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Published Articles for Year 2016
Multinational Finance Journal, 2016, vol. 20, no. 2, pp. 85-126 | https://doi.org/10.17578/20-2-1
Nihat Aktas , WHU Otto Beisheim School of Management, Germany    Corresponding Author
Santo Centineo , WHU Otto Beisheim School of Management, Germany
Ettore Croci , Universita’ Cattolica del Sacro Cuore, Italy

Abstract:
This article studies European acquisitions in the period 1990-2013 to examine the relationship between family ownership and the propensity to undertake diversifying acquisitions. We show that family firms, especially those highly leveraged, tend to make more cross-industry acquisitions as this allows the owners to effectively diversify their wealth without selling their shares. Our results also indicate that family firms that value control high (i.e., family firms with high leverage) appear not to diversify at the detriment of minority shareholders.

Keywords : family firms; leverage; control motives; acquisitions
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Multinational Finance Journal, 2016, vol. 20, no. 3, pp. 181-236 | https://doi.org/10.17578/20-3-1
Andreas Charitou , University of Cyprus, Cyprus
Ifigenia Georgiou , Aston Business School, UK & Cyprus International Institute of Management, Cyprus    Corresponding Author
Andreas Soteriou , University of Cyprus, Cyprus

Abstract:
In this paper, we highlight the strategic role of the board of directors (BOD) in business excellence and its link with firm value. We empirically investigate the relationship between the composition of the BOD and the winning of a Malcolm Baldrige National Quality Award (MBNQA) or a local award explicitly based on the MBNQA criteria, a proxy for business excellence. Using a contingency approach, we examine several characteristics of the BOD, such as the number of inside directors, the number of directors who can be considered industry experts, and the number of directors with management expertise. We show that the likelihood of winning a quality award is positively associated with the number of outside directors with Ph.D. in the main object of business operations, and the number of outside directors with recent industry expertise. Subsequent residual analysis reveals that firm value is positively associated with the degree of the fit between board composition and quality management strategy. Specifically, operating income before depreciation, operating margin, Tobin’s Q, and ten-day raw and market adjusted returns, are positively related to the degree of fit, while cost per dollar of sales, negatively. Thus, we, conclude that an appropriate board structure that fits the QM strategy exists, and this fit is positively associated with firm value.

Keywords : board of directors; corporate governance; director expertise; strategic role of the board quality management; quality awards
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Multinational Finance Journal, 2016 vol. 20, no. 1, pp. 1-39 | https://doi.org/10.17578/20-1-1
Costas Lambrinoudakis , University of Piraeus, Greece    Corresponding Author

Abstract:
Dynamic trade-off models of capital structure predict negative correlation between adjustment speed and adjustment costs. This paper empirically tests this prediction by bringing together elements from two strands of the literature: dynamic capital structure and security offerings literature. In contrast to existing studies, this approach employs directly measurable proxies for adjustment cost (security issuance cost) determinants. The correlation between adjustment costs and the speed of adjustment is found to be positive or zero. From a dynamic trade-off perspective, these results are puzzling as they suggest that transaction costs cannot explain the observed pattern of the capital structure adjustment process.

Keywords : capital structure; target leverage; adjustment speed; security issuance costs
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Multinational Finance Journal, 2016, vol. 20, no. 1, pp. 41-83 | https://doi.org/10.17578/20-1-2
Kelly Burns , Curtin University, Australia    Corresponding Author

Abstract:
This study revisits the Meese-Rogoff puzzle by estimating the traditional monetary models of exchange rate determination in state-space form and comparing the accuracy of these forecasts against the naïve random walk model using a wide range of conventional and alternative measures of forecasting accuracy. The results demonstrate that incorporating stochastic movements in the parameters of exchange rate models does not enable the Meese-Rogoff puzzle to be overturned. However, estimating these models in state-space form substantially improves forecasting accuracy to the extent that the model and random walk produce an equivalent magnitude of error. Furthermore, the results prove that the Meese-Rogoff puzzle can be overturned if the forecasts are evaluated by alternative criteria. These criteria include direction accuracy, profitability, and measures that jointly take into account both magnitude and direction accuracy.

Keywords : forecasting; random walk; exchange rate models; time-varying parameters
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Multinational Finance Journal, 2016, vol. 20, no. 2, pp. 127-179 | https://doi.org/10.17578/20-2-2
André Küster Simic , Hamburg School of Business Administration, Germany
Philipp Lauenstein , Helmut Schmidt University and Hamburg School of Business Administration, Germany    Corresponding Author
Stefan Prigge , Hamburg School of Business Administration, Germany

Abstract:
Until the outbreak of the most recent shipping crisis in late 2008, German KG ship funds had been a prominent vehicle for investing in, and financing of, global shipping operations. Given that KG shares are not designed to be traded, investors are expected to require higher returns as compensation for illiquidity. Since the early 2000s, secondary market platforms for trading of shares in ship funds emerged. If investors could sell their shares at prices reflecting the fundamentals of their asset, lower returns would be demand. Making use of a novel methodological approach, 341 transactions of container ship funds executed from 2007 through 2012 are analyzed. The results reveal a surprisingly high fundamental-valuation efficiency: The identified pricing-relevant variables explain about 86% of the variations in the secondary market valuations of the ship funds. However, it is documented that shares in ship funds trade at discount relative to fundamental asset values.

Keywords : ship finance; KG funds; secondary markets; informational efficiency; market microstructure
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Multinational Finance Journal, 2016, vol. 20, no. 3, pp. 237-271 | https://doi.org/10.17578/20-3-2
Tom Berglund , Hanken School of Economics, Finland    Corresponding Author
Martin Holmén , University of Gothenburg, Sweden

Abstract:
Employees in Swedish firms have the legal right to be represented on the company board. However, in a considerable share of Swedish listed firms, this option is not exercised. This paper asks why that is the case. We use a simple framework, based on rational choice by individual employees. Our sample consists of 226 listed non-financial Swedish firms in 2001-2007. The results are in line with our predictions. Employee board representation does not impact firm performance, neither positively nor negatively. The main driver of employee board representation is the number of eligible employees. Furthermore, employee board representation decreases with firm risk, slow growth, and internationalization. We conclude that when the law grants the right for employees to be represented on the board a simple model based on individual utility maximization provides an explanation for why the right is used in some firms and not in others.

Keywords : employee representation; board composition; dependent directors; firm performance; corporate governance
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Multinational Finance Journal, 2016, vol. 20, no. 04, pp. 323-354 | https://doi.org/10.17578/20-4-2
Roberto Wessels , University of Groningen, Netherlands    Corresponding Author
Tom J. Wansbeek , University of Groningen, Netherlands
Lammertjan Dam , University of Groningen, Netherlands

Abstract:
We present a model to test the null hypothesis that firms organize their corporate governance arrangements optimally given the constraints they face. Following the literature, the model rejects the null if the conditional correlation between governance and performance is significantly different from zero. Our model provides a clean test of this hypothesis by controlling for measurement errors in all observed variables and avoiding simultaneous equation biases by casting our model as a reduced-form bivariate equation. We model governance, performance and the constraints on the firm’s investment decisions as latent variables. We estimate of the conditional correlation between our measures of corporate governance and firm financial performance to be statistically speaking equal to zero. This result therefore provides empirical support for the in-equilibrium view of corporate governance arrangements.

Keywords : corporate governance; optimal firm behavior; endogeneity; structural models; latent variables
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Multinational Finance Journal, 2016, vol. 20, no. 04, pp. 273-322 | https://doi.org/10.17578/20-4-1
Stephani A. Mason , DePaul University, USA
Ann F. Medinets , Rutgers Business School, USA
Dan Palmon , Rutgers Business School, USA    Corresponding Author

Abstract:
There is an ongoing debate about whether executives receive excessive compensation, and if so, how to control it. Several countries have instituted say-on-pay rules (shareholders’ right to vote on executive compensation) to reduce excessive compensation. However, determining the effectiveness of say-on-pay is difficult because its tenets vary by country due to political, institutional, cultural, economic, and social factors. Policy issues like say-on-pay are complex, ill-structured problems without definitive assumptions, theories, or solutions. Existing say-on-pay research is inconclusive, since some studies find no change in CEO compensation around its adoption, whereas other studies show that say-on-pay lowers CEO pay or changes its composition. This paper chronicles the history of say-on-pay, compares its implementation by groups (e.g. shareholders-initiated versus legislated and binding versus advisory), discusses the complexities of using say-on-pay to address excessive executive compensation, and recommends future research directions.

Keywords : executive compensation; say-on-pay; compensation regulation; shareholder activism; shareholder proposals; corporate governance
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