Much literature before and after the privatization of Mexico's commercial banking system in 1991–1992 argued that the system was collusive and noncompetitive and would likely continue to be for years. Banks would collude to underloan so that – at least in comparison with what would happen in a competitive system – they could overcharge. Because a parallel literature on lending after bank privatization suggests that the problem is often not too little, but too much, we resolved to test for competitive behavior in the Mexican banking system. Using an empirical approach developed by Shaffer (Econom. Lett. 29 (1989) 321, J. Money Credit Bank. 25 (1993) 49, Federal Reserve Bank of Philadelphia, Working paper no. 93-28R), we find a structural break in the middle of the privatization period that signals the start of an episode of what Shaffer calls “supercompetitive” behavior. In such a supercompetition, banks run at levels of output where marginal cost exceeds marginal revenue. This behavior is consistent with a struggle in which banks take losses now because they think the market share they get in the bargain offers a positive present value of expected future return. The behavior can also be consistent with just the sort of banking crises that ensued in Mexico.

We propose a new methodology to test Fama’s [J. Finance 46 (1991) 1575] contention that the present value model (PVM) should be augmented by time-varying expected inflation to more adequately account for actual stock price behavior. Unlike other methods, our testing approach can distinguish between the excess-price movement hypothesis of Shiller [Am. Econ. Rev. 71 (1981) 421] and the dividend-smoothing hypothesis of Marsh and Merton [Am. Econ. Rev. 76 (1986) 483]. We decompose the levels (as opposed to the variances) of stock prices into their fundamental and non-fundamental elements in the context of a multivariate PVM co-integrating framework and utilize the Gonzalo and Granger [J. Bus. Econ. Stat. 13 (1995) 27] procedure to formally test for the statistical significance of the non-fundamental component. Our results from monthly data for the post-WWII period do not support the inflation-augmented PVM since the non-fundamental component continues to achieve significance. This finding persists under alternative model specifications and data frequencies. The apparent failure of the traditional, rational-expectation, PVM model to adequately account for observed market behavior provides another piece of evidence supportive of Shiller’s [Am. Econ. Rev. 71 (1981) 591] belief in some form of market “irrationality”.

This study examines the pricing of global initial public offerings made by US companies as compared to purely domestic offerings. We find that global participation can significantly reduce underpricing by about four percentage points. Moreover, the degree of underpricing declines as larger proportions of shares are allocated to foreign investors. Our results suggest that US companies time their global offerings when foreign demand for US shares is high. There is also evidence that global offerings alleviate the downward pricing pressure associated with new share offerings.

Motivated by the potential for opportunistic behavior in pay decisions, recent SEC and IRS regulations essentially preclude inside directors from serving on a firm’s compensation committee (CC). We examine whether greater CC independence promotes shareholder interests and whether the CEO’s presence on the CC leads to opportunistic pay structure. We find little evidence that greater committee independence affects executive pay. Moreover, committees consisting of insiders or the CEO do not award excessive pay or lower overall incentives. For example, we find no evidence that pay decreases or total incentives increase when CEOs come off the CC. Our results suggest that regulations governing committee structure may not reduce levels of pay or achieve efficiencies in incentive contracts.

In this paper we document the short-term stock price behaviour following a period of stock market stress. We focus on price behaviour using daily market indexes from 39 stock exchanges over the period 1989–1998. Our results are not consistent with the overreaction hypothesis. We find positive (negative) abnormal price performance in the short-term window (up to 10 days) following positive (negative) price shocks. Our analysis also highlights differences between developed and emerging markets. We show that the post-shock abnormal performances are significantly larger for emerging markets but that this momentum behaviour is markedly less in the late 1990s. We find the size of the after-shock tremors to be related to market liquidity, with larger post-shock price changes in less-liquid markets.

We model two dimensions of bank globalization – bank nationality (a bank from the firm’s host nation, its home nation, or a third nation) and bank reach (a global, regional, or local bank) using a two-stage nested multinomial logit model. Our data set includes over 2000 foreign affiliates of multinational corporations operating in 20 European nations and over 250 banks that serve them. We find that these firms frequently use host nation banks for cash management services, and that bank reach may be strongly influenced by this choice of bank nationality. Our results suggest limits to the degree of future bank globalization.