Larry Fauver

Capital Market Development, International Integration, Legal Systems, and the Value of Corporate Diversification: A Cross-Country Analysis

Using a database of more than 8,000 companies from 35 countries, we find that the value of corporate diversification is related to the level of capital market development, international integration, and legal systems. Our results suggest that the financial, legal, and regulatory environments each have an important influence on the value of diversification. Moreover, the optimal organizational structure and corporate governance may be very different for firms operating in emerging markets than they are for firms operating in more developed and internationally integrated countries.

Corruption, Political Connections, and Municipal Finance

We show that state corruption and political connections have strong effects on municipal bond sales and underwriting. Higher state corruption is associated with greater credit risk and higher bond yields. Corrupt states can eliminate the corruption yield penalty by purchasing credit enhancements. Underwriting fees were significantly higher during an era when underwriters made political contributions to win underwriting business. This pay-to-play underwriting fee premium exists only for negotiated bid bonds where underwriting business can be allocated on the basis of political favoritism. Overall, our results show a strong impact of corruption and political connections on financial market outcomes. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Institutional Environment and Sovereign Credit Ratings

We use a sample of 86 counties to examine the cross-sectional determinants of sovereign credit ratings. We find that the quality of a countrys legal and political institutions plays a vital role in determining these ratings. A one-standard-deviation increase in our legal environment index results in an average credit rating increase of 0.466 standard deviations, even when we control for obvious factors such as GDP per capita, inflation, foreign debt per GDP, previous defaults, and general development. Although part of this effect is due to the legal environments endogeneity, its relative importance is robust to endogeneity concerns.

Cross-country evidence on the value of corporate industrial and international diversification

Abstract We provide evidence on the value of industrial and international diversification for more than 3000 firms from Germany, the U.K., and the U.S. Consistent with prior studies, we find that industrial diversification reduces firm value in the U.K. and the U.S. Furthermore, similar to the recent findings of Denis et al. [J. Finance 57 (2002)], we find that U.S. multinationals trade at a discount relative to firms operating only in the domestic market. This result is robust to different benchmarks used to measure the value of diversification. By contrast, we find that international diversification has no effect on the value of firms headquartered in either Germany or the U.K.

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.

The pricing of U.S. IPOs by seasoned foreign firms

Abstract We examine the pricing of U.S. initial public offerings (IPOs) by foreign firms that are already seasoned in their domestic countries. Presumably, these equity offers have less downside risk for investors than typical IPOs since domestic share prices can be used to help establish a preoffer value for the firms equity. In spite of the presumed diminished downside risk, we find that offers by firms from countries that impose foreign ownership restrictions and capital controls are on average underpriced, experiencing an average first-day return in the United States of 12.7%. This result stems in part from the underwriters failure to price the issue to fully reflect the postoffer premium that often arises for the U.S. shares. In contrast, offers by firms from countries without ownership restrictions have an average first-day return of 0.0%.

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.

Local Economic Consequences of Stock Market Listings

We show that initial public offerings (IPOs) have nontrivial positive spillover effects on local labor markets, business environments, consumer spending, real estate, and migration. We mitigate endogeneity concerns about unobserved heterogeneity with restrictive geographic fixed effects coupled with a matching procedure. We show that it is the listing decision, which encompasses both a wealth and liquidity shock, that induces economic spillovers. Conditional on an IPO occurring, we estimate that an additional

Individualism, Risk Aversion, and Authoritarian Control: International Evidence on the Influence of Social Norms on Capital Structure Decisions

10 million in IPO proceeds is associated with an extra 41 jobs and 0.7 new establishments locally.

Capital Market Development, Integration, Legal Systems, and the Value of Corporate Diversification: A Cross-Country Analysis

We examine the impact of social norms (individualism, risk aversion, and authoritarian control index) on firm capital structure in the G20 countries from 1995 through 2009. Our results show that increases in individualism increase firm willingness to use debt and decrease the average cost of capital (a move from below median to above median individualism within developed countries translates to a roughly 1.9% decrease in the cost of capital). Increases in risk aversion have the opposite effect, increasing the cost of capital by an average of 1.7% in developed economies for a below median to above median move. A 2% change in the cost of capital translates to approximately