Vol. 7, No.4, December 2023

Ed. Wim Westerman

Prof. Johannes (Joost) Platje

Prof Ali Emrouznejad, Aston University, United Kingdom
Dr. Wim Westerman, University of Groningen, The Netherlands

Vol. 7, No.4, December 2023, 9-42

Received: 26.06.2023, Revised: 18.07.2023, Accepted: 06.09.2023

The effect of the acquirers’ market capitalization and payment method on the short-term return of M&As in Greater China and South Korea

Author: Kimberley Jasmijn RIJSKAMP

University of Groningen, The Netherlands

Aim: The main goal of this paper is to gain insights into the effect of the market capitalization of the acquirer and the method of payment utilized on the short-term return of the acquiring firm, for deals made between a buyer and target in Greater China (including Hong Kong) and/or South Korea. Additionally, differences between these geographical areas and differences in the acquirer’s industry are analyzed.

Design / Research methods: Data was retrieved from Refinitiv’s EIKON database. A total of 462 deals was obtained and analyzed, using a nested methodology combining elements of an event study with regression analyses.

Conclusions / findings: Acquirers with a small market capitalization obtain either more negative or more positive CARs as compared to large market capitalization acquirers. Secondly, no significant evidence is found that paying a deal using solely cash results in higher CARs as compared to paying a deal fully in shares. Interestingly, it is found that in South Korea paying a deal using shares results in statistically significant higher CARs. Moreover, in China negative CARs tend to be more extreme. Lastly, acquirers operating in the Media and Entertainment industry and in the field of High Technology generate higher CARs.

Originality / value of the article: This paper provides insights into the effects of market capitalization and the payment method in the context of Greater Chinese and South Korean M&As, which thus far have been little studied. Moreover, it uses a nested approach, combing elements from an event study with regression analyses.

Keywords: Mergers and Acquisitions, Cumulative Abnormal Return, Market Capitalization, Payment Method, Greater China, South Korea, Media & Entertainment, High Technology

JEL: G34

doi: http:/10.29015/cerem.976

Vol. 7, No.4, December 2023, 43-71

Received: 29.04.2023, Revised: 04.06.2023, Accepted: 08.06.2023

The effect of financial leverage on firm profitability and working capital management in the Asia-Pacific Region

Author: Anya DESHPANDE

University of Groningen, The Netherlands

Aim: The main aim of this article is to examine the impact of financial leverage on firm profitability and working capital management of Asia-Pacific (APAC) firms listed in the United States and the United Kingdom.

Design / Research methods: The regression analyses are conducted with panel data over the period of 2013-2022 using the Ordinary Least Squares method. Historical financial data has been obtained by using Refinitiv Eikon. In addition to quantitative research, this study also provides case examples.

Conclusions / findings: The findings reveal that for APAC firms listed internationally, financial leverage has a negative relationship with firm profitability and a positive relationship with working capital levels. The study emphasizes the complex nature of financial leverage as a double-edged sword, capable of shaping the trajectories of APAC firms navigating the international business arena.

Originality / value of the article: Although the effect of financial leverage on firm profitability has been researched before, it has not been researched on the Asia-Pacific region as a whole, specifically for the companies that are listed internationally. Furthermore, the effect of financial leverage on working capital management is scant overall and has rarely been examined distinctively, especially in this particular geographical region.

Keywords: Leverage, Working Capital Management, Cash Conversion Cycle, Firm Profitability, Asia-Pacific, International Listings

JEL: G32

doi: http://dx.doi.org/10.29015/cerem.977

Vol. 7, No.4, December 2023, 73-107

Received: 26.06.2023, Revised: 27.07.2023, Revised: 06.09.2023, Accepted: 06.09.2023

The effect of ownership concentration on firm risk and value: evidence from Germany

Author: Christoph THALHAMMER
University of Groningen, The Netherlands

Aim: This paper aims to understand the effects of ownership concentration on firm risk and value.

Design / Research methods: The author focuses on the largest publicly listed 91 German corporations in the time period 2010 to 2021. The resulting sample contains between 928 and 1051 observations and is analysed through a pooled OLS regression analysis. Ownership concentration is measured in terms of the number of blockholders, the size of the largest shareholder, and the Herfindahl Index of the ten largest shareholders. Firm value is captured with Tobin’s Q and firm risk is computed as the annualised daily stock price volatility.

Conclusions / Findings: It is found that ownership concentration affects firm risk significantly negatively. Moreover, results suggest an inverse U-shape relationship between ownership concentration and firm value. This relationship can be explained by combining the negative effects of rising ownership concentration on firm risk with its implications for the creation of firm value.

Originality / Value of the article: The German market has used to have a network-like structure with a concentrated ownership structure. However, over the past two decades, it transformed towards a more Anglo-Saxon-like and market-based structure with a rather dispersed ownership structure. Furthermore, factors which govern the relationship between ownership concentration are used to explain parts of the relationship between firm value and ownership concentration in a new way, thereby adding value to understanding the latter, highly debated, relationship.

Keywords: Corporate Governance, Ownership Concentration, Blockholders, Firm Risk, Firm Value JEL: G32

doi: http://dx.doi.org/10.29015/cerem.975

Vol. 7, No.4, December 2023, 109-158

Received: 27.06.2023, Revised: 14.07.2023, Revised: 06.09.2023, Accepted: 06.09.2023

IPO Underpricing and overpricing and long-term firm performance in the Netherlands, United Kingdom, France, Sweden, and Italy: learning from three Dutch IPOs

Author: Timothy DROODUIN
University of Groningen, The Netherlands

Aim: This research contributes to the study of the relationship between initial public offering (IPO) under- and overpricing and long-term firm performance as measured by net income.

Research methods: Using ordinary least-squares regressions, an international sample of 444 IPOs from the United Kingdom, Sweden, France, Italy, and the Netherlands for the period 2013–2017 is analysed. The data was extracted from the Eikon Refinitiv database. Further, an in-depth analysis of three Dutch IPOs by six interviews with five (former) management members and one investment banker is conducted.

Conclusions: The results show that the more profitable a firm is in the long run, the likelier positive initial stock returns move towards zero after the first trading day. The case studies support these findings and the concept of asymmetric information between market participants can offer a partial explanation. Additionally, as firms operating in the industrial and healthcare sector grow larger, the offer price tends to be closer to the overall market demand. Nonetheless, no significant relationship is found between initial stock return and net profitability for other industries. While the country analysis also displays no significant relationship, underpricing is more prevalent in the United Kingdom than in the other sample countries.

Originality: This article combines a full-fledged quantitative study with a full-fledged qualitative study on one of the most perilous corporate finance milestones, that is, the complex transformation from a private to a public company through a stock market listing.

Limitations: The sample composition skews towards underpriced IPOs. Also, although the notion of reverse causality is discussed based on the views of interviewees, no quantitative evidence is provided.

Keywords: Initial public offering; equity pricing; firm performance; capital markets; case studies JEL: G32

doi: http://dx.doi.org/10.29015/cerem.978

Vol. 7, No.4, December 2023, 159-175

Received: 02.05.2023, Revised: 24.05.2023, Accepted: 28.06.2023

Devaluation and stock prices



Edo State University Uzairue, Iyamho, Nigeria         

Oseni Hussein OMOMOH

Edo State University Uzairue, Iyamho, Nigeria

Aim: The study evaluated the causal link between exchange rate devaluation and stock prices in African stock markets within the African region, namely, Zambia, Nigeria, Uganda, Tunisia, Tanzania, Botswana, Indonesia, Egypt, South Africa, and Malaysia.

Research method: The Toda-Yamamoto (T-Y) Granger causality methodology which entails a determination of maximum order of integration, determination of optimal lag length, and finally conducting the T-Y causality test based on augmented var k + dmax was used in the study. We also deployed the ARDL model to estimate the effects of devaluation on stock prices in Africa. To accommodate issues of endogeneity, we further implemented dynamic panel model estimation to unravel the true effects of exchange rate devaluation on stock prices.

Findings: Currency devaluation and the consumer prices negatively impacted stock prices by 3.6% and 3.2% respectively in the short term period following a 1% rise in devaluation and consumer prices. In the long-term period, a 1% rise in currency devaluation and consumer price level stimulated 1.45% and 0.68% reductions in stock prices respectively in ten developing African countries. The lending interest rate also significantly and positively impacted stock market prices over the long-term period by 0.25% following a 1% rise in lending rate, whereas, in the short-term period, a 1% rise in lending rate stimulated 0.38% decline in stock prices of the ten African countries.

Originality: in this research, we executed the Toda-Yamamoto granger causality methodology in explaining the causal relation between exchange rate devaluation and stock prices in ten developing African countries and with the ARDL model, the study estimated the effects of devaluation on stock prices in Africa.

Contributions: The research is a contribution to a remarkable long-run connection linking stock market price, exchange rate and price index. Though there was a remarkable long-term association linking them, the outcome also showed an essential short-run relationship linking stock market price, consumer price index and interest rate.

Limitations: This research is limited to ten countries within the African region. This choice of countries was made on basis of the available data. Hence, data could be sought on additional developing countries and estimation done for a larger sample of countries to obtain results that can be used to generalize the causality between devaluation and stock price movements.

Keywords: devaluation, stock prices, lending rate, Toda-Yamamoto, ARDL, developing African countries

JEL: C30, D42, C36

doi: http://dx.doi.org/10.29015/cerem.972