Kenan Institute experts, industry leaders and researchers came together to discuss the broad societal impact of entrepreneurs – including entrepreneurial ecosystems, funding and America’s untapped assets – and some of the biggest trends currently seen in the industry.
Many Americans expect newly inaugurated President Joe Biden to achieve progress in improving the quality of the environment. In this Kenan Insight, we explain why we support these expectations, examining what Biden has already done in his brief tenure, the feasibility of the plans he’s outlined thus far, and whether (and how) he can propel the U.S. to a leadership role in sustainability.
Measuring the impact of political risk on investment projects is one of the most vexing issues in international business. One popular approach is to assume that the sovereign yield spread captures political risk and to augment the project discount rate by this spread. We show that this approach is flawed. While the sovereign spread is influenced by political risk, it also reflects other risks that are likely included in the valuation analysis — leading to the double counting of risks. We propose to use “political risk spreads” to undo the double counting in the evaluation of international investment projects.
Hydrocarbon derived from fast pyrolysis of plantation wood is a potential feedstock for the production of transportation fuels. Unfortunately, the cost to produce and upgrade this feedstock is highly uncertain, and its current technological state is not competitive with crude oil. Additional R&D will be needed to achieve the significant cost reductions required for competitiveness. Significant technical hurdles must be overcome to achieve a commercially ready, cost competitive technology. This paper identifies the most promising areas for the needed future research.
The process for producing advanced bio-fuels from woody biomass using fast pyrolysis technology is in an early stage of development. Whether it will offer favorable economics versus future petroleum-derived fuels or other advanced bio-fuels is not clear at this time; however, a study of the value chain from growth to final distribution of drop-in bio-fuels has highlighted several factors that will have major impact on ultimate economics.
We propose a new, valuation-based measure of world equity market segmentation. While we observe decreased levels of segmentation in many countries, the level of segmentation remains significant in emerging markets. We characterize the factors that account for variation in market segmentation both through time as well as across countries. Both a country's regulation with respect to foreign capital flows and certain nonregulatory factors are important. In particular, we identify a country's political risk profile and its stock market development as two additional local segmentation factors as well as the U.S. corporate credit spread as a global segmentation factor.
We introduce a new, market-based and forward-looking measure of political risk derived from the yield spread between a country's US dollar debt and an equivalent US Treasury bond. We explain the variation in these sovereign spreads with four factors: global economic conditions, country-specific economic factors, liquidity of the country's bond, and political risk. We then extract the part of the sovereign spread that is due to political risk, making use of political risk ratings. In addition, we provide new evidence that these political risk ratings are predictive, on average, of future risk realizations using data on political risk claims as well as a novel textual-based database of risk realizations.
This paper investigates fire sales of downgraded corporate bonds induced by regulatory constraints imposed on insurance companies. As insurance companies hold over one-third of investment-grade corporate bonds, the collective need to divest downgraded issues may be limited by a scarcity of counterparties. Using insurance company transaction data, we find that insurance companies that are relatively more constrained by regulation are more likely to sell downgraded bonds. Bonds subject to a high probability of regulatory-induced selling exhibit price declines and subsequent reversals. These price effects appear larger during periods when the insurance industry is relatively distressed and other potential buyers' capital is scarce.
We empirically investigate one form of illegal investor‐level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round‐tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker's () economic theory of crime, we identify the tax evasion component by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investor‐level tax evasion affecting cross‐border equity and debt investment.
Yield curve fluctuations across different currencies are highly correlated. This paper investigates this phenomenon by exploring the channels through which macroeconomic shocks are transmitted across borders. Macroeconomic shocks affect current and expected future short-term rates as central banks react to changing economic environments. Investors could also respond to these shocks by altering their required compensation for risk. Macroeconomic shocks thus influence bond yields both through a policy channel and through a risk compensation channel.
This study examines whether the information content of earnings announcements – abnormal return volatility and abnormal trading volume – increases in countries following mandatory IFRS adoption, and conditions and mechanisms through which increases occur. Findings suggest information content increased in 16 countries that mandated adoption of IFRS relative to 11 that maintained domestic accounting standards, although the effect of mandatory IFRS adoption depends on the strength of legal enforcement in the adopting country.
Relative performance is central to investment management and yet relative performance securities do not trade directly. Complex trading strategies must be devised to capture relative gains. This paper introduces a suite of relative performance indexes and index derivatives that offer new and attractive payoff structures. We illustrate a variety of ways in which the products can provide a more efficient and cost-effective means of realizing investment objectives than can traditional futures and options markets.
We examined factors that influence an individual's attitude and decisions about the information handling practices of corporations. Results from a survey of 425 consumers suggested that the hypothesized model was an accurate reflection of factors that affect privacy preferences of consumers. The results provide important implications for research and practice.
Much is known about the importance of learning and some of the distinct learning processes that organizations use (e.g., trial-and-error learning, vicarious learning, experimental learning, and improvisational learning). Yet surprisingly little is known about whether these processes combine over time in ordered ways, because most research on learning explores one particular process. Using theory elaboration and theory-building methods and data on the accumulated country entries of entrepreneurial firms, we address this gap. Our core contribution is an emergent theoretical framework that develops the concept of learning sequences. We find that learning sequences exist and are influenced by initial conditions.
Using a survey of new firms in Poland, Romania, and Slovakia, I explore how an entrepreneur’s social networks affect the amount paid in bribes to government officials. Lower levels of bribe payments are associated with ownership by a former manager of a state-owned enterprise (SOE), with being a spin-off from a SOE, and with trade association membership.
A unique dataset of over 70,000 firms, most of which are small, in over 100 countries, is utilized to systematically study the use of different financing sources for new and young firms. Consistent age-related patterns emerge. Across all countries younger firms rely less on bank financing and more on informal financing.
In closed-end funds, a managed distribution policy (MDP) is a dividend commitment potentially requiring the liquidation of assets. We argue that MDPs lower managerial claims on fund assets and, when the fund is at a discount, increase shareholder value. This transfer of wealth can be rationalized by managers wishing to deter a challenge from activist shareholders through a costly proxy vote. We find strong empirical evidence that managers respond to the presence of activists using MDPs, that MDPs constitute an effective wealth transfer to shareholders, and that activists are less likely to challenge management when an MDP is in place.
Emerging artificial intelligence (AI) capabilities are ushering in significant changes in how enterprises operate – and raising a host of questions for organizations. In this Kenan Insight, we explore how changing the organizational mindset to treat AI as an “employee” may pave the way to fully reaping the benefits of AI systems.
We characterize the equilibrium of a complete markets economy with multiple agents featuring a preference for the timing of the resolution of uncertainty. Utilities are defined over an aggregate of two goods.
Commercial real estate is a major asset class, with an estimated value of more than $12 trillion in the U.S. alone. But the stay-at-home orders and business closures precipitated by the COVID-19 pandemic have the potential to negatively – and disastrously – affect commercial properties. What will the short- and long-term impacts be, which types of properties will be hardest hit and what policies can be put in place to help stem the tide of losses? UNC Kenan-Flagler Business School Professor and Leonard W. Wood Center for Real Estate Studies Faculty Advisor Andra Ghent and her colleagues examine these issues in this week’s Kenan Insight.