Valuation in emerging markets is always a challenge. The existence of sovereign risk and capital market segmentation as well as small trading volumes and narrow domestic capital market make it difficult to identify peer companies for market multiples valuation without cross- border comparables. This paper investigates the practical implementation of market multiples valuation in emerging markets when the analyst should involve peer companies from developed markets. Companies with comparable operational parameters bear different values on different financial markets. The problem of unavoidable difference among national stock markets exists, that is why methods of cross-border multiples’ corrections are called for. We address cross-border corrections procedures for adjusting multiples to a sovereign risk to find out the role and the extent of these type of adjustments in valuation. We are using the samples of Russian and US companies to test three different adjustments’ techniques: the sovereign spread, the relative market coefficients and the regression approach.
This study explores examples of sustainable growth in Chinese and Russian natural gas companies. The topic of sustainable growth has become a priority focus for studies in market development. Company growth encounters many obstacles, and any such study necessitates a multivariate analysis of interrelated financial and non-financial factors. The authors aim to highlight two fundamental issues in this study. The first is the choice of those indicators which characterise company growth. The second is the identification of factors that have a sustainable impact on growth. Additionally, we try to answer the question: “Are the sustainable growth factors of Russian and Chinese gas market companies comparable?”. The primary purpose of this study is to analyse Chinese and Russian gas market companies’ financial growth strategies using the ‘Geniberg Z-matrix’, as well as enhanced Financial Sustainability Indicators System indices by identifying which indicators have a greater influence on the Sustainable Growth Rate. The scientific novelty of this study is related to the process of constructing financial reports with a focus on sustainable factors, and the implementation of a sustainable financial growth matrix to the appropriate information of Chinese and Russian oil and gas companies. Through this approach, a relationship between sustainable growth and energy companies’ financial strategy was confirmed. Chinese and Russian gas companies’ financial growth strategy was analysed by employing the Geniberg-Z matrix as well as enhanced Financial Sustainability Indicators System indices. We found that ROCE, WACC, ROL, and CGDummy influence Chinese gas companies’ sustainable growth rate and recommended the implementation of an FSIS calculation. In the same way, ROCE, ROFA, CR, DOL, ROL influence Russian gas companies’ sustainable growth rate, and we recommend an FSIS calculation. Evaluation results also show that Chinese and Russian gas companies are financially attractive and have stable results, but could improve their financial strategies from a sustainable growth perspective.
In this paper we are going to review both theoretical studies in the field of intellectual capital measurement and empirical research, devoted to analyses of intellectual capital influence on companies’ value and financial performance. As a result, potential areas for further investigations in this field were revealed.
Considering groups of intellectual capital measurement methods, we identified that direct intellectual capital methods and scorecard methods are the most appropriate for the purpose of IC components measurement. To obtain objective results of measurement it seems reasonable to develop system of proxy indicators for all intellectual capital components (human, structural and relational capitals) and subcomponents (process and innovation, client and network capitals). Basing on existing literature, we make an attempt to identify and systemize indicators, associated with intellectual capital and reveal that network capital metrics remain under-researched and deserve closer examination. It was also found that investigators should develop the system of intellectual capital indicators, taking into account industry specificity.
As for empirical studies, in order to investigate the influence of intellectual capital on corporate value and financial performance, it seems reasonable to elaborate models, which include factors, associated with all intellectual capital components and subcomponents and, what is just as important, their interrelations. Furthermore, it is vital to investigate the relationships between the values of IC components for companies. The models should be adopted for both developed and developing countries. It is also important to analyze the influence of intellectual capital in various industries separately, taking into consideration phase of economic cycle.
The question of Big Data technologies, not only in the financial sector, but in general, is a logical pattern of technical and scientific progress of the last decades. The change of paradigms has led to the fact that today’s managers and economists have to work not only with large volumes of information, but also with new types of data. Processing the new format files allows managers to make more accurate and effective financial decisions. It is necessary to say, why these decisions are important for business. They make it possible to achieve the goals that modern organizations set for themselves: increasing the value of the enterprise, increasing investment attractiveness, improving the quality of forecasting. This situation in a well-functioning world system has led to the emergence and development of new trends in education, in particular, in the field of education of financial professionals. Focusing on Russian achievements and Western researches of fundamental and applied disciplines, it should be noted that the modern financier is increasingly integrated into the Big Data technology environment. He needs knowledge of the construction of wording of requests to manage competently. For this, the skills of working with search programs, the use of search operators, work with search robots are important. At the theoretical level the future financier must study strategic, statistical, mathematical, systemic, stochastic, probabilistic and other types of analysis.
The variance and semivariance are traditional measures of asset returns volatility since Markowitz proposed the market portfolio theory. Well known models for expected asset returns were developed under assumptions of mean-variance or mean-semivariance investor’s behavior. But numerous papers provided arguments against these models because of unrealistic assumptions and controversial empiric evidence. More complicated models with downside risk measures experienced difficulties with applications. The new model based on the special form of the investor’s utility function is proposed in this paper.
We suppose that the agency conflicts between shareholders and bondholders may affect the level of risk of company's debt instruments, therefore, increasing the cost of debt of the firm. A number of corporate governance mechanisms are developed to alleviate the conflicts. This paper surveys research on the relationship between corporate governance and the cost of debt. We pay special attention to the empirical papers with specific findings on cost of debt's nonfinancial determinants in emerging markets.
The article focuses on the assessment of what impact corporate governance has on the effectiveness of Russian diversified companies. Diversified companies are a subject of particular interest, as not only developed and emerging economies have different features of corporate governance, but within one country there are also companies whose development strategy and industry have a significant impact on the optimal corporate governance structure. Corporate governance in diversified companies is a complex process due to its multi-level structure, which intensifies the agency problem between the company's stakeholders and managers. We have devised a new corporate governance index and conducted an assessment of corporate governance in seventy eight diversified Russian companies in 2011–2013. The sample has proven a statistically significant positive correlation between the level of a company's corporate governance and its effectiveness, which is measured through the economic value added indicator.
Russian stakeholders of joint stock companies, which shares are not traded on a stock exchange, and limited liability companies need the effective instruments which enable them to detect the facts of financial statement fraud quickly because the financial statement remains the main source of information about the companies’ performance for them. Although Institute of Auditors is one of the most reliable tools which identify financial statement manipulations, the costs, connected with audit, are too high and, and as a result, stakeholders have to look for other instruments to distinguish fraudsters, which make an attempt to overestimate or underestimate net assets and financial results, from non-fraudsters. Mathematical model of the American researcher Messod Beneish can be considered as an example of such tools. The general purpose of this paper is to identify whether it is possible, basing on the Beneish model, to create a new one, which enables to distinguish fraudulent from non-fraudulent financial statements reporting in Russia, and determine the accuracy level of fraud status forecasts made by using this model. In our research we are going to concentrate on identification of companies, which overestimate net assets and financial results. Tо obtain the information on the financial ratios included in the model we use financial reports of Russian both non-traded joint stock companies and limited liability firms. The conclusion can also be drawn that it is possible to develop the fraud detection probit model and linear model (integrated M-score index), which enabled stakeholders to identify fraud status correctly in 83% and 60 % respectively. Developing the model we include extra parameters, connected with growth rate of other income to sales ratio and an accounting policy of the company. It was found that fraud risk increases if the company chooses accounting policy according to which administrative costs are charged to core product expenses.
In this research the analysis of the impact of corporate financial architecture on company’s performance is conducted for a sample of large Russian companies. We focus on sustainable growth identified thru the application of intrinsic value change criteria. We employ integrated approach to understand the determinants of the sustainable growth based on key structural characteristics of a company. The financial architecture is represented by ownership structure (managerial ownership, foreign ownership and ownership concentration), corporate governance (the structure of the board of directors and internal control) and capital structure. We examine the difference in characteristics of growth sustainability of Russian companies representing three different types of financial architecture of more than 50 large Russian firms. Our results indicate that corporate financial architecture has a significant impact on the sustainable corporate growth in the Russian market. More importantly, we show that the nature of the influence depends on the type of financial architecture.
Each company operates within the framework of interrelated structures: ownership, corporate governance and capital structure. The particular combination of these dimensions determines the corporate financial architecture of the company. Despite the growing body of literature on the challenges of the knowledge economy to the structural dimensions of companies, still little is known about the financial architecture of innovative firms. At the same time it is widely recognized that such companies substantially differ from traditional types of businesses in their business models and dynamics. Meanwhile, the financial architecture of a company generates the distribution of the incentives to enhance innovations affecting interests and risk-sharing among stakeholders. To address the lack of research into the interaction of corporate structures and their distinct features in innovative companies, this paper aims at identifying the robust financial architecture patterns of innovative companies. Using a sample of more than 1,300 publicly traded US-based manufacturing companies, we use an agglomerative hierarchical clustering method to identify relevant patterns and compare them to the firms which are not considered to be ‘knowledge intensive’. The empirical results allow the identification of seven robust financial architecture patterns within innovative companies. Our findings show that the first major difference between the financial architecture of innovative and non-innovative firms is in the higher role of activist institutional investors in the ownership. The second notable difference is related to CEO-duality, which plays a significant role in corporate governance only in innovative firms. Moreover, innovative companies are less leveraged than non-innovative firms. In addition, mature innovative companies demonstrate better financial performance.
The paper aims to add to the literature on the connection between corporate governance and company valuation. We refer to the case of the Russian banks to suggest that connection between gpvernance and the stock price cannot be established in a convincing way due to data scarcity. Russia's stock market can supply sufficient statistical material for a study involving just two large state-controlled banks. This discussion is potentially relevant for other economies that share institutional characteristics such as high ownership concentration, the shallowness of the stock market, and substantial role of state-controlled firms.
This paper aims to investigate the effect that internal corporate governance mechanisms have on the performance of commercial banks, how it differs for developed and emerging European markets, and whether it has changed as a result of the financial crisis. The key statistical tool used in the paper is the panel data analysis of the sample of 150 banks from 27 countries, over the period 2004-2011. We document the evidence partially supporting the effectiveness of smaller boards of directors, while the board independence seems to be negatively associated with the strategic performance of banks, especially in emerging markets and in times of a crisis. In emerging markets, state-owned banks appear to be more market-efficient, while high ownership concentration is considered by market players to be a negative signal. Studying the 2008 financial crisis period provides the evidence for structural movements in nonfinancial performance drivers.
This paper aims to discover evidence on the possible impact of CEO overconfidence on payout policy, and the role of corporate boards in offsetting the possible negative effects of this overconfidence. Our investigation demonstrates the effect of overconfidence on the choice of payout method, specifically regarding the repurchases-dividends mix. We also evaluate the ability of corporate governance mechanisms to reduce or even eliminate the negative effects of CEO behavior on payout decisions.
This study is conducted using a sample of 671 non-financial companies from the US for the period of 2007–2016. We apply probit regressions to study different aspects of payout decisions, and use a panel GMM estimator to check for possible endogenous effects. Using a corporate governance quality index, we test the ability of boards of directors to reduce negative effects of CEO’s overconfidence on the payout decisions.
Our findings confirm the hypothesis that overconfident CEOs tend to increase the levels of payout in the form of repurchases, while the levels of cash dividends are unaffected by this type of CEO behavior. Moreover, an overconfident CEO is more likely to initiate repurchases if this has not been done already. The results further illustrate that overconfident CEOs not only pursue higher levels of repurchases, but also switch more often from cash dividends to repurchases. However, it is also shown, in contract to previous research in the field, that efficient boards of directors have very limited power in eliminating the negative effects of CEO overconfidence.
This paper contributes to the existing literature by analyzing the specific area of CEO overconfidence using data from the United States, and follows specific lines of inquiry which have not been deeply studied. Further possibilities to explore the implications of this research exists particularly in the consideration of its apparent contradiction of previous research. There is yet scope to determine applicable tools of reducing the negative effects of specific CEO behaviors. It is possible to identify and investigate other relevant behavioral characteristics that may influence payout decisions. Further, these characteristics may be evaluated to see if the operation of these interrelations reproduce alternative results in terms of the effect of corporate governance, both in the US and in other markets.
The article presents the results of empirically testing the predictions of the dynamic trade-off theory on the data of 56 Russian medium-sized companies. We use the data from 2004 to 2008 and show that the management behavior follows the principles of the dynamic trade-off concept. According to our analysis, the optimal interval for the company leverage becomes narrower as the profitability, size, growth opportunities and tangibility of a firm increase. Statistically significant difference between the lower and upper bounds of the interval confirms that the management adjusts the debt level targeting the optimal interval but not a specific optimal level.
In this paper we study the performance effects of capital structure, ownership structure and corporate governance mechanisms of Russian companies. To address the lack of research in corporate performance modeling in emerging markets we contribute to the literature by introducing cluster analysis of financial architecture and market performance of Russian companies. Our idea is to find out the efficient and inefficient types of financial architecture in emerging markets. On the sample of 50+ largest Russian nonfinancial companies within the period of 2005-2010 years we demonstrate existence of three sustainable types of financial architecture in Russia. Using cluster analysis we form the cluster of companies in pre-crisis period and then demonstrate the relationship between the financial architecture type and level of market performance of the company.
In this article, we consider the relation between capital structure, corporate governance, ownership structure and performance of a company depending on its life cycle stages. The central aim of this study is to define the most sustainable and effective types of financial architecture by using the cluster and regression analysis. This study describes the three stages of the life cycle of a company: the first stage is growth, followed by maturity and finally the stage of decline, but for our research we only examine companies in the maturity stage. The research includes 11 countries from emerging markets and the primary sample includes 4,675 non-financial companies from 2011 to 2015. As the measure of a company’s performance, we used Tobin’s Q coefficient and total shareholder return. The primary sample was divided into the 3 life cycle stages by using the approach of comparing the growth rates of revenues at the average rate of revenue growth in the industry (Cao, 2010); however, we did not consider the earlier stages of the life cycle due to the specificity of the sample. A cluster analysis was performed on the sample for the growth and maturity stages in order to show the difference between the clusters that depends on the life cycle stages. We analyzed the clusters’ sustainability by regression analysis in each cluster. We described the influence of the financial architecture component on market performance. The results indicate more than one sustainable cluster and demonstrate the influence of the ownership structure, capital structure and the board characteristics on the company’s efficiency depending on the stage of the life cycle, which proves there is a need to take into account the issues of the life cycle. The managers and directors of a company can use results of this study when developing a company’s strategy, especially during the transition period from one life cycle to another.
The article presents the results of empirical an alysis of IPO’s efficiency for companies from Russia and other emerging markets. At first we examine the structure of the issues and the motives for going public. We analyze the interrelations between the motives and the influence of IPO on the operating results of the firms after IPO. In contrast to most empirical papers we find no significant decrease in operating measurers of efficiency after IPOs in Russia and Kazakhstan.
In pursuit of economic growth and development, companies have tried to strike a balance between competition and monopoly power. This paper reviews the evidence on industrial concentration and its economic correlates (notably firms’ performance as measured by innovation output) in frame of emerging markets conditions. Competition theory was developed in countries under assumptions that do not necessarily fit the emerging countries. Our main research question is whether the level of local market concentration influences (and if it does, in which way) on innovation activity undertaken by companies operating on emerging markets. Apart from linear association, the empirical literature suggests that industrial concentration could exhibit an inverted U-relationship as far as its link to certain economic indicators of success, such as innovation output. We measure concentration by using the Herfindahl-Hirshman Index. This paper finds empirical evidence in support of the Schumpeterian hypothesis that more concentrated industries stimulate innovation and observes the inverted U-relationship curve. Further, the empirical model demonstrates the relative importance of technological leadership in concentration industries for enhance innovations. This suggests a role for recalibrating firm and industry policies amend.
Financing and payout decisions generally affect company’s economic performance: they have impact (both directly and indirectly) on the free cash flow and, thus, on company’s and shareholders’ value. Search for optimal capital structure and optimal payout policy strategy that are likely to maximize shareholders’ utility resulted in the papers, dedicated to determinants of capital structure and payout policy. In such papers, one of the policies is usually treated as a determinant for another one. This bound does not let researchers to make some conclusions about existence or absence of interrelation between payout and financing choices. To capture this interrelation, simultaneous regression analysis should be performed. Researchers, though, cannot come up with unified conclusion about the existence and direction of such interrelation. The absence of certain results as well as low level of research done on emerging markets make this topic rather relevant. The results of recent research on the interrelation between payout and financing decisions are discussed in this paper. We also develop an econometric model that allows us to check the existence of interrelation in emerging markets and to compare the results to those obtained from developed markets. The article contributes to the existed literature in the following directions: first, two debt variables are taken into account (total and long-term debt) as well as two payout policy variables (total payout and dividend payout). Second, macroeconomic variables are controlled. Third, the results obtained from the companies from emerging countries are compared to those obtained from developed markets.
In this paper, the authors focus on two primary governance mechanisms which can be considered as sources of support for startup companies: the company’s ownership contingent and the company’s management personnel. Based on descriptive statistics from a sample of 416 Skolkovo start-ups from the ‘Nuclear’ and ‘Space’ clusters, and a Start-up-Barometer survey of 300 IT-entrepreneurs, this work provides new insights into ownership and management characteristics of Russian startups and the interplay between these dynamics.
The Russian venture market presents an interesting case of an emerging market with a number of successful startups in a challenging economic environment. The supply of venture capital for Russian startups is restricted by the presence of sanctions and legal restrictions on the investments of financial institutions such as pension funds and banks. Therefore, similar to other developed and developing markets, the most significant source of investments for Russian startups is bootstrapping.
In this paper we show that startups with different characteristics attract different kinds of investors, which is reflected in the companies ownership structures. In particular, government development institutes are more interested in investing in nuclear-focused startups, while corporate investors tend to keep a higher level of control over startups compared to other investors. We also confirmed the presence of correlations between different types of owners: government development institutions, corporate investors, venture funds, and family members. Additionally, the size of equity share for all types of owners (except family members) was found to be negatively correlated with the CEO’s share in the ownership structure.
Although the purpose of the article is descriptive, it motivates further research on the sources of support of startup growth, including relative importance of such sources and their effects on startup performance.