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Volume 17, Numbers 3 & 4 / September/December 2013 , Pages 149-369
Multinational Finance Journal, 2013, vol. 17, no. 3/4
Hersh Shefrin , Santa Clara University, USA    Corresponding Author

Abstract:
Proponents of behavioral finance have as their goal the introduction of realistic psychological concepts into the study of finance. I call this the “behavioralizing finance.” In this respect, behavioral finance is more of an approach than a field. This special issue is devoted to behavioralizing multinational finance. In this regard, the issue focuses on topics that provide insights into the manner in which the psychological concepts manifest themselves in different countries and across the financial spectrum. The papers in this issue explore the broadening of behavioral finance, in terms of new applications and different countries, thereby providing deeper insights into issues that have been prominent in the existing behavioral literature.

Keywords : n/a
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 149-163
Marc Oliver Rieger , University of Trier, Germany    Corresponding Author
Thorsten Hens , University of Zurich, Switzerland
Mei Wang , WHU Otto Beisheim school of Economics, Germany

Abstract:
We examine time discounting factors in an international survey. Our analysis reveals a significant relationship between time discount factors and historical equity premiums across 27 countries. This result implies that higher historical equity risk premiums are observed in countries where survey participants tend to be more short-term oriented. This finding is consistent with the explanation of the equity premium puzzle provided by myopic loss aversion.

Keywords : equity risk premium; time discounting; myopic loss aversion; cultural finance
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 165-200
Thomas Chiang , Drexel University, USA
Lin Tan , California State Polytechnic University, USA
Jiandong Li , Central University of Finance and Economics, China
Edward Nelling , Drexel University, USA    Corresponding Author

Abstract:
This study examines investor herding behavior in Pacific-Basin equity markets. Results indicate that the level of herding is time-varying, and is present in both rising and falling markets. It is positively related to stock market performance, but negatively related to market volatility. Herding estimates across markets are positively correlated, signifying comovement of herding behavior in the region. The findings suggest that tests for herding should consider its dynamic behavior.

Keywords : herding behavior, stock return dispersion, kalman filter, nonlinearity, pacific-basin markets
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 201-241
Wendy Rotenberg , University of Toronto, Canada    Corresponding Author

Abstract:
This study explores whether the valuation of Canadian natural resource firms is related to their decisions to present financial reports in U.S. dollars or to allow dual currency (Canadian and U.S. dollar) trades of their shares in Canadian markets. The results indicate that firms electing to report their financial results in U.S. dollars do enjoy a higher proportion of U.S. trades, and a higher market value, compared with firms reporting in domestic currency. These findings are consistent with U.S. dollar reporting reducing the behavioral phenomenon known as “home bias”, for U.S. investors. In contrast, giving investors the opportunity to transact in U.S. dollars in Canada does not appear to have a beneficial impact. This latter finding is consistent with the practical observation that very few Canadian firms adopted dual currency trading. The dual currency trading experiment on the TSX appears to have failed.

Keywords : home bias, dual currency trading, reporting currency, natural resource firms
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 243-293
Wenjuan Xie , University of New Hampshire, USA    Corresponding Author

Abstract:
This paper studies the accounting performance measure, profit efficiency and investor valuation of 1,262 Chinese firms listed in Shanghai and Shenzhen Stock Exchanges from 2001 to 2010. Profit efficiency is defined as the ratio of actual profit realized to the optimal profit described by stochastic frontier approach. An estimation of robust ordinary least square model for accounting performance measures (ROA) controlling for industry effect results in negative skewness of the residuals, indicating the existence of profit inefficiency. A year-by-year cross-section stochastic frontier analysis documents a declining pattern of accounting performance and a contrastive increasing tendency of profit efficiency. Linking the market valuation ratios to profit efficiency illustrates a significant empirical relationship that Chinese investors reward firms of higher efficiency with higher market valuation. The over-time improvement of efficiency is also associated with increased market valuation.

Keywords : market valuation; profitability; efficiency; stochastic frontier; chinese listed firms
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 295-340
I-Ju Chen , Yuan Ze University, Taiwan    Corresponding Author
Shin-Hung Lin , Yuan Ze University, Taiwan

Abstract:
This study investigates the relationship between managerial optimism, investment efficiency and firm valuation. This study follows the Campbell’s measurement for managerial optimism and investigates the influences of the different levels of managerial optimism on improving investment efficiency and firm value when firms tend to under-invest or over-invest. The results indicate that an under-invested firm with a CEO who has a higher level of managerial optimism can improve the firm’s investment efficiency by reducing the degree of underinvestment, which further increases the firm’s value. However, when firms tend to overinvest, there is insufficient evidence to show that a firm with a lower level of CEO managerial optimism will effectively improve the firm’s investment efficiency and increase firm value by reducing the degree of overinvestment.The results generated in this study help scholars and practitioners understand how managerial optimism affects the investment efficiency of firms

Keywords : managerial optimism, investment efficiency, overinvestment, underinvestment
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 341-369
Prasad Padmanabhan , St. Mary’s University, USA    Corresponding Author
Wenqing Zhang , SolBridge International School of Business, South Korea
Chia-Hsing Huang , SolBridge International School of Business, South Korea

Abstract:
Today, firms are facing a globally competitive environment. Against this backdrop, firms can ill afford to make mistakes in their capital budgeting and acquisition decisions. When making major decisions, firms may be faced with additional costs associated with managerial anchoring. Using simulation results, it is shown that firms making off-shoring decisions can be better off using two or more managers when managerial anchoring can lead to significant cost increases. This paper shows the conditions under which management by committee can involve higher incremental costs, but are offset by decreased anchoring costs if managers anchor in different directions. It is also shown that firms cannot completely eliminate the impact of anchoring even if they hire an infinite number of managers. Firms should consider hiring additional managers in instances where major decisions are involved, if the incremental cost of hiring the additional manager is offset by decreased anchoring costs.

Keywords : behavior finance; anchoring; manager; financial decision
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