Bonnie Buchanan

Emerging Market Benefits, Investability and the Rule of Law

We revisit the Barry, Peavy and Rodriguez (1998) paper and investigate the underlying source of emerging market performance benefits. We classify stocks according to their investability and legal origin. Emerging markets continue to represent the performance benefits they had during the Barry et al. (1998) period by providing not only return enhancement but primarily risk-reduction. More specifically, we find that an investor can achieve greater benefits by focusing on a limited set of emerging markets with a French civil law foundation and that are moderately investable stocks.

Are Shareholder Proposals an Important Corporate Governance Device? Evidence from US and UK Shareholder Proposals

In the past decade, as a result of many interrelated changes in the economic environment, the role and the pressures on the corporate governance of firms have been significantly transformed in the US and the UK. To test the magnitude of this changed environment, we study one aspect of corporate governance, historically viewed as not very important, proposals by small investors. We construct comprehensive samples of US and UK shareholder proposals for the period 2000-2006 and examine where shareholder proposals occur, and the relationship between shareholder proposals and firm performance. We suggest shareholder proposals, which originate outside the internal firm governance, provide a “natural experiment” on the impact of shareholder actions on firms. The more recent data and the comparison of US and UK proposals allow us to update earlier research from earlier periods. We find that, despite perceived negligible power to force change, US shareholder proposals are associated with more significant firm changes than UK proposals, although the UK proposals have greater legal power to effect changes. US shareholder proposals are followed by significant changes in CEO turnover, board structure and long-term stock price performance, unlike what researchers found in pre 2000 data. We suggest that our results complement other studies showing that shareholder influence has increased in recent years, especially in the US.

Shareholder Proposal Rules and Practice: Evidence from a Comparison of the US and UK

We provide an in-depth comparison of US and UK shareholder proposal rules and relate the differences in rules to differences in proposing activities and performance, using comprehensive shareholder proposal data from both countries for 2000 through 2006. UK proposal rules are more onerous on proposal sponsors but UK proposals seem to be a more powerful governance device than US counterparts since they are binding and UK shareholders have the statutory right to call special meetings and elect directors. We observe most UK proposals are presented at special meetings and target board election. Institutions are the most active sponsor of UK proposals. As US proxy rules emphasize shareholder participation and protection rather than empowerment, there are a significantly greater number of shareholder proposals initiated in the US during the sample period, and small shareholders and social proposals dominate the proposing scene of the US. Our results suggest that shareholders can impact the corporate governance and firm performance but that the methods through which shareholders are empowered are important. We also argue that our results suggest that it may be appropriate to consider whether activist shareholders have additional responsibilities to the firm and other shareholders, including a duty to disclose their agendas or a fiduciary duty to other shareholders.

Back to the Future: 900 Years of Securitization

Purpose - – Before the 2007 financial crisis, securitized products accounted for half the credit market. Once regarded as one of the biggest financial innovations of the last century, securitization is now viewed as a contributory factor to the crisis. Until recently research has focused on the post-1970s mortgage securitization market. In this paper, I trace the earlier origins of securitization, from the 12th century Genoese compera through to early 20th century efforts. The historical examples highlight unifying themes on risk allocation and complexity. As the future securitization market remains uncertain, it is important to consider lessons to be learned from these historical episodes. Design/methodology/approach - – This is primarily a survey article that utilizes historical documents to compare/contrast features of securitization with the recent crisis. Findings - – Improved disclosure is the key element to address recent securitization flaws, but disclosure does not really matter if the entire process is not understood. An examination of historical episodes can be instructive. Forging ahead, any securitization reform needs to address why securitization markets formed, why they failed and how the securitization market can be improved. Practical implications - – As the future securitization market remains uncertain, it is important to consider lessons to be learned from these historical episodes. Originality/value - – To the best of my knowledge, this is one of the first research papers that surveys the history of securitization as far back as the twelfth century.

The Economics of Sallie Mae

The Student Loan Marketing Association, “Sallie Mae,” was formed by the federal government in 1972 to facilitate a secondary market for student loans. Now an independent entity, SLM Corporation is the largest lender and servicer of student loans in the U.S. As Sallie Mae made the transition into being a dominant player in all facets of the student loan industry (including student loan asset-backed securities, debt collection, and guarantor servicing), two economic theories have emerged. The “market for lemons” and “capture theory” theories serve as useful illustrations in understanding SLM’s evolution and future prospects.

Furniture as a Conduit for Credit

Securitization has transformed the global financial landscape, and in recent years accounts receivable securitization has become an increasingly popular means to accelerate cash flow. However, this particular style of securitization has encountered problems, which began well before the recent financial crisis. In 2000, Heilig-Meyers became the first company in which the senior notes of asset-backed securities suffered a principal loss. This article discusses the securitization of accounts receivable and its associated risks, using as an example the role of asset-backed securities in the Heilig-Meyers bankruptcy. In the case of Heilig-Meyers, selling furniture became secondary to issuing credit—a problem similar to the one that occurred in the real estate and mortgage markets.

Proxy Rules and Proxy Practices: An Empirical Study of US and UK Shareholder Proposals

In May 2009, the SEC proposed the most significant amendments to proxy rules since 1942. We build comprehensive samples of US and UK shareholder proposals for the period 2000-2006 to study the relation between proxy rules and proxy practices and the effect of shareholder proposals on firm performance. We find that, despite perceived negligible power, US shareholder proposals have more significant and positive impact on firms than UK ones, which have greater legal power to effect changes. US shareholder proposals have a significant impact on long-term stock performance, CEO turnover and board structure.

Improving international students’ understanding of local culture and financial institutions: A service learning application

Purpose – The purpose of this paper is to provide a case study of a service learning project focusing on financial literacy. In response to the global financial crisis there has been increasing emphasis on improving financial literacy skills and education. In this paper, the author argues for service learning as a means of integrating the finance curricula with real-world applications. Design/methodology/approach – Initially, the author surveys the growing importance of a financial literacy education as well as integrating service learning with a business education. The author then describes the implementation of a service-learning program at a private university that provides financial literacy workshops to community partners. Findings – The paper concludes with a discussion of the effectiveness of the financial literacy workshops and reflections of the service-learning experience. Research limitations/implications – It is an opportunity for learning among culturally diverse groups and has also helped in...

Risk Management in Emerging Markets: Issues, Framework, and Modeling

This chapter investigates the determinants of the volatility of spread in the over-the-counter foreign exchange market and examines whether the relationships differ in the crisis periods. We compute the measures for the volatility of liquidity by using bid-ask spread data sampled at a high frequency of five minutes. By examining 11 currencies over a 13-year sample period, we utilize a balanced dynamic panel regression to investigate whether the risk associated with the currencies quoted or trading activity affects the variability of liquidity provision in the FX market and examine whether the crisis periods have any effect. We find that both the level of spread

How Much Value within Foreign Direct Investment Can a Government Destroy

This article employs techniques from real options analysis to determine an actual value that can be gained or lost due to government policy instead of a speculated value. Although a government commits to promoting a particular area of business (in this case, the sugar industry in Vietnam), implementation and conflicting policies can make the investment much less profitable. By employing real options analysis, the investor receives a clearer picture of the losses and gains under a particular governmental policy, which should lead to more prudent investment decisions.