Which emerging markets offerthe best bets for future-minded investors and CEOs? Most research shows that investors and managers that treat emerging markets as groups – and assess them according to relative performance vis-a-vis their peers -- tend to profit more than those taking a country-by-country approach. We show that emerging markets that did well yesterday usually do well tomorrow. But more importantly, our method for grouping emerging markets allows us to draw some profitable insights. For example, advanced emerging markets grow with more investment in internet access; dormant economies grow with more investment in political institutions. Our analysis also reveals a surprising finding - advanced economies possess far more growth potential than dormant economies. First ranked Estonia looks moribund compared to the extra 25% GDP growth the Republic could have achieved by implementing best-in-the-world policies. Even better, most emerging markets could have “given up” (saw reductions without GDP falling) significant internet connections, foreign direct investment or other factors – just by copying best practice.
We document that the accrual anomaly is mitigated for firms followed by experienced analysts, suggesting a positive link between analyst quality and stock price efficiency. We examine two channels through which analysts may improve price efficiency — the research and monitoring channels. We find analysts and investors respond more positively to the accrual component of earnings for firms followed by experienced analysts, consistent with the monitoring channel, whereby experienced analysts bring about better accrual quality. Direct examination of accrual quality confirms that firms followed by experienced analysts have higher accrual quality; this holds around exogenous events of broker mergers and closures.
This paper attempts to formalize the transaction cost theory of the firm. Building on the formal approach of Grossman and Hart (1986), a model is developed to capture the essential elements of the transaction cost theory, particularly those that are distinct from the formal property rights theory (PRT). In contrast to the PRT model, ours focuses on specific investments in alienable assets and ex post transactional inefficiencies. We define integration of two firms to imply common ownership of alienable assets from both firms, which entails control rights over the use of the assets as well as claims on their residual value. One important advantage of the model is its ability to deal with integration between non-owner-managed firms.
This paper explores rent-seeking behavior in a heavily regulated equity-financing market. Using manually-collected information about ownership changes from China’s IPO application filings for the Growth Enterprise Market (GEM), we find that over a third of firms receive late-stage private equity investment and subsequently halve rejection rates for IPO applications, compared to firms without PE investment. The PE investors help firms pass the regulatory barriers, especially for those with weaker quality, and are rewarded with 9.5 times return over a 14-month period for an average deal. We also examine alternative explanations for extraordinary PE returns, such as financing, selection/certification, and managerial involvement, and find rent-seeking is the most coherent explanation to our findings.