the two merging firms. In some cases this resulted in Aventis' borrowing from the corporate governance structure of Hoechst while in others Aventis replicated Rhone-Poulenc's structure. Most interesting is the situation where Aventis introduced improved provisions over both systems. The resulting corporate governance system in Aventis is significantly more protective than the default French legal system of investor protection.

A Theoretical Analysis of the Investor Protection Regulations Argument for Global Listing of Stocks

Global listing of stocks has become a major topic in international capital markets. Many argue that the U.S. investor protection system discourages foreign firms from listing and raising capital in the U.S. However, there has recently been an increase in the number of foreign firms listing their shares in the U.S. This paper analyzes managers' decision as to which international market to cross-list their firms' shares on. It is shown that when markets differ in their regulatory environment, regulatory strictness may enable managers of highly profitable foreign firms to credibly convey their private information regarding their firms' future prospects. Through listing on the market with strict regulatory environment, those managers deliberately accept additional regulatory exposure, related to investor protection. That increased exposure, however, is more than offset by higher stock prices. The general setting of cross-listing is also shown to be applicable for global public offerings. Furthermore, in contrast to the claim that the strict regulatory environment deters firms from listing on that market, it is shown that a large differential between markets with respect to the regulatory strictness may, in fact, increase the number of firms listing on the market with stricter regulations. The implications of the model are consistent with the empirical evidence regarding global cross-listing.