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  • Empirical Analysis of Corporate Financial Decisions of Companies of Emerging Capital Markets under the Pressure of Global Markets Transformation and Knowledge Economy Development

Empirical Analysis of Corporate Financial Decisions of Companies of Emerging Capital Markets under the Pressure of Global Markets Transformation and Knowledge Economy Development

The project has been carried out as part of the HSE Program of Fundamental Studies.

The goal of the research is to determine key specific features of financial decisions in Russian firms, their corporate financial architecture and its impact over performance as compared to the largest emerging markets (BRICS) and Eastern Europe as well as developed capital markets. 

We focus on large scale firms form these groups of countries. The subject of the research includes the decisions in financing and investing policies and their interactions; financial architecture policies; strategic deals in the market for corporate control. We examine the relationship between all above-mentioned types of decisions and corporate value.       

In the study of corporate capital structure in emerging capital markets on the data of 581 companies from BRICS countries for the years 2002-2014 we have revealed that the target capital structure is dependent on the set of factors which is the same for both periods of economic growth and recession. The speed of adjustment to the target capital structure dependents upon the stage of the business cycle of the economy and is rather higher within economic growth periods. We have found out that the impact of the determinants of the speed of adjustment varies depending on the state of the economy (the deviation from the target capital structure leads to an increase in the speed of adjustment within growth and to a decrease in times of recession).

On a sample of 384 large public Russian companies we have revealed the specificity of the relationship between the income tax rate and the level of financial leverage, which showed that the increase in effective tax rate leads to the decrease in financial leverage. For the first time in the literature we demonstrate the role of non-debt tax shields and have found that the availability of deferred tax assets and liabilities results in a lower level of financial leverage. We also show the influence of the most significant normalized expenses such as advertising expense, R&D on the capital structure of Russian companies.

On the sample of 9884 Russian companies for the period 2003-2012 we have identified the life cycle stages, for which suboptimal investing policies (risk-shifting and risk avoidance effects) are typical and measured the extent of these effects’ power at each life-cycle stage. The influence of debt maturity structure on effects’ power was determined. We show that it is necessary to increase the share of short-term debt for risk-shifting effect prevention and to reduce the share of short-term debt for risk avoidance effect prevention.

This research focuses on the efficiency of target-company investment decisions before and after M&A deals and whether M&A deals help to solve the problem of suboptimal investment after the acquisition. Using a sample of 145 target-companies from BRICS countries which were acquired during the period of 2004-2014, we show that the probability to face overinvestment is higher in large companies, while underinvestment is more common for small and medium ones. We outlined those who had over- or under-invested before the deal and show that 55% of companies managed to optimize the level of investment after the deal. We determine that industry and country have an impact on the degree of suboptimal investment and show that performance factors such as total debt, retained earnings, excess cash flow that decrease the probability of problem presence in target-companies.

Within the research on mergers, acquisitions and other strategic deals based on a sample of 861 firms (253 firms from emerging markets and 608 firms from developed markets), we find a non-linear form of relationship between the level of diversification and performance for both organic and inorganic ways of diversification in developed capital markets. In emerging markets we find a linear form of relationship between the level of diversification and performance for organic growth and a U-shaped form of relationship for inorganic growth. We also identify general and specific determinants of diversification and firm performance for organic and inorganic ways of diversification.

According to our tasks of , we present the results of two empirical studies of mergers, acquisitions and other strategic deals. The first one – examines the determinants of M&A performance in Western Europe and compares the obtained results with the outcomes derived on the sample of deals initiated by companies from emerging markets. We examine the latest time period, 2000-2011 years. Based on the sample of 153 and 80 M&As, initiated by companies from Western Europe and emerging markets correspondingly, we prove that M&A deals create value for acquiring shareholders from Europe and destroy it for shareholders in emerging markets. We also find that the main determinants of M&A performance for companies from Western Europe and emerging markets are business similarities and crisis 2008-2009. The second one – assesses the size of control premium and reveals the determinants of the premium in Russia and Brazil.  We use the sample of 98 and 28 M&As in Russia and Brazin correspondingly. Based on the event study method, we find that the control premium in Russia is equal to +6,3% and in Brazil – +11.7%. The size of the premium depends on the toehold, industry and acquired stake (50%+1 or 25%+1).  We also find that the main determinants of the control premium are target’s leverage, size, deal size and crisis.   

Our pilot case-based study, panel data analysis and DEA (Data Envelopment Analysis) aim at testing a set of hypotheses on comparative performance of Russian portfolio companies of Private equity fund and peers. We also try to estimate the influence of a company’s industry and controlling interest in a company by PE fund on efficiency of the portfolio company. The results of the panel data analysis show that that private equity funds lead to higher performance of portfolio firms than the performance of peer firms. The presence of foreign investors in a fund, as well as the acquisition of a majority stake, has a positive effect on the efficiency of the investee company. We also verified results by the DEA analysis.

During the study of cost of equity we identified the size premium and its features, including the industry-specific features, on a sample of 101 Russian companies for the period 2006-2014. It is shown that the size premium for the Russian market is 3%. In addition, we evaluated the role of the liquidity factor in the pricing of cost of equity in emerging capital markets, such as Russia and Brazil (a sample of 106 Russian and 154 Brazilian companies for the period 2009-2014), and found that the liquidity factor is significant. Also we provided hypothesis for the study of the role of dividend policy indicators in asset pricing models.

In the paper studying how market sees corporate governance in commercial banks we demonstrate that board size and independence are non-linearly associated with market perception, implying an existence of an optimal number of board members and outsiders among them.  Using the sample of 470 public banks in North America and Europe we show that ownership concentration has different influence on market returns and economic profit. We contribute to the literature, first, by comparing market perception of ‘good’ or ‘bad’ governance in a bank with an actual effect the corporate governance has on bank’s fundamental value; second, by comparable analysis of market perception of ownership concentration in different regions (North America vs. Europe).

Testing the model of firm performance extended for the intellectual capital of CEO and board of directors with the sample of 60 Russian companies, we demonstrate the significant role of several components of CEO’s and directors’ human capital. We show the difference between the role of the human capital of CEO and board of directors.

The comparative analysis of clusters of companies with different financial architecture allowed us to demonstrate significant difference of sustainable growth indicators between the clusters. We find the largest gap between clusters, applying the index of sustainable growth based on company’s economic profit. We also find the type of financial architecture that leads to the highest average indicators of sustainable growth. The differences between clusters are sustainable across periods (crisis and post-crisis periods).

The aim of the meta - analysis research is to determine how different variables influence the performance of deals on average in developing capital markets. The research was conducted by using meta-analysis methodology. The sample consists of 26 articles from emerging capital markets, which investigate M&A deals from 2000 to 2013. For the analysis the most popular among researchers determinants of the M&A performance have been chosen: the method of payment, the size of the acquirer, the deal size, cross-border deals, private target company, ROE, industry relatedness, SOE – state ownership in the target company, ROA, financial leverage of  acquirer. The study results are the following: the greatest explanatory power among the determinants of the performance of mergers and acquisitions have a method of payment, industry relatedness, financial leverage and profitability of total capital (ROA). Furthermore, it was proved that the characteristics of the articles have no effect on the results of research.


Svetlana Grigorieva, Georgii Gorbatov. Puzzle of Corporate Diversification Efficiency in BRIC countries / NRU Higher School of Economics. Series FE "Financial Economics". 2015. No. WP BRP 47/FE/2015.
Grigorieva S., Petrunina T. The performance of mergers and acquisitions in emerging capital markets: new angle // Journal of Management Control. 2015. Vol. 26. No. 4. P. 377-403. doi
Григорьева С. А., Абузов Р. М. Оценка эффективности сделок слияний и поглощений на развитых рынках капитала Западной Европы // Экономический журнал Высшей школы экономики. 2015. Т. 19. № 2. С. 199-217.
Cherkasova Victoria, Zakharova E. Suboptimal Investments and M&A Deals in Emerging Capital Markets // Economic Annals. 2016. Vol.  LXI. No.  208 / January – March . P. 93-120. doi
Stepanova A. N., Ivantsova O. Do Large European Banks Benefit from Sound Corporate Governance in Good and Bad Times? // Journal of Corporate Finance Research. 2016. Vol. 10. No. 4. P. 29-45.
Makeeva E. Y., Kozenkova T. Taxation and capital structure: evidence from Russian companies // Asian Online Journal. 2015. Vol. 2. No. 1. P. 39-46.