Alvaro G. Taboada

Regulatory Arbitrage and Cross-Border Bank Acquisitions

We study how differences in bank regulation influence cross‐border bank acquisition flows and share price reactions to cross‐border deal announcements. Using a sample of 7,297 domestic and 916 majority cross‐border deals announced between 1995 and 2012, we find evidence of a form of “regulatory arbitrage” whereby acquisition flows involve acquirers from countries with stronger regulations than their targets. Target and aggregate abnormal returns around deal announcements are positive and larger when acquirers come from more restrictive bank regulatory environments. We interpret this evidence as more consistent with a benign form of regulatory arbitrage than a potentially destructive one.

The Impact of Changes in Bank Ownership Structure on the Allocation of Capital: International Evidence

A new wave of bank privatizations in the past decade has significantly changed the ownership structure of banking systems around the world. This paper explores how these changes affect the allocation of capital within countries. Increases in domestic blockholder ownership of banks adversely affect the allocation of capital through increased lending activity to less productive industries and to those with less dependence on external finance. This result is more pronounced in countries with higher levels of corruption. I find some evidence that foreign presence improves capital allocation efficiency by increasing lending to more productive industries, primarily in common law countries.

Do Improvements in the Information Environment Affect Real Investment Decisions

We examine how the adoption of International Financial Reporting Standards (IFRS) across 32 countries affects stock price informativeness. Overall, we document a decline in stock price informativeness over time. However, we find that voluntary adopters, arguably the more serious and committed adopters, experience a less severe decline in stock price informativeness following IFRS adoption. These results suggest that the benefits associated with IFRS adoption may accrue more to voluntary adopters. In addition, we find that enforcement plays a critical role on the impact of IFRS adoption. Firms in countries with better enforcement have higher firm-specific return variation, and experience a less severe decline in stock price informativeness relative to those firms in countries with weaker enforcement. Our results are robust to alternate measures of stock price informativeness and enforcement. 1 Assistant Professor of Finance, University of Minho School of Economics and Management, 4710-057 Braga, Portugal, Email: gilberto@eeg.uminho.pt (Loureiro), and Assistant Professor, Department of Finance, College of Business Administration, University of Tennessee, 434 Stokely Management Center, Knoxville, TN 37996, Email: ataboada@utk.edu , Phone: (865) 974-1704 (Taboada).

Board Reforms and Firm Value: Worldwide Evidence

We examine the impact of corporate board reforms on firm value in 41 countries. Using a difference-in-differences design, we find that board reforms increase firm value. Reforms involving board and audit committee independence, but not reforms involving separation of chairman and chief executive officer positions, drive the valuation increases. In addition, while comply-or-explain reforms result in a greater increase in firm value than rule-based reforms, the effects of reforms are similar across civil law and common law countries. Further investigation shows that the subsequent change in board independence plays an important role in explaining the effectiveness of the reforms.

Are Larger Banks Valued More Highly

We investigate whether the value of large banks, defined as banks with assets in excess of the Dodd-Frank threshold for enhanced supervision, increases with the size of their assets using Tobin’s q and market-to-book as our valuation measures. Many argue that large banks receive subsidies from the regulatory safety net, so they should be worth more and their valuation should increase with size. Instead, using a variety of approaches, we find (1) no evidence that large banks are valued more highly, (2) strong cross-sectional evidence that the valuation of large banks falls with size, and (3) strong evidence of a within-bank negative relation between valuation and size for large banks from 1987 to 2006 but not when the post-Dodd-Frank period is included in the sample. The negative relation between bank value and bank size for large banks cannot be systematically explained by differences in ROA or ROE, equity volatility, tail risk, distress risk, and equity discount rates. However, we find that banks with more trading assets are worth less. A 1% increase in trading assets is associated with a Tobin’s q lower by 0.2% in regressions with year and bank fixed effects. This relation between bank value and trading assets helps explain the cross-sectional negative relation between large bank valuation and size. Our results hold when we use instrumental variables for bank size.

Cross-Border Bank Flows and Systemic Risk

Using Bank for International Settlements (BIS) data on cross-border bank flows across 128 countries and over two decades, we find that heightened bank flows are associated with improved financial stability in a recipient country’s bank system. The reductions in marginal expected shortfall (MES) are concentrated among network-central banks and especially those in less concentrated banking sectors. Higher bank flows are also associated with improvements in bank asset quality, efficiency, and profitability in recipient markets. We interpret these new findings as consistent with predictions from recent models of bank globalization that emphasize a competition channel for bank risk-taking.

Does it Pay to Treat Employees Well? International Evidence on the Value of Employee-Friendly Culture

We examine the valuation impact of an employee-friendly (EF) culture. Using a sample of 3446 firms from 43 countries for the period 2003 to 2014, we show that firms with a more EF culture are valued higher and perform better (ROA, ROE). Consistent with the good governance view, the impact is stronger for firms in countries with better investor protection and for firms with better governance and lower agency costs. We further document a positive valuation associated with the enactment of laws aimed at improving parental leave policies. The impact on valuation stems from improved technical efficiency. Using various approaches, our results suggest that the impact of an EF culture on firm value is causal.