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Research on Corporate Financial Decisions Made by Russian Companies and Companies of Other Emerging Capital Markets during the Global Transformation of Capital Markets and the Establishment of an Innovation Economy

Priority areas of development: economics
2013
The project has been carried out as part of the HSE Program of Fundamental Studies.

The aim of the study, conducted by the Corporate Finance Center in 2013, was to identify the key and specific characteristics of the financial decisions made by Russian companies in building their financial architecture and its impact on company efficiency―in comparison with the largest emerging capital markets (the BRICS countries) and European companies―during the transition to an innovation economy and the transformation of financial markets.

The object of the study includes a sample of large companies from the emerging capital markets of the BRICS countries (Brazil, Russia, India, China, and South Africa) and Eastern Europe. The subject of the study is a range of corporate financial decisions.

In the course of research, samples of large companies from the BRIC countries and Eastern Europe were collected from the Bloomberg database, Bureau Van Dyke (Ruslana, Amadeus, Zephyr), official company websites, stock exchange websites, and the Arbitration Court of Russia.

The study revealed the following results.

An analysis of the choice of capital structure revealed that the determinants of the choice of type of funding sources are firm size, growth opportunities, the tangibility of assets, and profitability. An analysis of the relationship between the capital structure and other elements of the financial architecture revealed that companies with a high proportion of independent directors on their board and companies with large boards of directors are characterized by high levels of debt, and the speed of adjustment to the target level of debt is higher in companies where a high proportion of equity is held by the management. Payout policy research revealed that companies in emerging capital markets are conservative with respect to decisions on dividend policy, and that via its dividend policy, the management seeks to signal the future prospects of the company. It was also determined that payout policy decisions are guided by past financial results, as well as by estimated future cash outflows and inflows of funds. The dividend policy in emerging markets has short planning horizons and a low share of dividends from net profit due to the higher risks inherent in emerging markets and the high investment activity of companies.

An integrated analysis of the impact of corporate financial architecture on corporate efficiency made it possible to determine that the drivers of the strategic efficiency of European financial companies are the concentration of ownership, government participation, and the optimization of the board of directors. An analysis of the financial architecture of commercial banks revealed that the efficiency of commercial banks in emerging capital markets is negatively affected by the concentration of ownership, as well by the proportion of equity in the hands of foreign investors and the capital structure, with one of the key factors of the value of the bank being the rate of growth in net interest income. An investigation into the efficiency of mergers and acquisitions (M&A) in emerging capital markets proved that transactions involving both international and local expansion are beneficial to the acquirer. The determinants of the effectiveness of M&A deals are the method of payment, the relative size of the transaction, the presence of intangible assets on the part of the buyer, and the developmental differences between the participating countries. Forecasting the bankruptcy of BRIC companies proved the efficacy of the Bayesian approach when constructing models of diagnostic failures. Cost of capital studies in emerging capital markets showed the influence of asymmetric risk measures on the cost of equity and made it possible to determine the market risk premium in the Russian and South African markets.

The research results were presented and discussed during 23 reports given at Russian and international conferences held in 2013, and published or accepted for publication in 18 articles in national and international scientific journals.

The results obtained within the framework of the project can be used not only to improve the learning process at the NRU HSE, but also while preparing the collective monograph, devoted to mergers and acquisitions in emerging markets, that is due to be published in 2014. 

Results related to how the characteristics of the financial architecture of Russian companies impact their effectiveness can improve the quality of Russian companies' capital management for both the short and long terms if the determinant of strategic effectiveness, identified by the study, is employed. 

Publications:


Ivashkovskaya I., Gushchin A. S., Rukavishnikov Y. M. Capital Structure Choice at Different Life-Cycle Stages in Turbulent Environment: the Evidence from Russian Emerging Capital Market, in: Economic and Social Development: Book of Proceedings of the 2nd International Scientific Conference, Paris, France, 5th April 2013. Celje : Varazdin development and Entrepreneurship Agency, 2013. P. 311-321.
Neretina Ekaterina, Neretina E. A Binary Model versus Discriminant Analysis Relating to Corporate Bankruptcies: The Case of Russian Construction Industry // Journal of Accounting, Finance and Economics. 2013. Vol. 3. No. 1. P. 65-76.
Черкасова В. А. Исследование проблем недоинвестирования и переинвестирования российских компаний в зависимости от стадии их жизненного цикла // Аудит и финансовый анализ. 2013. № 6. С. 267-275.
Степанова А. Н., Балкина Е. А. Финансовая архитектура компаний на разных этапах жизненного цикла: влияние на эффективность российских компаний // Корпоративные финансы. 2013. № 3 (27). С. 5-22.
Dranev Y., Fomkina S. Colog Asset Pricing, Evidence from Emerging Markets / NRU Higher School of Economics. Series FE "Financial Economics". 2013. No. WP BRP 26/FE/2013 .
Kokoreva M. S., Ulugova A. E. Agency Costs and Capital Structure Choice in Emerging Markets, in: Economic and Social Development: Book of Proceedings of the 2nd International Scientific Conference, Paris, France, 5th April 2013. Celje : Varazdin development and Entrepreneurship Agency, 2013. P. 384-396.
Makeeva E., Neretina E. A Binary Model versus Discriminant Analysis Relating to Corporate Bankruptcies: The Case of Russian Construction Industry // Journal of Accounting, Finance and Economics. 2013. Vol. 3. No. 1. P. 65-76.
Makeeva E., Neretina E. The Prediction of Bankruptcy in a Construction Industry of Russian Federation // Journal of Modern Accounting and Auditing. 2013. Vol. 9. No. 2. P. 256-271.
Улугова А. Э., Данилов Е. В., Ибрагимова Х. К., Нестеренко Е. А., Чалов И. А. Современные исследования особенностей применения метода рыночных сравнений на развитых и развивающихся рынках // Корпоративные финансы. 2013. № 2 (26). С. 102-115.
Shcherbakov D. Y., Ivashkovskaya I. Efficiency of Corporate International Diversification: Evidence from Developing Countries, in: Economic and Social Development: Book of Proceedings of the 2nd International Scientific Conference, Paris, France, 5th April 2013. Celje : Varazdin development and Entrepreneurship Agency, 2013. P. 1064-1075.
Дранев Ю. Я. Валютный риск и теория ценообразования активов // Корпоративные финансы. 2013. Т. 28. № 4. С. 114-124.
Dranev Y., Babuskin M. Asymmetric Exchange-Rate Exposure in BRIC Countries / NRU Higher School of Economics. Series FE "Financial Economics". 2014.
Grigorieva S., Petrunina T. The Performance of Mergers and Acquisitions in Emerging Capital Markets: New Evidence / NRU Higher School of Economics. Series FE "Financial Economics". 2013. No. WP BRP 20/FE/2013.