phd thesis on capital markets

R&D Investment and Capital Markets: Evidence from Emerging Markets

--> ALAM, MD ASHRAFUL (2015) R&D Investment and Capital Markets: Evidence from Emerging Markets. PhD thesis, University of York.

This thesis deals with the firm-, macro-and institutional-level determinants of research and development (R&D) investment, assessing the impact of R&D spending on firm performance and the financing of R&D investment in emerging markets. The recent financial crisis has had adverse effects worldwide. This study finds that the financial crisis had a significant negative impact on firms’ R&D investment in emerging markets. It also finds that the R&D investments of both local firms and multinational enterprises (MNEs) were affected, and that the latter was affected 1.63 times more than the former. However, when the firms were split between innovative and non-innovative, it was observed that innovative firms continued to invest in R&D during the recession, while non-innovative firms cut down their R&D investment. In addition, it is found that, during a financial crisis, the firm-level determinants of R&D are firm age, firm size, export orientation, debt ratio and foreign ownership. This implies that the assumptions of the resource based view (RBV) hold true, even during a financial crisis. The results suggest that affected and less-/unaffected countries’ R&D determinants behave differently during a financial crisis. They also show that the probability of a decrease in R&D investment in affected countries is 60 percent higher than in less-/unaffected countries. Similarly to firm-level factors, macroeconomic factors also influence R&D expenditure. GDP growth, exports, trade openness, patents and financial crisis are the main macroeconomic determinants of a country’s R&D expenditure. Moreover, analysis suggests that macroeconomic determinants of R&D investment behave differently in advanced and emerging countries, owing to their different nature and purpose, and the countries’ levels of economic development. In addition to firm and macroeconomic factors, the institutional environment plays an important role in R&D investment in emerging countries. The results show that government effectiveness and rule of law have significant positive impacts, while corruption and political instability have significant negative impacts on R&D investment in emerging countries. However, opponents of country-level factors have claimed that these factors influence the innovative activities and firm performance of emerging countries indirectly. This study finds that investor protection (safeguards) tends to have a greater moderating effect on the relationship between R&D and firm performance than country-level governance (systems). The results indicate that safeguards promote firm-level innovation in emerging markets, while systems are substituted by firm-level corporate governance in emerging countries. Moreover, in the case of risky and uncertain investments such as R&D, investors seek protection from possible losses. It is also observed that R&D financing behaves differently according to different levels of multi-nationality and financial systems. Local firms do not use external funding, while MNEs use both internal and external funding for R&D investments due to the availability of organisational slack. A country’s financial systems may restrict firms from choosing particular sources of finance. Firms within bank-based systems tend to rely on external funding and firms within market-based systems depend more on internal funding for R&D investment. The results indicate that market-based firms follow pecking order theory. Secondary data for the analysis were collected from various sources, including DataStream, annual financial reports, LexisNexis, the World Bank’s Development Indicators, Worldwide Governance Indicators and Protecting Minority Shareholder data, and the International Country Risk Guide database. Both static and dynamic panel data techniques, including generalised methods of moment (GMM) estimation, were used for the analysis. Dynamic GMM panel estimation was used to control for endogeneity and unobserved heterogeneity, and to provide efficient and consistent estimation even in the presence of heteroscedasticity. The study also adopted an instrumental variable (IV) approach with OLS and Granger causality tests for the analysis. This study will be helpful to various stakeholders, including investors and managers, lenders and policy makers in emerging markets.

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Essays on international financial markets, firms’ capital structure and exporting decisions

Bose, Udichibarna (2016) Essays on international financial markets, firms’ capital structure and exporting decisions. PhD thesis, University of Glasgow.

International finance studies the dynamics in the areas such as international portfolio diversification, foreign investments, global financial systems, exchange rates, etc. This thesis brings together a set of chapters that summarises and synthesises varied areas of international finance maintaining a balance between the micro- and macro-level studies. This thesis is composed of three main empirical chapters contributing to varied aspects of international finance, mainly the areas of international portfolio diversification and home bias puzzle; development of bond markets and access to external finance; exchange rate uncertainties, output volatility and exports. Chapter 1 provides an outline and introduction of the thesis. Chapter 2 provides an extensive literature review on home-bias puzzle, explains the evolution and existence of home-bias puzzle, and gives various institutional and behavioural-based explanations which are considered as the main reasons for the existence of this puzzle. It discusses the advantages of international portfolio diversification and also the disadvantages of under-diversification in international portfolios. It gives a detailed empirical literature on the home bias puzzle and the relation between education and portfolio diversification. Further, this chapter empirically analyses a panel of 38 countries over a period of 2001-2010 to study the impact of different levels of education on home bias and international portfolio diversification. The results highlight that education is crucial in reducing equity home bias. After dividing the countries on the basis of their stock market capitalisation the results show that less developed countries with more university graduates have lower equity home bias. Finally, the results show that the benefits of education are larger during the recent financial crisis for the less financially developed economies. Chapter 3 provides a detailed analysis of the trends in Asian financial markets since the 1990s. It provides the main objectives of the Asian bond market policy initiatives. It also gives a detailed empirical literature of external finance, bond market development across the world and external finance-investment spending nexus. This chapter empirically analyses the impact of policy initiatives co-ordinated by Asian national governments on firms' access to external finance by using a unique firm-level database of eight Asian countries- Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand over the period of 1996-2012. Using difference-in-differences approach and controlling for firm-level and macroeconomic factors the results show a significant impact of policy on firms' access to external finance. After splitting firms into constrained and unconstrained, using several criteria, the results document that unconstrained firms benefited significantly in obtaining external finance as compared to their constrained counterparts. Finally, the results show that the increase in access to external finance, after the policy initiative, helped firms to raise their investment spending, especially for unconstrained firms. Chapter 4 focuses on how exporting decision of firms are affected by volatility at the macro and micro levels, using a rich dataset of UK manufacturing firms for the period of 1990-2009. The results show that both types of volatility have an adverse impact on firms’ real export sales. After taking into account firm-level heterogeneity, the results show that the negative impact of exchange rate and firm volatility on exports is higher for constrained firms as compared to unconstrained firms. Further, this chapter considers the European Exchange Rate Mechanism (ERM) crisis of early 1990s and the global financial crisis of 2008. The results indicate that during the ERM crisis constrained firms face a significant adverse impact of exchange rate volatility on exports, while the impact of firm-level volatility is mostly insignificant. On the contrary, during the global financial crisis, constrained firms face a significant negative impact of firm-level volatility on exports and an insignificant impact of exchange rate volatility on exports. Finally, Chapter 5 provides the conclusion of the thesis highlighting the contributions, implications and future research avenues of each empirical chapter.

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