Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-19T11:59:47.914Z Has data issue: false hasContentIssue false
  • English
  • Français

Competition and Operating Volatilities around the World

Published online by Cambridge University Press:  18 December 2018

Tanakorn Makaew  and
Vojislav Maksimovic Open the ORCID record for Vojislav Maksimovic [Opens in a new window]
Get access Rights & Permissions [Opens in a new window]

Abstract

Numerous papers have shown that developing economies are more volatile. We show that, despite greater aggregate and industry stability, performance and size of individual firms in developed countries are more volatile. In developing countries, market imperfections insulate incumbent firms from competition. Consistent with this, firms in developing countries have higher profit, higher market concentration, and less capital raising. Cross-country differences in operating risk and competition intensity are greater in industries that are dependent on external finance, where we expect higher impacts of capital-market imperfections. We show the inverse relation between aggregate and firm-level volatilities has important implications for international studies of cash holding.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 2 , March 2020 , pp. 517 - 547
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

1

We thank an anonymous referee, Meghana Ayyagari, Ran Duchin, Jarrad Harford (the editor), Borja Larrain, David McLean, Denis Sosyura, and seminar participants at the European Finance Association Annual Meeting, the U.S. Securities and Exchange Commission, the University of Maryland, the University of Michigan, the University of Virginia’s Darden International Finance Conference, and the Western Finance Association Annual Meeting for helpful comments. All errors are our own. The U.S. Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the Commission or of the author’s colleagues on the staff of the Commission.

References

Acemoglu, D.; Johnson, S.; Robinson, J.; and Thaicharoen, Y.. “Institutional Causes, Macroeconomic Symptoms, Volatility, Crises and Growth.” Journal of Monetary Economics, 50 (2003), 49–123.Google Scholar
Aguiar, M., and Gopinath, G.. “Fire-Sale Foreign Direct Investment and Liquidity Crises.” Review of Economics and Statistics, 87 (2005), 439–452.Google Scholar
Aguiar, M., and Gopinath, G.. “Emerging Market Business Cycles: The Cycle Is the Trend.” Journal of Political Economy, 115 (2007), 69–102.Google Scholar
Ayyagari, M.; Demirguc-Kunt, A.; and Maksimovic, V.. “Formal versus Informal Finance: Evidence from China.” Review of Financial Studies, 23 (2010), 3048–3097.Google Scholar
Bartram, S. M.; Brown, G.; and Stulz, R.. “Why Are U.S. Stocks More Volatile?” Journal of Finance, 67 (2012), 1329–1370.Google Scholar
Bates, T. W.; Kahle, K.; and Stulz, R.. “Why Do U.S. Firms Hold So Much More Cash than They Used To?” Journal of Finance, 64 (2009), 1985–2021.Google Scholar
Bekaert, G.; Harvey, C.; Lundblad, C.; and Siegel, S.. “Global Growth Opportunities and Market Integration.” Journal of Finance, 62 (2007), 1081–1137.Google Scholar
Beck, T.; Demirguc-Kunt, A.; Laeven, L.; and Levine, R.. “Finance, Firm Size, and Growth.” Journal of Money, Credit and Banking, 40 (2008), 1380–1405.Google Scholar
Beck, T.; Demirguc-Kunt, A.; and Maksimovic, V.. “Financial and Legal Constraints to Firm Growth: Does Firm Size Matter?” Journal of Finance, 60 (2005), 137–177.Google Scholar
Beck, T.; Demirguc-Kunt, A.; and Maksimovic, V.. “Financing Patterns around the World: The Role of Institutions.” Journal of Financial Economics, 89 (2008), 467–487.Google Scholar
Booth, L.; Aivazian, V.; Demirguc-Kunt, A.; and Maksimovic, V.. “Capital Structures in Developing Countries.” Journal of Finance, 56 (2001), 87–130.Google Scholar
Braun, M., and Larrain, B.. “Finance and the Business Cycle: International Inter-Industry Evidence.” Journal of Finance, 60 (2005), 1097–1128.Google Scholar
Caprio, L.; Faccio, M.; and McConnell, J.. “Sheltering Corporate Assets from Political Extraction.” Journal of Law, Economics, and Organization, 29 (2013), 332–354.Google Scholar
Claessens, S.; Djankov, S.; and Lang, L. H. P.. “The Separation of Ownership and Control in East Asian Corporations.” Journal of Financial Economics, 58 (2000), 81–112.Google Scholar
Demirguc-Kunt, A., and Maksimovic, V.. “Stock Market Development and Financing Choices of Firms.” World Bank Economic Review, 10 (1996), 341–369.Google Scholar
Demirguc-Kunt, A., and Maksimovic, V.. “Law, Finance, and Firm Growth.” Journal of Finance, 53 (1998), 2107–2137.Google Scholar
Demirguc-Kunt, A., and Maksimovic, V.. “Institutions, Financial Markets, and Firm Debt Maturity.” Journal of Financial Economics, 54 (1999), 295–336.Google Scholar
Dittmar, A., and Duchin, R.. “The Concentration of Cash: Cash Policies of the Richest Firms.” Working Paper, University of Michigan (2012).Google Scholar
Dittmar, A.; Mahrt-Smith, J.; and Servaes, H.. “International Corporate Governance and Corporate Cash Holdings.” Journal of Financial and Quantitative Analysis, 38 (2003), 111–133.Google Scholar
Doidge, C.; Karolyi, G. A.; and Stulz, R.. “The U.S. Listing Gap.” Journal of Financial Economics, 123 (2017), 464–487.Google Scholar
Faccio, M., and Lang, L.. “The Ultimate Ownership of West European Corporations.” Journal of Financial Economics, 65 (2002), 365–396.Google Scholar
Fan, J. P. H.; Titman, S.; and Twite, G.. “An International Comparison of Capital Structure and Debt Maturity Choices.” Journal of Financial and Quantitative Analysis, 47 (2012), 23–56.Google Scholar
Faulkender, M., and Wang, R.. “Corporate Financial Policy and the Value of Cash.” Journal of Finance, 61 (2006), 1957–1990.Google Scholar
Fresard, L.“Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings.” Journal of Finance, 65 (2010), 1097–1122.Google Scholar
Gamba, A., and Triantis, A.. “The Value of Financial Flexibility.” Journal of Finance, 63 (2008), 2263–2296.Google Scholar
Gao, H.; Harford, J.; and Li, K.. “Determinants of Corporate Cash Policy: Insights from Private Firms.” Journal of Financial Economics, 109 (2013), 623–639.Google Scholar
Giannetti, M.“Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance Choices.” Journal of Financial and Quantitative Analysis, 38 (2003), 185–212.Google Scholar
Harford, J.; Mansi, S.; and Maxwell, W. F.. “Corporate Governance and a Firm’s Cash Holdings.” Journal of Financial Economics, 87 (2008), 535–555.Google Scholar
Harvey, C.“The Cross-Section of Volatility and Autocorrelation in Emerging Markets.” Finanzmarkt und Portfolio Management, 9 (1995), 12–34.Google Scholar
Kalcheva, I., and Lins, K. V.. “International Evidence on Cash Holdings and Expected Managerial Agency Problems.” Review of Financial Studies, 20 (2007), 1087–1112.Google Scholar
Koren, M., and Tenreyro, S.. “Volatility and Development.” Quarterly Journal of Economics, 122 (2007), 243–287.Google Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R.. “Law and Finance.” Journal of Political Economy, 106 (1998), 1113–1155.Google Scholar
Lucas, R. E. Jr. “On the Mechanics of Economic Development.” Journal of Monetary Economics, 22 (1988), 3–42.Google Scholar
Mclean, D.; Zhang, T.; and Zhao, M.. “Why Does the Law Matter? Investor Protection and Its Effects on Investment, Finance, and Growth.” Journal of Finance, 67 (2012), 313–350.Google Scholar
Morck, R.; Yeung, B.; and Yu, W.. “The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?” Journal of Financial Economics, 58 (2000), 215–260.Google Scholar
Pinkowitz, L.; Stulz, R.; and Williamson, R.. “Do Firms in Countries with Poor Protection of Investor Rights Hold More Cash?” Working Paper, National Bureau of Economic Research (2003).Google Scholar
Pinkowitz, L.; Stulz, R.; and Williamson, R.. “Do U.S. Firms Hold More Cash than Foreign Firms?” Review of Financial Studies, 29 (2016), 309–348.Google Scholar
Prasad, E.; Rogoff, K.; Wei, S. J.; and Kose, A.. “Financial Globalization, Growth and Volatility in Developing Countries.” In Globalization and Poverty, Harrison, A., ed. Chicago, IL: University of Chicago Press (2006), 457–516.Google Scholar
Raddatz, C.“Liquidity Needs and Vulnerability to Financial Underdevelopment.” Journal of Financial Economics, 80 (2006), 677–722.Google Scholar
Rajan, R., and Zingales, L.. “What Do We Know about Capital Structure? Some Evidence from International Data.” Journal of Finance, 50 (1995), 1421–1460.Google Scholar
Rajan, R., and Zingales, L.. “Financial Dependence and Growth.” American Economic Review, 88 (1998), 559–586.Google Scholar
Supplementary material: File

Makaew and Maksimovic supplementary material

Makaew and Maksimovic supplementary material

Download Makaew and Maksimovic supplementary material(File)
File 186.1 KB