We investigate the phenomenon of asymmetric information that is typical in both developed and emerging markets. The purpose of this paper is to explore the impact of asymmetric information on the value-enhancing capital budgeting in emerging markets. This study examines three measures of asymmetric information – general return variation, firm-specific return variation and stock price delay. We apply the deviation of a firm's estimated marginal Tobin's q from a benchmark as an indicator of effective capital budgeting. Finally the impact of asymmetric information on the value-enhancing capital budgeting has been analyzed. Research was conducted with 1080 listed BRIC companies from 2005-2014. The key findings of the paper are: stock price informativeness measured by daily general return variation and daily firm-specific return variation has a significant influence of investment performance. We find that the high level of investment opportunities and financial constraints lead to less efficient investment decisions. Moreover industry analysis reveals that the high peers’ stock price informativeness measured by weekly general return variation and weekly firm-specific return variation lets managers to improve the corporate value. Our study contributes to emerging literature on the determination of relevant investment model by showing that managers can improve the investment efficiency and investors can decrease the risks of personal investments. In addition, this study provides additional evidence on the agency problem that affects firms' investment decisions. The analysis concludes that the necessity to reduce the level of information asymmetry is one of the key components of the corporate value maximization that would increase the corporate attractiveness to investors.
Until recently in Russia there were only administrative penalties for illegal insider trading, those were rarely used and insider trading was wide-spread. In 2010 the law on insider trading was introduced. It stipulated criminal penalties for illegal insider trading. An identification of cases of suspected insider trading and a comparison of its scale with other markets is a pertinent issue, including for an evaluation of the effectiveness of the adopted law.
The research of insider trading on developed and emerging markets shows that insiders earn positive abnormal return by trading shares before the announcements of important corporate events on average. This abnormal return is higher in emerging markets. Mergers and acquisitions are such type of corporate events. There is a correlations between severity of the law on insider trading and the size of insider trading.
Our research covered 36 M&A deals in the Russian market in 2006–2013. We have found positive average abnormal returns (ACAR) before the announcement of the deals. They reach 15% at the date of an announcement or a first rumor. These numbers are statistically significant starting from date -12 at the 1% confidence level. Two thirds of the ACAR is realized before the announcement of the deal while in the USA only one third is realized before the announcement. Average abnormal trading volume is also positive. A sharp increase of AVV takes place five days before the announcement. AVV grows up to the date of announcement and reaches 382% of the standard volume one day before the announcement. The existence of positive ACAR and AAV is an indication of the fact that the market learned about the deals before the an official announcement and even before public rumors, that is it hints at the existence of the insider trading in the Russian stock market.
We consider a model of a small open economy that explains some important features of inflation and real exchange rate dynamics observed in the Russian economy and based on the assumption of low interest rate elasticity of capital flow. We demonstrate efficiency of the model in simulating the medium term dynamics of inflation and real exchange rate including the financial crisis of 1998 and its usefulness in forecasting the variables under given conditions including the current financial crisis. We derive a clear trade-off between inflation and real exchange rate appreciation in the presence of external shocks. We offer a comparative analysis of optimal monetary policy under conditions of low and high interest rate elasticity of capital flow.
This paper considers operating and capital expenditures of public and private oil-producing companies as factors that underlie the competitiveness of enterprises. The purpose of the study is to (1) assess the competitiveness of specific producing companies (Iraq National Oil Company, Kuwait Petroleum Corporation, Qatar Petroleum, Saudi Aramco, ADNOC, ExxonMobil, Total, Royal Dutch Shell, OAO Rosneft, OAO Lukoil); (2) compare private and state oil and gas companies for the period from 2000 to 2013; and (3) form a conclusion about the competitive advantages of these companies. Panel data on production, export and expenditures of 10 oil-producing companies have been used to estimate the cost equation by means of ordinary and median fixed-effect regression. Based on these estimates, the authors have compiled rankings of companies on the competitive advantages from the standpoint of operating and capital costs separately. According to the obtained estimates, Arab companies have the smallest level of operating and capital costs when adjusted for the volume and the structure of production, which can be interpreted as their competitive advantage over their Western and Russian peers. The results of the work are aimed at improving the transparency of the global energy sector and, according to the authors, may be useful to Russian oil and gas companies’ management and global oil market researchers, especially in the current period of stagnation resulting from the recent drop of oil prices.
In the article we suggest the approach for production functions which takes into account the proportions of used resources. Composite production function is defined as maximum of output using multiple technologies, among which resources are allocated. We explore properties of these functions for technologies characterized by basic production functions (PFs). As basic we consider general homogeneous PFs and Cobb - Douglas, CES and Leontief PFs. Defined composite PFs are obtained in the form of continuous splines formed by pieces of isoquants of basic and liner PFs. And these composite PFs could be generated in the composite regimes of resource allocation among multiple basic PFs.
In contrast to competition authorities in developed countries, Russian competition authority often applies price cap on domestic wholesale price for large exporting companies. Competition authority issues remedies under merger approval or as a part of infringement decisions. Until recently, remedies are considered almost exclusively as a sign of intention of Federal Antitrust Service, Russian Federation, to expand the influence on markets and to restore price regulation. In this context price remedies never have any positive effects.
We suggest an alternative explanation. Large exporters of raw materials that obtain monopoly power due to mergers or protectionist policies exercise third-degree price discrimination. Prices for domestic customers, that are higher than export prices, decrease social welfare within the country. Price remedy is one of the ways to prevent price discrimination, together with import liberalization and sanctions for excessive prices.
We analyze the impact of incremental market power due to mergers or protectionist trade policies as well as compensatory measures applied by Federal Antitrust Service, Russian Federation, on the markets of metals. As methods for empirical estimations financial event study and difference-in-differences method are applied. None of the instruments - including price remedies, antitrust investigations, the reduction of import tariffs - shows a clear advantage over others. With a reasonable degree of confidence we can only say that the lack of compensatory measures would be accompanied by higher prices in the domestic markets, up to several dozen percent.
The problem of conflicts between the financial industry professionals’ business interests and the SROs' regulatory activities is studied in this paper. With the help of the elaborated methods the intensity of the US SROs conflicts of interest is revealed since 1991 till 2010 on the basis of the industry professionals’ individual preferences with regard to financial market efficiency. We determined that the professionals gained the maximal accumulated portfolio value provided systematic deviation of the market from normality (efficiency). The professionals’ goals of utility maximization did not match the SROs’ goals of the due market regulation in accordance with the regulator and international organizations requirements. These methods and results could be used in decision making about the allocation of financial market regulatory powers between regulator and SRO.