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Published Articles for Year 2004
Multinational Finance Journal, 2004, vol. 8, no. 1 & 2, pp. 3-34 | https://doi.org/10.17578/8-1/2-1
Ken L. Bechmann , Copenhagen Business School, Denmark    Corresponding Author

Abstract:
This paper considers the effects of changes in the composition of the Danish blue-chip KFX index for the period of 1989-2001. Consistent with the selection criterion used for the index, there is no evidence for a stock price effect at the announcement of a change in the index. However, deleted stocks experience an abnormal return averaging –13% in a six-month period before the deletion and a decrease in trading volume and efficiency of stock prices following the deletion. For added stocks, the average abnormal return is 8% and there is no significant change in trading volume or efficiency. These long-run effects are best explained by the imperfect substitutes hypothesis or the information costs/liquidity hypothesis, suggesting that stocks in the KFX Index are exposed to a higher demand or more attention and a lower cost of trading than stocks outside the index. However, the results do not rule out the possibility that part of the stock price effect is due to the selection criterion used for the KFX Index. All in all, this paper documents that the selection criterion for and the size of an index as well as the size of the related stock market are relevant when explaining the stock market effects of index revisions.

Keywords : index composition; selection criterion; price and liquidity effects
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Multinational Finance Journal, 2004, vol. 8, no. 1 & 2, pp. 35-72 | https://doi.org/10.17578/8-1/2-2
Ronan G. Powell , University of New South Wales, Australia    Corresponding Author

Abstract:
This paper uses a multinomial framework to develop several takeover prediction models. The motivation for this approach lies with Morck, Shleifer and Vishny (1988), who note that separate considerations are appropriate for predicting which firms are subject to hostile (disciplinary) and friendly (synergistic) takeovers in the USA. In a typical binomial setting, in which takeover targets are treated as belonging to one homogenous group, differences between hostile and friendly targets are ignored. This may result in biased takeover probabilities and poor predictive performance. Using UK data, the results from this paper show that the characteristics of hostile and friendly targets do differ, particularly in terms of firm size. The multinomial models also have higher significance and explanatory power when compared to the binomial models. Furthermore, when the models are tested in an investment portfolio setting, the results suggest that a strategy of predicting hostile targets only, beats a benchmark control portfolio of firms of a similar size and market-to-book.

Keywords : multinomial logit; takeover prediction; abnormal returns; size effect
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Multinational Finance Journal, 2004, vol. 8, no. 1 & 2, pp. 73-114 | https://doi.org/10.17578/8-1/2-3
Mohammed Omran , Arab Academy for Science & Technology, Egypt and Arab Monetary Fund, U.A.E.    Corresponding Author

Abstract:
This paper evaluates the financial and operating performance of newly privatized Egyptian state-owned enterprises and determines whether such performance differs across firms according to their new ownership structure. The Egyptian privatization program provides unique post-privatization data on different ownership structures. Since most studies do not distinguish between the types of ownership, this paper provides new insight into the impact that post-privatization ownership structure has on firm performance. The study covers 69 firms, which were privatized between 1994 and 1998. For these newly privatized firms, this study documents significant increases in profitability, operating efficiency, capital expenditures, and dividends. Conversely, significant decreases in employment, leverage, and risk are found, although output shows an insignificant decrease following privatization. The empirical results also show that Egyptian state-owned enterprises, which were sold to anchor-investors and employee shareholder associations, seem to outperform other types of privatization, such as minority and majority initial public offerings.

Keywords : privatization; SOEs; Egypt; and ownership structure
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Multinational Finance Journal, 2004, vol.8, no.1 & 2, pp. 115-139 | https://doi.org/10.17578/8-1/2-4
John Capstaff , University of Strathclyde, U.K.    Corresponding Author
Audun Klæboe , Nordea Bank, Norway
Andrew P. Marshall , University of Strathclyde, U.K.

Abstract:
This study tests the signaling theory of dividends by investigating the stock price reaction to dividend announcements on the Oslo Stock Exchange (OSE), and subsequent changes in the cash flows of the firms involved. This paper adds to existing evidence by examining the role of dividends in a market where the corporate ownership structure is notably different from the U.S. and the U.K., and where the motivation to use dividends as a signaling mechanism appears to be stronger. The results indicate significant abnormal stock returns are associated with announcements of dividend changes. The results are robust to alternative models of dividend expectations, after controlling for the impact of earnings announcements, and are consistent across sub-periods in the sample. The stock market reaction is most pronounced for large, positive dividend announcements that are followed by permanent cash flow increases. This evidence provides modest support for the signaling theory of dividends in Norway, but it does not support the proposition that corporate ownership structure is an important influence on the use of dividends as a signaling mechanism.

Keywords : dividend announcements, Oslo stock exchange; signaling
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 141-171 | https://doi.org/10.17578/8-3/4-1
George Kaufman , Loyola University of Chicago, U.S.A. and Federal Reserve Bank of Chicago, U.S.A.    Corresponding Author

Abstract:
This paper focuses on the strong links between macroeconomic stability and bank soundness and argues that if the first is not achieved the second is not likely either with serious adverse consequences. Instability in banking is most often the result of actions by governments directed at the macroeconomy and banks to achieve short-run goals with little consideration for unintended immediate or longer-term consequences. Without government interference, there is little evidence that the banking system is unstable. This paper develops a framework for designing optimum regulatory structures that, if adopted by countries, will help to reduce instability in their banking systems and thereby also in their macroeconomies.

Keywords : macroeconomic stability; bank soundness; designing optimum regulatory structures
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 173-209 | https://doi.org/10.17578/8-3/4-2
Jan Bartholdy , Aarhus School of Business, Denmark    Corresponding Author
Kate Brown , University of Otago, New Zealand

Abstract:
The observed changes in share prices at the ex-dividend day have led researchers to look for a single marginal investor, either a long or a short term trader with different tax status, dominating all trades to explain the ex-day pricing in different markets. This paper provides a model which extends this research in three directions. One, it allows for the possibility that different types of traders may influence different stocks, thereby generating a separating equilibrium. Two, it identifies an additional marginal investor who has the option of being taxed as a short term or long term trader. Three, it explicitly models the fact that it can take a considerable time from when a dividend based trade is made until taxes have to be paid on that trade. A unique data set from New Zealand is used for the empirical analysis. Evidence of a separating equilibrium with at least two types of marginal investors is found

Keywords : dividends; ex-day pricing; taxation
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 211-225 | https://doi.org/10.17578/8-3/4-3
Gertjan Schut , IBM Business Consulting Services, Netherlands    Corresponding Author
Ruud van Frederikslust , Erasmus University Rotterdam, Netherlands

Abstract:
We investigate the shareholder wealth effects of 233 joint venture announcements of Dutch public companies in the period 1987 till 1998. The research shows that, on average, establishing joint ventures has a positive effect on the market value of Dutch companies. Using the strategic characteristics of joint ventures it is possible to explain and understand these wealth effects. Our research shows that the factors of strategic intention, the context in which the strategy is unfolded and the extent to which the company has control over the implementation strongly explains the extent to which a joint venture can create value

Keywords : oint venture strategy; event studies; shareholders value
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 227-245 | https://doi.org/10.17578/8-3/4-4
Ali M. Kutan , Southern Illinois University-Edwardsville, U.S.A.    Corresponding Author
Tansu Aksoy , Southern Illinois University-Edwardsville, U.S.A.

Abstract:
Recent findings have heightened the debate about the usefulness of public information in asset markets. Using daily composite and sector index returns, this paper examines the role of public information arrival in an emerging, high-inflation economy like Turkey. The findings reveal that real GDP and industrial production announcements have the most important impact on stock returns. Regarding inflation, nominal stock returns increase in response to unfavorable inflation announcements, but only for the financials sector and partially. Market volatility is more sensitive to news about real GNP, balance of trade, tourism and construction. Implications of the findings for market participants are discussed

Keywords : emerging markets; GARCH models; stock market volatility
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 247-274 | https://doi.org/10.17578/8-3/4-5
Demissew Diro Ejara , Fairleigh Dickinson University, U.S.A.    Corresponding Author
Chinmoy Ghosh , University of Connecticut, U.S.A.

Abstract:
This paper investigates the impact of ADR listing on the trading volume and volatility of the domestic market. Existing theories indicate that trading shifts to a market with lower transaction costs, and the level of volatility is directly related to the level of trading activity. The analyses provide empirical evidence showing increase in both trading volume and price volatility in the domestic market after ADR listing. The increase in volatility is attributed to noise resulting from public information as opposed to from increased trading friction. This suggests improvement in liquidity following ADR listing. Comparison across country groups indicates marginally higher gain for emerging market stocks although the difference is not statistically significant. Auction type markets gain more in terms of increase in trading volume than dealer type markets

Keywords : ADR; cross listing; market segmentation; market liquidity.; transparency
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