Do Cognitive Biases Impact M&A Performance in Emerging Markets? Evidence from Russian Firms
The paper presents the results of dynamic trade-off empirical testing on the data of 30 countries for 2005-2010. The authors show that the speed of adjustment to the target capital structure for Western Europe countries is mostly determined by internal factors. Meanwhile for emerging capital market the growth rate of GDP as well as time dummy variables are crucial determinants of speed of adjustment. Institutional factors such as credit and bankruptcy institutions developments revealed nonlinear relationship with the speed of adjustment. Moreover, investor protection developmens is also a significant determinant that exhibits positive relationship for both developed and emerging markets.
In this study we analyze a problem of the account of low liquidity of securities at carrying out of the fundamental analysis in the Russian capital market. The discount rate for prediction cash flow is a important factor in target price calculation. Standard САРМ as a model to explain assets pricing has restrictions in practical application. One of the problems of application - low liquidity of stocks in emerging markets. In this study we test on 72 companies of RTS stock exchange the technique of formation of the beta-factor, offered by Aton Investing Group and applied by a number of analyticals of the investment companies of the Russian market. This technique tries to consider both the size of the company, and a level of liquidity of its stocks.
The debt-to-equity choice has always been one of the crucial decisions of the firm’s management. The capital structure is vital for the appropriate development of relationships among the company’s stakeholders. The conflicts of interests between management and shareholders and creditors as well as conflicts between other groups of stakeholders lead to the appearance of agency costs that decrease the corporate value. The role of agency costs is even higher in emerging markets due to higher information asymmetry, lower development of legal system, investors’ protection rights and corporate governance. Our paper contributes to the literature by analyzing the agency costs and capital structure choice on the data of emerging markets companies. Our sample consists of more than 150 companies from BRICS and Eastern Europe within 2000-2010. By conducting the empirical analysis based on both linear panel data regressions as well as simultaneous modeling of leverage choice and management shareholding we obtain the following results. The agency costs are relevant for debt-to-equity choice in Russia, India, China and Eastern Europe but the results are not so obvious in Brazil where financing policy could be explained by trade-off theory. We found out the non-linear relationship between financial leverage and management shareholding which is also in line with agency costs significance. Moreover we revealed that agency costs define long-term leverage, but cannot explain short-term debt in emerging markets. Further, we concluded that debt ratios based on market value of equity are not affected by agency costs opposite to capital structure variables based on book value of equity.