Allen, Qian, Shan & Zhu: Explaining the Disconnection between China’s Economic Growth and Stock Market Performance

Abstract:

The size of the Chinese stock market is the second largest in the world. The poor performance of this market over the period 2000-2013, relative to developed and large emerging markets as well as unlisted firms in China, has been striking. This is despite the fact that the Chinese economy, the largest in the world in PPP terms, has been the fastest growing economy globally for the past three decades. We examine reasons for the disconnection between economic growth and stock market performance. Problematic IPO and delisting processes exacerbate the adverse selection of firms into the market. With much higher levels of investment compared to listed firms from the US, Japan, India and Brazil, Chinese firms generate lower net cash flows, implying low investment efficiency. Lower cash flows are associated with more related-party transactions for Chinese firms, indicating deficiencies in corporate governance.

Available for download here.

Advertisements

Kitao: Pension Reform and Individual Retirement Accounts in Japan

Abstract:

The paper studies the effects of introducing individual retirement accounts (IRA) as an alternative to the employer-based, pay-as-you-go public pension system in Japan. Without any reform, the projected demographic transition implies a massive increase in government expenditures in the magnitude of 40% of total consumption expenditures at the peak. Gradually shifting the earnings-related part of pension towards self-financed IRA, expenditures can be reduced by 20% of total consumption, providing a major relief for the government budget. The reform generates a significant rise in capital, as individuals save more for retirement, which is invested over many years. As a result, wage, output, and consumption are also higher, leading to a sizeable welfare gain in the intermediate and long run. Current generations, however, can face a large welfare loss depending on how the transition is financed.

Available for download here.

Monk, Kearney, Seiger & Donnelly: Energizing the US Resource Innovation Ecosystem

From the Executive Summary:

By 2050, the world population is forecasted to reach 10 billion people, and consumption of natural resources is expected to increase four-fold above current rates. Radical resource innovation – across energy, agriculture, water, and waste – is required to prepare the world for this future. Without it, we risk irreversible climate change, military conflict over resource access, and deepening inequity in the developing world.

Paradoxically, there are no shortages of breakthrough technologies being developed in universities, national labs, and garages that could be as transformative today as the steam turbine in the 19th century or the solar cell in the 20th.  What there is a shortage of, however, is patient, early-stage capital to support the transformation of these projects into lasting, profitable companies. Even growth-stage companies in this space sometimes lack access to project capital to execute first-of-a-kind demonstrations and deployments, and to achieve price competitiveness at commercial scale. In short, preventing a climate catastrophe demands that we create a new investment toolkit that can help bridge the “valleys of death” faced by these companies.

We thus believe that the resource innovation ecosystem could benefit from the creation of a new aligned intermediary (“AI”). The AI, detailed below, is designed to be a uniquely aligned financial services organization whose mission would be to specifically help Long-Term Investors (“LTIs”) – such as pensions, endowments, sovereign funds, family offices, and foundations – identify, screen, assess, and invest in high-potential companies that are producing the most impactful, and indeed profitable, solutions to climate change.

Available for download here.

Brown & Dye: Illinois Pensions in a Fiscal Context – A (Basket) Case Study

Abstract:

Illinois’ public pensions are among the worst funded in the nation. We present evidence that the main reason for Illinois’ underfunding is a history of making inadequate contributions, dating back to the origins of the state’s pensions. We discuss the recent history and legal status of pension reform efforts in the state. Using a fiscal model of the state’s finances, we project how Illinois’ fiscal situation may evolve in the future. A key finding is that with or without pension reform, Illinois will continue to face significant structural deficits that will require revenue increases and/or additional spending cuts to address.

Available for download ($) here.

Cox, Ferri, Honigsberg & Thomas: Are Companies Impermissibly Bundling Proposals for Shareholder Votes?

Abstract:

The integrity of shareholder voting is critical to the legitimacy of corporate law. To help protect investors’ rights, since 1992, SEC rules clearly prohibit corporate management from distorting shareholders’ choices by the artifice of joining in a single resolution multiple items. SEC rules require corporate management to make individual management proposals on “separate” items.

In this paper, we provide the first comprehensive evaluation of the SEC bundling rules. We begin with a careful dissection of the rules themselves as well as the courts’ interpretation of them. We provide an analysis of the contrasting, less vigorous, interpretation of the rule by the SEC itself. We find that while the courts have carefully developed several useful approaches to the rules scope and proper application, the SEC’s efforts have been in stark contrast with the rules’ mission. In fact, we find that the most recent SEC interpretive guidance has undercut the effectiveness of the existing rules and created unnecessary ambiguity about their proper application.

Available for download here.

Williamson: Monetary Policy Normalization in the United States

Abstract:

Because of the Federal Reserve’s unconventional approaches to monetary policy during the Great Recession and recovery, the Fed now finds itself in an unconventional situation. Short-term nominal interest rates have been close to zero for more than six years, and the Fed’s balance sheet is currently more than four times as large as in 2007. This article explains how and why the Fed got into this situation and the challenges this creates in returning Fed policy to “normal”—a state in which the Fed’s nominal interest rate target is above zero and its balance sheet is reduced in size.

Available for download here.

Lupu: The Indirect Relation between Corporate Governance and Financial Stability

Abstract:

In the wake of last crises, there is an increased awareness regarding the role of a sound corporate governance framework for enhancing the financial stability. We believe, however, that the relationship between corporate governance and financial stability is an indirect one; companies are not obliged to pursue financial stability unless specific legislation or regulations require it. Interestingly, having such targets, large firms, especially those operating in the financial system, can lead to systemic risks, supporting financial contagion. Classical problems of corporate governance such as top management compensation, board composition, and independence of the director, agent theory or the correct valuation are problems envisaged to be analyzed when assessing how they affect financial stability.

Available for download here.

Soofi: China’s Foreign Direct Investments – Challenges of Due Diligence and Organizational Integration

Abstract:

This paper critically reviews Chinese companies’ foreign
direct investment practices of recent years. Using case studies involving
overseas Greenfield as well as merger and acquisition (M&A) of Chinese
enterprises, we aim to draw lessons from these experiences. However,
because of increasing importance of outbound acquisitions by Chinese
companies, this paper focuses on Chinese M&A activities. After
presenting the theoretical discussions of post-acquisition organizational
integration, this paper identifies factors that have contributed to less
than expected performances of Chinese foreign investments. Three
main factors are identified as the plausible causes of the less than
satisfactory outcomes: inadequate due diligence, not considering
political and country risks, and cultural differences. In all cases,
inexperience of Chinese enterprises in foreign direct investment, either
in Greenfield form or M&A, has attributed to the problems. Therefore,
summing the experiences of the Chinese enterprises that have foreign
direct investment is essential for those Chinese investors that intend to
invest overseas. Conduct of meaningful, in-depth due diligence before
serious negotiations for investment or acquisition, inclusion of risk
premium for political risk in cash flow analysis, and early post-merger
integration planning are essential for avoidances of bitter outcomes
many Chinese investors experienced overseas.

Available for download here.

Zhou: Asian Capital Investing in US Real Estate

Abstract:

Asian capital investment in the United States real estate market is becoming increasingly popular. This article analyzes the patterns and preferences of Asian investors in the US real estate market by examining transaction history and aggregating consensus data to provide the reader an overview of the growing trend.

Available for download here.

 

Grigoryan: The ruling bargain: sovereign wealth funds in elite-dominated societies

Abstract:

This paper generate new results on the creation and use of sovereign wealth funds (SWF) as tools for maximizing political power of the ruling class. It models a ruler’s decision to set up a SWF in a society dominated by a powerful elite in order to pacify the elite’s political ambitions by transferring resource rents. Furthermore, it shows under which circumstances the ruler is able to gain the elite’s support using a fund and to overcome the danger of coups d’état. SWFs can serve as appropriate instruments for this purpose because they are long-term oriented and strongly institutionalized.

Available for download here.