John C. Edmunds

Successful Cross-border Acquisitions of Latin American Financial Institutions: Identifying Success Factors:

This article examines the shareholder wealth effects for foreign companies that announce acquisitions of financial institutions in Latin America. We examine data for 636 transactions for the period 1985–2009. We employ event study methodology coupled with a cross-sectional regression to determine if shareholders of the acquiring firm receive positive returns. The results indicate that acquirers receive positive returns when the acquisition involves a target bank in a market with low market access, high market risk, and greater control post acquisition. These findings offer improvements on previously examined variables and provide insight into a market not sufficiently examined in prior research.

Latin American Economic Growth

Seven major Latin American countries had moderately high growth rates during the period 2001–2012.We used indicators of capital market modernization and corruption to explain the widely varying GDP growth figures for each time frame and also assessed whether export growth was highly linked to GDP growth. The countries did not fall into clusters with each coinciding closely with the others in the cluster. Instead each country appeared to be sui generis, finding its own path in response to its own circumstances.

Bank financing and shareholder wealth

This article shows that European firms do their shareholders a disservice if they use bank financing, especially if that financing comes with restrictive covenants and floating interest rates. The restrictive covenants discourage expansion and the floating interest rates make the firms cash flows less stable. The better way to finance the firm is with fixed-rate bonds. With bond financing, the covenants are less restrictive and the firms interest expense is more stable. The simulation approach which the authors have developed gives estimates of how much each attribute of the financing affects the companys share price. The effects that they found are large -- for example, choosing fixed-rate bond financing over floating-rate bank financing adds 17.4 per cent to the stock price. Interest expense is an important component of cost in the authors simulation, and making it fixed instead of floating brings enough stability to the firms cash flow to deliver a large increase in the stock price. Also, postponing a new factory, as managers might do to avoid violating the restrictive covenants of bank loans, lowers the stock price 19.7 per cent. In the simulation, the firm has adequate capacity at the beginning, but in many scenarios becomes capacity-constrained after one or two years. Stock market investors gain if the company buys the factory sooner, because they place a high value on growth and market share.

Financial wealth and the distribution of income

The gap between wealthy and poor is widening, in part due to the epochal rise in the value of financial assets. Middle‐class savers channel their monthly contributions into mutual funds, which in turn invest the money in stocks and bonds. These accounts then accumulate, and the gains are largely tax‐free until they are liquidated. Savers who began contributing early, or who set aside more each month before the stock market rally, are now massively ahead of those in their cohort who did not. The accumulated stock market holdings, and the hair‐trigger switches from one mutual fund to another, make the stock market a mammoth and fickle force. Over the next 20 years the value of financial assets may exceed five times the value of world output. Its power to reward and punish corporate managers and governments is unprecedented. The financial wealth accumulation dynamic is now entrenched, and will continue. Managers can assess its implications, and adjust their plans accordingly.

A stock market-driven reformulation of multinational capital budgeting

A method for ranking cross-border capital investment projects is proposed which makes direct use of stock-market valuation standards. The contribution of each proposed project is ranked according to how much the project would add to stock-market valuation of the parent company. The host country stock-market multiple is used when the proposed investment project will be in a subsidiary located in that host country. Three projects are ranked using the conventional method, the adjusted present value method, and the stock-market-driven method. The rankings come out 1,2,3; 2,1,3; and 3,1,2. The intent of this paper is to cast doubt on the ranking methods that are currently in use, by showing a method that gives a different, and apparently superior, ranking.

Link your company's hedging to raising your stock price

All companies hedge currency, interest rate, or commodity price exposure, using natural or contractual hedges. But traditional defensive hedging is restrictive and yet, greater flexibility appears to bring problems of control. Ashok Rao and John Edmunds solve this dilemma in a simple model which can be run on Microsoft Excel software. The model monitors a companys hedging on a daily basis, to measure how much each hedge is contributing to shareholder value, and to assess how much the set of hedges that are in place add to shareholder value. Various extensions of the model are possible.