Andriy Bodnaruk

Industry Concentration and Foreign Investment

We study how product market competition affects the firm’s ownership by international and domestic investors and its stock performance. We argue that in the presence of local bias domestic investors tilt their portfolios towards domestic stocks that offer lower exposure to country-specific risks. Industry concentration mitigates local risks and increases reservation value of firms operating in concentrated industries for domestic investors. This makes domestic (foreign) investors more likely to invest in stocks of concentrated (competitive) industries. Building on the stylized fact that foreign investors exhibit stronger reaction to news events, we demonstrate that increase in industry sentiment leads to higher stock performance for firms in concentrated industries, particularly when their foreign ownership is large. Stock prices of firms in competitive industries also faster incorporate new information.

Credit Advantage and Firm Structure: The Benefits of a Separate Corporate Veil

We relate the firm legal structure to the degree of credit advantage of the headquarters. We argue that subsidiary-based firms are born as the outcome of a process of agglomeration around firms with better credit advantage. Therefore, subsidiary based firms have better credit advantage than no-subsidiary firms. At the moment of agglomeration (M&A) we document a significant positive relation between the difference in credit advantage between the bidder and the target and the probability of choosing the target, the value created in the M&A, and the likelihood that the target will be retained as a subsidiary. The better the credit advantage of the HQ compared to the subsidiaries, the higher is the percentage of the total financing that takes place at HQ level.