The impact of R&D in firm value across Europe

In this thesis the impact of R&D expenditures on firm market value and stock returns is examined. This is performed in a sample of European listed firms for the period 2000-2009. I apply different linear and GMM econometric estimations for testing the impact of R&D on market prices and construct country portfolios based on firms’ R&D expenditure to market capitalization ratio for studying the effect of R&D on stock returns. The results confirm that more innovative firms have a better market valuation,investors consider R&D as an asset that produces long-term benefits for corporations. The impact of R&D on firm value differs across countries. It is significantly modulated by the financial and legal environment where firms operate. Other firm and industry characteristics seem to play a determinant role when investors value R&D. First, only larger firms with lower financial leverage that operate in highly innovative sectors decide to disclose their R&D investment. Second, the markets assign a premium to small firms, which operate in hi-tech sectors compared to larger enterprises for low-tech industries. On the other hand, I provide empirical evidence indicating that generally highly R&D-intensive firms may enhance mispricing problems related to firm valuation. As R&D contributes to the estimation of future stock returns, portfolios that comprise high R&D-intensive stocks may earn significant excess returns compared to the less innovative after controlling for size and book-to-market risk. Further, the most innovative firms are generally more risky in terms of stock volatility but not systematically more risky than low-tech firms. Firms that operate in Continental Europe suffer more mispricing compared to Anglo-Saxon peers but the former are less volatile, other things being equal. The sectors where firms operate are determinant even for the impact of R&D on stock returns; this effect is much stronger in hi-tech industries.

The secondary market for life insurance policies in the United States market evolution and product valuation

In this work we discuss the secondary market for life insurance policies in the United States of America. First, we give an overview of the life settlement market: how it came into existence, its growth prospects and the ethical issues it arises. Secondly, we discuss the characteristics of the different life insurance products present in the market and describe how life settlements are originated. Life settlement transactions tend to be long and complex transactions that require the involvement of a number of parties. Also, a direct investment into life insurance policies is fraught with a number of practical issues and entails risks that are not directly related to longevity. This may reduce the efficiency of a direct investment in physical policies. For these reasons, a synthetic longevity market has evolved. The number of parties involved in a synthetic longevity transaction is typically smaller and the broker-dealer transferring the longevity exposure will be retaining most or all of the risks a physical investment entails. Finally, we describe the main methods used in the market to evaluate life settlement investments and the role of life expectancy providers.

Shareholder protection and stock market development

The dissertation contains five parts: An introduction, three major chapters, and a short conclusion. The First Chapter starts from a survey and discussion of the studies on corporate law and financial development literature. The commonly used methods in these cross-sectional analyses are biased as legal origins are no longer valid instruments. Hence, the model uncertainty becomes a salient problem. The Bayesian Model Averaging algorithm is applied to test the robustness of empirical results in Djankov et al. (2008). The analysis finds that their constructed legal index is not robustly correlated with most of the various stock market outcome variables. The second Chapter looks into the effects of minority shareholders protection in corporate governance regime on entrepreneurs' ex ante incentives to undertake IPO. Most of the current literature focuses on the beneficial part of minority shareholder protection on valuation, while overlooks its private costs on entrepreneur's control. As a result, the entrepreneur trade-offs the costs of monitoring with the benefits of cheap sources of finance when minority shareholder protection improves. The theoretical predictions are empirically tested using panel data and GMM-sys estimator. The third Chapter investigates the corporate law and corporate governance reform in China. The corporate law in China regards shareholder control as the means to the ends of pursuing the interests of stakeholders, which is inefficient. The Chapter combines the recent development of theories of the firm, i.e., the team production theory and the property rights theory, to solve such problem. The enlightened shareholder value, which emphasizes on the long term valuation of the firm, should be adopted as objectives of listed firms. In addition, a move from the mandatory division of power between shareholder meeting and board meeting to the default regime, is proposed.