Posts Tagged ‘Emerging markets’

Corporate Governance Enforcement in the Middle East and North Africa

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday October 12, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Alissa Amico, corporate governance project manager for the Middle East and North Africa at the Organization for Economic Co-Operation and Development (OECD), and is based on an OECD Corporate Governance Working Paper by Ms. Amico; the complete publication is available here.

As an echo of the last financial crisis, the two themes that have arguably dominated the corporate governance debate globally are investor activism and corporate governance enforcement. Recent years have seen by all accounts the highest rates of institutional investor activism on a range of issues such as executive remuneration, non-financial disclosure and board composition, and at the same time, increased oversight and enforcement. Stewardship-oriented initiatives and rigorous enforcement activity by securities but also banking sector regulators have seen a level of heightened interest in Europe and North America, and to a lesser extent in emerging markets.

…continue reading: Corporate Governance Enforcement in the Middle East and North Africa

Firms, Countries, and Quality of Corporate Governance in Developing Countries

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday February 25, 2013 at 9:22 am
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Editor’s Note: The following post comes to us from Andrea Hugill and Jordan Siegel, both of the Strategy Unit at Harvard Business School.

Variation in firms’ corporate governance is an important topic of debate in the governance literature. One of the main questions is whether weak and/or incomplete public institutions in emerging economies dictate the governance quality of local firms. The most recent scholarship on the subject has generally argued that country characteristics strongly predict governance (Krishnamurti, Sevic, and Sevic (2006)). Doidge, Karolyi, and Stulz (2007) find that country variables explain 39-73% of governance variance while firms explain only 4-22%. Moreover, they argue that firm characteristics explain almost none of the governance variation in “less-developed countries.” In our paper, Which Does More to Determine the Quality of Corporate Governance in Emerging Economies, Firms or Countries?, which was recently made publicly available on SSRN, we offer a new understanding of firm and country characteristics’ contribution to emerging economies’ governance.

…continue reading: Firms, Countries, and Quality of Corporate Governance in Developing Countries

Business Ethics in Emerging Markets and Investors’ Expectations Standards

Posted by George Dallas, F&C Management Ltd., on Saturday January 19, 2013 at 10:20 am
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Editor’s Note: George Dallas is Director of Corporate Governance at F&C Investments. This post is based on an article by Mr. Dallas that first appeared in the International Corporate Governance Network’s 2012 Yearbook.

Ethics is in origin the art of recommending to others the sacrifices required for cooperation with oneself.” Bertrand Russell

Since the publication of its Statement and Guidance on Anti-Corruption Practices in 2009, the ICGN has actively advocated the fight against bribery and corruption as a fundamental component of the corporate governance agenda. The Statement and Guidance takes a global perspective, making clear that anticorruption is a priority in all markets.

But is it appropriate to set the same standards for anticorruption in all jurisdictions, particularly in emerging markets, where many underlying conditions are different and where bribery and corruption are particularly acute in both the public and private sectors? This was the question posed as the main discussion point at ICGN’s “Town Hall” meeting on business ethics in its June 2012 conference in Rio de Janeiro. Meeting participants, from a range of developed and emerging markets, expressed a resounding consensus that investors should not compromise their standards on anticorruption in emerging markets, even if corruption may be a more deep-rooted problem. However, while absolute standards on anticorruption should remain undiluted — beginning with a “zero tolerance” position — there may be different anticorruption strategies to apply in emerging markets, reflecting economic, cultural and legal differences.

…continue reading: Business Ethics in Emerging Markets and Investors’ Expectations Standards

Cherry Picking in Cross-Border Acquisitions

Posted by E. Han Kim, University of Michigan, Ross School of Business, on Thursday September 20, 2012 at 9:14 am
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Editor’s Note: E. Han Kim is a Professor of Finance at the University of Michigan.

In the paper, Cherry Picking in Cross-Border Acquisitions, my co-author (Yao Lu of Tsinghua University) and I investigate how investor protection (IP) affects the allocation of foreign capital inflows at the firm level. A simple model provides an explanation for a well documented but little understood phenomenon on international capital flows—the tendency of foreign investors to target better-performing firms in emerging markets.

When a foreign acquirer’s country has stronger IP than a target country, the acquirer’s controlling shareholder values private benefits of control less than controlling shareholders of local firms because stronger IP imposes greater constraints on diversion of corporate resources for private benefits. Within the target country, controlling shareholders of firms with more profitable investments take fewer private benefits and, hence, demand lower control premiums. Foreign acquirers, which value control premiums less, will target firms with more profitable investments. The tendency to cherry pick will intensify (moderate) as the IP gap between the acquirer and target countries increases (decreases).

…continue reading: Cherry Picking in Cross-Border Acquisitions

Corporate Governance in Emerging Markets

Posted by George Dallas, F&C Management Ltd., on Wednesday August 24, 2011 at 9:22 am
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Editor’s Note: George Dallas is Director of Corporate Governance at F&C Investments. This post is based on an International Finance Corporation report by Mr. Dallas and Melsa Ararat, Director of the Corporate Governance Forum of Turkey and faculty member at Sabanci University; the full report is available here.

Emerging markets play an increasingly important role in the global economy, given their high economic growth prospects and their improving physical and legal infrastructures. Combined, these countries account for nearly 40 percent of global gross domestic product, according to the International Monetary Fund.

For some investors, emerging markets offer an attractive opportunity, but they also involve multifaceted risks at the country and company levels. These risks require investors to have a much better understanding of the firm-level governance factors in different markets.

The Complexity of What Matters in Emerging Markets [1]

Over the past two decades, the relationship between corporate governance and firm performance has received considerable attention from inside and outside academia. Most cross-country studies on corporate governance focus on the relationships between economic performance and countries’ different legal systems, particularly the level of investor protections.

…continue reading: Corporate Governance in Emerging Markets

The Value of Control in Emerging Markets

Posted by Jim Naughton, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday December 2, 2009 at 11:57 am
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Editor’s Note: This post comes to us from Anusha Chari and Paige Ouimet, Assistant Professors of Finance at the University of North Carolina at Chapel Hill, and Linda Tesar, Professor of Economics at the University of Michigan.

Foreign acquisitions extend the boundaries of the firm across national borders. In the context of emerging markets, these boundaries are extended across countries with vast asymmetries in institutions and property rights protection. If developed-market firms can extend the benefits associated with superior institutions to their operations in emerging markets by acquiring control, the stock price of the acquiring firms should reflect these value gains. In our forthcoming Review of Financial Studies paper, The Value of Control in Emerging Markets, we examine the returns to shareholders of developed-market firms that undertook acquisitions in emerging markets.

We find that when developed-market acquirers gain control of emerging-market targets, they experience positive and significant abnormal returns of 1.16%, on average, over a three-day event window. In the context of the well-documented underperformance of acquiring firms in U.S. mergers and acquisitions (M&A) transactions, this return is somewhat anomalous. It is also fairly substantial when viewed in relation to the size of acquiring firms in these transactions. The acquirer stock price reaction suggests a median (mean) dollar value gain of $4.07 ($30.15) million for the acquirer. In comparison, the median (mean) transaction value in an emerging-market acquisition where control is acquired is $42.41 ($308.57) million. In contrast, acquisitions of minority stakes do not deliver significant acquirer returns.

…continue reading: The Value of Control in Emerging Markets

 
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