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on Corporate Finance |
| By: | Wendy Carlin; Andrew Charlton; Colin Mayer |
| Abstract: | This paper uses a new data-set to examine how internal capital markets and foreignownership affect investment. Our data allow us to compare investment behaviour of listedsubsidiaries with stand-alone firms while controlling for investment opportunities of parentand subsidiary firms. We evaluate how the size of ownership and the geographical proximityof majority owners to their subsidiaries affect firm investment efficiency. We find that theinvestment of subsidiaries is more sensitive to investment opportunities than that of standalonefirms and falls when investment opportunities of parent firms improve. This suggeststhat there are internal capital markets that reallocate funds towards units with betterinvestment opportunities. We find that investment allocation is most efficient where parentshave modest ownership stakes and are distant from their subsidiaries and when subsidiariesoperate in well developed financial markets. These results indicate that influence costsimposed by dominant parents may outweigh their potential informational benefits, especiallywhen subsidiaries are located in countries with weaker financial development. |
| Keywords: | Investment, Internal Capital Markets, Foreign Ownership |
| JEL: | F21 G31 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0744&r=cfn |
| By: | Nick Bloom; Stephen Bond; John Van Reenen |
| Abstract: | This paper shows that, with (partial) irreversibility, higher uncertainty reduces the impacteffect of demand shocks on investment. Uncertainty increases real option values makingfirms more cautious when investing or disinvesting. This is confirmed both numerically for amodel with a rich mix of adjustment costs, time-varying uncertainty, and aggregation overinvestment decisions and time, and also empirically for a panel of manufacturing firms.These cautionary effects of uncertainty are large - going from the lower quartile to the upperquartile of the uncertainty distribution typically halves the first year investment response todemand shocks. This implies the responsiveness of firms to any given policy stimulus may bemuch lower in periods of high uncertainty, such as after major shocks like OPEC I and 9/11. |
| Keywords: | Investment, uncertainty, real options, panel data |
| JEL: | D92 E22 D8 C23 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0739&r=cfn |
| By: | Battaglini, Marco; Morton, Rebecca; Palfrey, Thomas R. |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:clt:sswopa:1262&r=cfn |
| By: | Mete Feridun (Department of Economics, Loughborough University) |
| Abstract: | Economies are susceptible to speculative attacks regardless of whether they use fixed or floating exchange rates. Turkish experience in the last two decades constitutes one of the most prominent examples proving this verdict. It is widely accepted that narrow money (M1) is the most conventional measure of liquidity, excessive growth of which may fuel speculative attacks on the currency. The literature on currency crises clearly lacks a country-specific study that addresses the long-run relationship between this indicator and the speculative pressure in the exchange market. This article aims at filling this gap in the literature using monthly Turkish time series data spanning the period 1984:04- 2006:11. Results of the ADF unit root tests suggest that the series are stationary. Hence, no-cointegration analysis was carried out before the Granger-causality tests. Granger causality tests reveal strong evidence supporting univariate causality running from narrow money (M1) to exchange market pressure. This outcome lends empirical support to the Turkish policy makers’ current efforts to maintain a tight control of the money supply. |
| Keywords: | Speculative attacks; currency crises; domestic credit. |
| JEL: | F3 E44 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2006_24&r=cfn |