International variations in expected equity premia: Role of financial architecture and governance

Aggarwal, Raj; Goodell, John W.

doi:10.1016/j.jbankfin.2011.04.011

Cited by 32 publications

(9 citation statements)

References 51 publications

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“…On the other are theoretical arguments backed by their own set of empirical findings which suggest that improvements in country governance are associated with increasing ERP. For example, Low et al (2011) find empirical support for higher ERPs in countries with lower governance quality while Aggarwal and Goodell (2011) find the opposite relationship.…”

Section: Country-level Governance and Erp Variationmentioning

confidence: 99%

Understanding emerging market equity risk premia: Industries, governance and macroeconomic policy uncertainty

Donadelli

Persha

2014

Research in International Business and Finance

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a b s t r a c tThe average equity risk premium (ERP) in emerging markets is well-known to be significantly higher than in developed markets. But, key reasons for this remain unclear, contributing to investment strategy uncertainty. Here, we use industry-level data for 19 emerging market countries across three regions of the world to first examine the contribution of each industrial stock market to the extra premium paid by emerging markets to international investors from 1995 to present, and then to explore the relative importance of country-level governance and macroeconomic policy uncertainty in explaining both national and regional industry-by-industry ERP behavior. We conduct separate analyses for the emerging market crises period of 1995-2002, and the post-crises period of 2003-2012. Based on both static and dynamic approaches, we find that some industries indeed perform consistently better than others. In particular: (i) the healthcare and basic materials industries mostly contributed to the extra premium paid by the Asian stock market; and (ii) the East European and Latin American stock markets' extra performances were largely driven by the utilities and consumer services industries, respectively. However, our crosssectional analyses suggest that country-level governance indicators are not strongly correlated with either national or industry-level returns, with the exception of the consumer goods industry. Lastly, using both rolling-window and DCC-GARCH frameworks, we find that correlations between industrial stock market excess returns and a measure of global economic policy uncertainty are consistently negative, and follow similar patterns. Our empirical evidence as a whole suggests that industrial stock markets are more highly related both within and across countries and regions than has been suggested previously. Contrary to much existing empirical work, our results therefore suggest there is currently little space in emerging markets to exploit cross-industry portfolio diversification benefits.

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Section: Country-level Governance and Erp Variationmentioning

confidence: 99%

Understanding emerging market equity risk premia: Industries, governance and macroeconomic policy uncertainty

Donadelli

Persha

2014

Research in International Business and Finance

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“…In the second group of studies, cross-national differences have been investigated as dependent variables in 18 studies ( Table 3). Most of these studies examine whether country-level governance attributes explain national differences in financial market development 7 or related variables such as foreign investment (Aggarwal & Goodell, 2011;Cuervo-Cazurra & Genc, 2008;Honig, 2008;Kho, Stulz, & Warnock, 2009) or investor protection (Allen, Qian, & Qian, 2005;Ayyagari, Demirgüç-Kunt, & Maksimovic, 2008;Stulz & Williamson, 2003). Only two studies examine national differences in the adoption of national governance codes (Haxhi & van Ees, 2010;Zattoni & Cuomo, 2008).…”

Section: What Outcomes Have Been Investigated?mentioning

confidence: 99%

Cross‐National Governance Research: A Systematic Review and Assessment

Schiehll

Martins

2016

Corporate Governance

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Manuscript Type: ReviewResearch Question/Issue: Using a systematic literature review approach, we survey 192 cross-national comparative studies published in 23 scholarly journals in the fields of accounting, economics, finance, and management for the period 2003 to 2014. The purpose is to synthesize and appraise the extant empirical research on the interplay between country-and firmlevel governance mechanisms and the effects on firm outcomes. Particular focus is placed on studies that examine firm economic performance. Research Findings/Results: We identify and distinguish between two groups of cross-national governance studies. The first type compares macro, country-level outcomes and the second compares three different firm-level outcomes: economic performance, governance mechanisms, and strategic decisions. We compare the theoretical frameworks used and further analyze the country-level factors and firm-level governance attributes that have been combined to investigate their interplay and the effects on firm outcomes. We find substantial variation in the use and measurement of country-level factors as well as a variety of causal forms used to explain the combined effects of country-and firm-level governance mechanisms. This wide variability precludes comparison, and consequently prevents identifying consistent patterns of influence between country-level governance factors and firm-level governance mechanisms and/or performance. We identify research gaps and provide fruitful directions for future research on this topic. Theoretical Implications: The cross-national governance research has been guided mainly by an economic perspective focusing on international differences in the effectiveness of specific governance mechanisms. Few comparative studies have integrated an institutional perspective or examined the external forces that drive the diffusion and use of specific governance mechanisms. Such integrative framework would improve the understanding of cross-national differences in the salient dimensions of country-level governance factors and how they mediate the effectiveness of firm-level governance mechanisms. Practitioner Implications: Our results reveal that firm-and country-level governance mechanisms have been interacted and combined, either to address various agency problems or to compensate for a weak national environment. This calls for regulators and investors to consider national governance factors when assessing firm-level governance practices.

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“…In addition, Zheng, El Ghoul, Guedhami and Kwok (2012) find that use of shorter-term debt is positively associated with masculinity, uncertainty avoidance, power distance and negatively associated with individualism. Aggarwal and Goodell (2011) find that equity premia around the world are determined by national cultural dimensions. Chui, Titman and Wei (2010) find that individualism is positively associated with volume and volatility and profits from momentum strategies as more individualistic countries are more attuned to risk taking.…”

Section: Culture and Pension Errsmentioning

confidence: 91%

Determinants of Expected Returns at Public Defined-Benefit Pension Plans

Aggarwal

Goodell

2015

Working Paper (Federal Reserve Bank of Cleveland)

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Estimated expected returns are important for pension plans, as they infl uence many plan characteristics including required asset levels, annual contributions, and the extent of plan under-or overfunding. Yet, there seems to be little prior literature on the factors infl uencing these estimated future returns. In an attempt to fi ll this gap, this paper presents the results of a panel analysis of data on the determinants of such returns used by US public defi ned-benefi t (DB) pension plans for the period 2001-2011. As expected, we fi nd that real return estimates by DB public pension funds are positively related to fund size, fund age, international asset diversifi cation, state income, and corruption levels. However, more interestingly and importantly, we document that real return estimates by public US DB pension funds are positively related to cultural measures of individualism and masculinity, and negatively related to uncertainty avoidance. These results should be of much interest not only to scholars and pension benefi ciaries, but also to fund managers, other capital market participants, and policymakers.

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International variations in expected equity premia: Role of financial architecture and governance

Cited by 32 publications

References 51 publications

Understanding emerging market equity risk premia: Industries, governance and macroeconomic policy uncertainty

Understanding emerging market equity risk premia: Industries, governance and macroeconomic policy uncertainty

Cross‐National Governance Research: A Systematic Review and Assessment

Determinants of Expected Returns at Public Defined-Benefit Pension Plans

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