ENRICO BERETTA, Bank of Italy
Email: enrico.beretta@bancaditalia.it
SILVIA DEL PRETE, Bank of Italy
Email: silvia.delprete@bancaditalia.it

Using data on single credit relationships, the paper shows that after a merger or an acquisition, involving two or more banks which had previously jointly financed the same firm, the share of credit granted to the client by the consolidated intermediaries moderately decreases over three years. This does not necessarily imply a reduction of the overall credit granted to the firm, because after consolidations involving its lending banks, the probability of diversifying the mix of lenders increases. Some of the features of credit relationships or the characteristics of borrowing firms, which reduce information asymmetries and the cost of soft information, seem to partially offset the decrease in the share of credit provided by consolidated banks. Indeed, if the company is geographically close to a branch of its financing bank, or if it belongs to an industrial district, the more exclusive credit relationships between the parties seem to mitigate or offset the diversification of credit relationships generated by M&As. By contrast, if a firm is in financial distress or located in the South of Italy – a geographical area with greater negative context externalities – diversification is significantly enhanced.

GEORGE K. FOSTER, Lewis & Clark Law School
Email: foster@lclark.edu

Critics of investment treaties contend that these treaties give investors excessive rights vis-à-vis host states, and undermine the latter’s ability to regulate to prevent corporate human rights abuses. Some even assert that investors are often now more powerful than host states, in part because of investment treaties. Consequently, calls for reform of international investment law often focus on modifying treaties to diminish investor rights or expand host state regulatory authority. This Article argues that, contrary to common perception, investors have a genuine need for treaty protections, and these do not unduly hinder host state regulatory prerogatives. Investment-related human rights abuses occur not because investment treaties deter host states from regulating, but because host states are sometimes disinclined to regulate — and may even commit abuses in their own right — as a result of financial considerations and other factors unrelated to treaty protections. Indeed, host states sometimes enter into an effective alliance with investors, resulting in a power asymmetry to the detriment of local stakeholders far greater than any that may exist between investors and states. This Article explains how investment treaties could and should be modified to buttress the position of local stakeholders — just as they presently do that of investors — empowering stakeholders to protect their own human rights, without the need to rely on their governments to do so on their behalf.

AZIZJON ALIMOV, City University of Hong Kong
Email: aaalimov@cityu.edu.hk

This paper studies the role of national laws that protect employment in cross-border merger decisions and the merger valuation effects. Using a sample of 53,583 cross-border deals involving firms from 28 countries, I find that firms in countries with stringent labor laws are more likely to be acquired by foreign acquirers, especially acquirers from countries with relatively more flexible labor regulations. The merger premium is higher if an acquirer comes from more flexible and a target comes from more stringent labor regulation environments. The role of labor regulation differences is more important in innovation-intensive sectors. The results are consistent with the hypothesis that more labor protective laws play a facilitating role in cross�border deals because such laws create an important comparative edge in innovation output.

SUNG HEE LEW, University of Edinburgh - University of Edinburgh
Email: psdawn@hanmail.net
SUK-PIL LIM, Dankook University
Email: slim@dankook.ac.kr

We investigate Korean firms’ financing patterns, including debt and equity issuance and capital structure adjustment speed. According to the trade-off theory, firms need to change their capital structure to maximize their value by achieving their optimal capital structures. In the pecking order theory, firms issue debt first when they need cash. Our results show that firms have changed (or adjusted) their capital structures over a twenty year span, and they mainly use equity issuance. Our result denies the pecking order theory, but may support the market timing theory and trade-off theory.

We use Frank and Goyal’s (2003) method and a dynamic partial adjustment process to test it. Furthermore, we have used a System GMM estimator to improve the reliability of our results as we use a panel data set that likely has an endogeneity problem. We also use both book and market based debt ratios and other financial ratios.

SÖHNKE M. BARTRAM, Warwick Business School - Department of Finance
Email: s.m.bartram@wbs.ac.uk
GREGORY W. BROWN, University of North Carolina (UNC) at Chapel Hill - Finance Area
Email: gregwbrown@unc.edu
RENE M. STULZ, Ohio State University (OSU) - Department of Finance, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI)
Email: stulz@cob.ohio-state.edu

U.S. stocks are more volatile than stocks of similar foreign firms. A firm’s stock return volatility can be higher for reasons that contribute positively (good volatility) or negatively (bad volatility) to shareholder wealth and economic growth. We find that the volatility of U.S. firms is higher mostly because of good volatility. Specifically, firm stock volatility is higher in the U.S. because it increases with investor protection, stock market development, new patents, and firm-level investment in R&D. These are all factors that are related to better growth opportunities for firms and better ability to take advantage of these opportunities.