Research projects 2010

Finance, banking, and the macroeconomy 

Efficiency of financial markets 

Corporate governance

Finance, banking, and the macroeconomy

Interrelations between banking and currency crises (M. Nikitin)

The goal in this research area is the study of the interrelations of fundamental and non-fundamental causes of financial crises. In particular, we would like to investigate the potential of both classical models (of the Diamond-Dybvig type) and evolutionary (agent-based) models for the analysis of the probability of occurrence and for the dynamics of banking and currency crises. We also plan to analyze the impact of particular exchange rate regimes on financial fragility in a global environment.

Key words:  financial crisis, contagion, fear of floating

The Impact of External Borrowing on Capital Structure of Russian Companies (V. Sokolov)

The objective of this study is to investigate dynamics of the companies’ capital structure during the course of capital account liberalization in Russia. This project addresses the following questions: 1) Did relaxation of financial constraints for companies that entered international capital markets led to freeing of credit on a domestic capital market and to reduction of capital costs for the Russian corporate sector as a whole? 2) How did the growth of external borrowing affect the term length of liabilities and relative weight of long-term assets of Russian companies? 3) What is the link between the corporate sector choice of capital structure and the macroeconomic performance of Russia? 

Key words: banks, financial constraints, natural experiment

Efficiency of financial markets

Option Pricing in Stocks during Takeover Bids (Sergey Gelman)

This paper models the dynamics of the target stock price in pending merger and acquisition deals. It explicitly accounts for the possibility of multiple takeover negotiation breakdowns and resumptions. Furthermore, we develop an arbitrage-free framework for pricing European options on the target stock, and suggest ways of estimating the parameters from real data. Furthermore, I plan to calibrate the model on real data and, if possible, in a further step estimate the model parameters.

Key words: scheduled announcements, option pricing, uncertainty, jump diffusions

Do Locals Perform Better Than Foreigners: Evidence from Mutual Funds Investing in Russia (C. Sprenger)

The mutual fund industry has grown considerably over the last decade in Russia. A large literature in financial economics tests the hypothesis of financial market efficiency against the alternative hypothesis that mutual fund managers can systematically perform better than the market. There are only very few such studies for Russia. One particular question that we investigate is whether local or foreign fund managers of mutual fund investing in Russia are performing better. Both their capability of selection and their market timing are compared using a large database of equity, fixed-income and mixed funds investing in the Russian market.

Key words: mutual funds, performance evaluation

Corporate governance

 

Optimal Executive Compensation (Stanimir Morfov)

This project addresses the dynamic relationship between a principal and an agent characterized by moral hazard, limited commitment, and history-dependent reservation utilities. The framework entails the possibility of permanent and temporary separations and introduces security holdings on part of the agent, which significantly complicates the incentive structure of the optimal contract. It is intended to calibrate and compute the model based on US data (S&P500 companies for the period 1993-2006) in order to be able to compare the results with the truly observed CEOs’ compensation packages. I expect the analysis to provide useful insights about the true factors determining the executive pay.

Key words: principal-agent problem, moral hazard, limited commitment, executive compensation

Does Nationalization Work? – Evidence from Russian State Takeovers (Carsten Sprenger)

There is the recent trend toward more state influence in certain sectors in the Russian economy. We study the related incidence of nationalizations, in most cases the purchase of previously privatized companies by state-owned enterprises and its effect on the performance of the acquired firms. To this end, we construct a database of nationalization deals in Russia for the years 2001-2008. Apart from the overall effect on performance we investigate some of the mechanisms through which state ownership may affect company performance, in particular the access to soft loans, changes in financial leverage, the composition of the board of directors, and changes in the top management.

Key words: Nationalization, state ownership, financial performance, corporate governance

The impact of a firm’s ownership structure on risk taking – Evidence from foreign direct investment programs of Japanese firms (Marie-Ann Betschinger)

This research project analyses the relationship between the risk involved in foreign direct investment projects and the ownership structure of a company. Following the literature on ownership effects the ownership structure of a company should play a non-negligible role for corporate risk taking. This should be rendered evident in the risk involved in a firm’s foreign expansion policy via foreign direct investments (FDI). The paper focuses on the role of bank and insider ownership. Two databases on Japanese listed firms and their foreign affiliates are merged in a parent firm panel from 1990-2004.

Key words: Multinational Firms; Foreign direct investment, Risk, Ownership Structure 

Emerging market multinationals – do they create value and why? – A quantitative analysis (M.-A. Betschinger, C. Sprenger and Alex Settles)

This research analyses cross-border mergers & acquisitions (M&A) initiated by emerging market firms. It explores whether and how these deals create value. M&A activity by emerging market firms has strongly increased over the past years. Although there is a substantial amount of qualitative analysis, quantitative analysis is still limited and inconclusive. We aim to provide a comprehensive picture of emerging market multinational firms from various countries including Russia.

In particular, we want to answer the following research questions:

• Do varying deal motivations have differing value effects?
• Is the property rights protection environment of the acquirer firm of importance?
• Does the firm level governance structure play a role?
• Do firms from emerging markets tend to overpay for their targets more frequently than firms from developed countries?

Key words: emerging markets multinationals, cross-border M&As

Behavioral aspects of corporate decision making (A. Belyanin)

The project aims at the exploration of the role of psychological factors of managerial behavior, and in particular, at the estimation of their effect on the efficiency and quality of managerial decisions. Specifically, we will study the effect of managerial confidence in the quality of their own forecasts on the efficiency of enterprise activity, from both theoretical and empirical perspectives. As an empirical base for the project, we shall use the Russian Economic Barometer survey data from 1996-2009.

Key words: managerial behavior, managerial forecasting ability, overconfidence