Nanda K. Rangan

Cost Structures in Multinational and Domestic Banking

Prior research on international banking has proposed many reasons for the multinationalization of U.S. banks butprovided little empirical support for its propositions. Using a pooled -time series data set from 1987 to 1990, this study analyzes the ray and expansion path scale economies and expansion path subadditivity of U.S. based multinational banks (MNBs), both at the firm and the plant levels. It also measures and analyzes inefficiencies for these banks. Inefficiencies are measured relative to a thick frontier cost function. A similar analysis is conducted for domestic banks (DBs) for comparison purposes. No support is found for the prior belief that similar cost structures exist for MNBs and DBs. In general, we find that MNBs are able to fully exploit economies of scale, and face lesser diseconomies from joint production and lower inefficiencies than DBs.

Can Aversion to Variance Risk be Evidence of Risk Seeking Preferences? Evidence from Returns to VC Backed IPOs

In this paper, we examine how venture capital portfolios with risk averse and risk seeking return characteristics are priced by the representative investor in public equity markets. We find only portfolios with risk seeking return characteristics are associated with a market skewness premium. Also, while the representative investors aversion to variance risk and skewness preference are positively correlated in the pricing of portfolios with risk seeking return characteristics, they are negatively correlated in the pricing of portfolios with risk averse return characteristics. Our findings (a) show skewness preference is evidence of risk seeking behavior or preferences, and as such is inconsistent with globally concave utility functions; (b) indicate portfolio diversification (aversion to variance risk) can be evidence of risk averse or risk seeking preferences; and (c) establish empirically testable conditions for distinguishing between risk averse and risk seeking preferences.