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 topic of payout policy significance in terms of value creation has been developing for 50 years already. This development has led to the establishment classic theories that explain different patterns in the companies’ payout policy choices: signaling, agency costs theory, clientele theory and catering theory. However, tests results are not always consistent among different authors, which means that these theories cannot be used universally. Classic theories assume that all agents on the market are fully rational, which is rather unrealistic. These two facts led to the development of behavioral explanation of the payout policy choice. This approach focuses on the behavioral characteristics of managers that are responsible for the decision-making process in the company. Thus, the payout policy according to this approach is considered as the function of behavioral characteristics of managers (overconfidence, optimism, risk preferences, etc.) rather than the function of the financial variables.
This particular article is the review of researches that cover classic and modern theories of payout policy. The article covers the logic of the development of different views on the payout policy. The author covers articles that test different theories, analyzes main results and conclusions, investigates the reasons for the development of these theories. The main focus has been made on the behavioral approach which is considered as the most fruitful direction for the future research. The authors also cover the methodology of existing papers, variables that measure behavioral characteristics and results.
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.
We study share price performance at ex-dividend date, and its relation to trading volume and a set of factors corresponding to different explanatory theories. Among the investigated factors that may have impact on ex-dividend date share price, are dividend yield, capital gains tax rate and dividends tax rate, transaction costs, market microstructure characteristics, market stock risk, and disposition effect. The research was conducted with the panel data of companies from BRIC zone for the period 2005-2015. According to obtained results, dividend capturing and disposition effect theories are likely to have explanatory power for ex-day phenomenon for our sample. Tax theory and dividend clientele theory have not found empirical support.
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.
Innovative companies have become one of the major drivers of the economy worldwide. According to various surveys, nearly 70% of the world's most innovative companies in 2019 are US firms. However, academic studies have tended to focus on the influence of the top management team and the board of director’s on the firm performance or the relationship between innovative activity and the CEO`s preferences. However, this overlooks the idea that the CEOs themselves can exert a significant influence on the performance of innovative companies. As such, we aim in this research paper to show which CEO characteristics could lead to higher firm value.
This research uses the generalized least squares model on a sample of 12,565 firm-year observations during the period 2004-2015. We used data for three innovative industries: (i) pharmaceuticals, biotechnology & life sciences, (ii) software and services, and (iii) technology hardware and equipment industries. Additionally, we hand-collected data from the CVs stored in the CIQ database. Finally, we provide examples to prove the validity of our tests.
Our results indicate that educational background, tenure, and duality play crucial roles in explaining firm value. Our findings indicate that CEO characteristics play crucial roles in explaining technology firm value and performance. We demonstrated that the founding CEO, as well as a CEO with better education, contributes more to firm performance. We found that the characteristics of a CEO can mitigate conflicts between different types of investors and their influence on firm performance. More specifically, the CEO-founder was found to add greatly to the performance of Software and Pharmaceutical companies. Furthermore, CEO influence seems to mitigate the conflict of interest with independent active institutional investors in the Hardware industry.
The novelty of this paper resides in its specific answers to questions that are overlooked or taken for granted in broader studies on the same subject area. We emphasize the differences in ownership structure in high-tech and non-tech industries, and not only provide answers as to whether the vaunted ‘power’ of a chief executive is significant in increasing company value, but whether a highly educated CEO contributes more to innovations in the hi-tech sphere. The specificity of the empirical investigations concluded herein lends itself well to reference, and as such, this paper provides opportunities for academics, students, professionals, and journalists in the business field to cite its conclusions in any number of media.
Global shifts in perspectives on environmental concerns and the growing significance of large-scale sustainability programs have brought the issue of green financing to the fore of financial research. In terms of volume, this area has demonstrated high growth rates in various types of capital markets.
Unfortunately, few studies exist which explore the yields on green bonds in emerging markets in comparison to developed ones. As such, in this paper, we contribute new evidence to the field of green financing and outline several major differences between green issues in these types of capital markets.
We study yield premiums of green bonds on a sample of 2,450 green issues and comparable traditional bonds over the period from 2008 to March 2020. We contribute to the literature by new empirical evidence on green financing.
Our results provide evidence of small but statistically significant negative premiums on green bonds of 23,4% compared to the expected yields for standard issues. We also show that the negative premium on green bonds is more pronounced in developed markets (- 27%) than in emerging ones (18%). Moreover, we provide new evidence on the negative premium-liquidity relationship. Our research concludes that negative premiums are related to a higher level of liquidity: green bonds have lower bid-ask spreads and a higher level of liquidity than traditional ones.
These conclusions can assist investors, potential issuing companies, and public authorities in achieving a better understanding of the current situation of the green bond market in global terms.
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 question as to whether political influence can benefit the commercial activity of companies, and the related questions surrounding political corruption that arise, are of perennial fascination for persons at every level of society and in every country. With this in mind, this article seeks to explore the relationship between political connections in commercial firms and investment efficiency. This relationship will be studied on an empirical basis, and will shed some light on the actual parameters, mechanisms, and effects of political influence in the business sphere in the Russian Federation. In this research, we consider only direct relations between business operators and the members of Russian ministries, councils, political parties, heads of the regions and cities. These relationships are categorised as being politically influential depending on the status of the politician, and whether they are active at a federal, regional or municipal level. Connections with such politicians are examined where there is evidence of direct links with company CEOs and chairmen of the boards of directors of companies. This research is carried out on the sample of 106 Russian non-financial companies for the period 2010–2015. 44 companies from the final sample were considered as politically connected on at least one level. Some firms have connections more than at one level (11 companies). Companies have politically connected chairman of the board (36 companies) more often than connected CEO (26 companies). Using regression analysis, we determined whether the political ties in Russia have a positive or a negative impact on the investment expenditures of companies. Interestingly, and perhaps contrary to popular belief, we identified a negative relationship between political ties and the efficiency of investment decisions for individual companies. The presence of politically-connected CEOs at federal and regional levels is seen to have a significant negative impact on investment efficiency. However, our results also indicate that the presence of politically-connected chairmen of the board which are active at the municipal level is correlated with efficient investment activity. This indicates that political influence at this level may be responsible for more prudent recommendations regarding commercial and investment decisions. Overall, it can be seen that in this sample of companies from the Russian Federation, the presence of state-tied representatives may be aligned with a tendency for companies to follow targets that are favourable for its government connections and not for the firm itself. Although political connections have a mixed impact on the company’s value, the relation with investment efficiency is primarily negative. Thus, we may reason that the government has a strong power over politically-related companies. Such influences are linked with a tendency for companies to deviate from their primary goal of value maximisation. These results may indicate the influence of undue pressure from a government which strives to reach its own goals through the mechanism of commercial activity, or perhaps the opportunistic behaviour of individuals in management positions who are motivated towards personal political gain at the expense of the company. Political connections have a mixed effect on the company’s performance and investment efficiency, and we postulate that firms establish relationships with government officials pursuing the goal to obtain more advantageous position. The links between political operators and business activity demonstrated in this research undoubtedly highlight some uncomfortable areas of discourse in the commercial sphere. On a granular level, further research into specific transactions and motivations may seem more a research area for journalists or law enforcement investigators, but this may be simply a popular prejudice. There is certainly ample opportunity for expanding the scope of this study’s results. Beyond the interests of political, sociological and legal researchers, the data presented herein will be of immediate interest to persons operating in the commercial, business, and economic spheres of the Russian Federation and internationally.
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.