We examine the effects of economic policy uncertainty (EPU) on cross-border mergers and acquisitions (CBAs). The results show that a higher degree of EPU at home retards the number and volume of inbound CBA deals. However, this effect is positively moderated by the host country’s better quality of institution, business environment and political risk. The bilateral acquirer-target country-pair investigation reveals that while higher EPU in the target’s domicile deters inbound CBAs, higher EPU in the acquirer’s nation is positively associated with a higher number and volume of outbound CBA deals. Finally, on the announcement of the deals, targets (acquirers) based in countries with a larger increase in EPU are associated with lower (more) stock returns than the targets (acquirers) based in countries with a smaller increase in EPU. These findings imply that countries aiming to attract cross-border investments should strive to mitigate economic policy-related uncertainties.

We examine how context-specific experience is correlated with the performance of institutional investors. Specifically, we explore how previous initial public offering (IPO) trading experience affects foreign institutional investors’ selection, bidding, and the profitability of their future IPO investments. We find that investors who participate more frequently (i.e., those with more context-specific experience) exhibit different behaviors from those who participate less frequently. After controlling for investor fixed effects and time-varying heterogeneity, we find that only high-frequency investors improve their profitability over time by appropriately varying their subscriptions across IPOs. The effect of context-specific experience also appears to dominate other forms of general investment experience.

We study whether firms, whose operational performance is highly sensitive to rainfall conditions (rain-sensitive firms), follow differential investment strategies to generate value in response to diverse extreme rainfall conditions. Using Indian monsoon data, we find that rain-sensitive firms suffer a significant decline in their market value in the immediate aftermath of excess and deficit rainfall conditions. Results show that the investment response by rain-sensitive firms depends on the saliency of extreme rainfall conditions. While excess rain-sensitive firms boost their investments following excess rainfall, deficit rain-sensitive firms shrink investments following deficit rainfall. However, these alternative investment strategies appear to be effective as both groups of affected firms experience positive growth in their market values following the differential investment strategies. Our results indicate that saliency theory can bridge the theoretical tensions between the real-options and risk-shifting theories resulting in differential corporate investment behavior in the face of two extreme rainfall conditions.

We examine whether outside investors mimic insider trades by analyzing the daily transactions of foreign institutional investors (FII) in the Indian emerging market. We find that the value relevance of insiders' opportunistic buy trades is much higher in our context relative to that reported for developed markets. More importantly, we find that FII mimic opportunistic buy trades, which is more pronounced for firms that are informationally more opaque or have lower corporate governance quality. A long-short strategy based on FII's transactions after opportunistic trades generates an additional abnormal return of approximately 29% annually, compared to transactions based on routines trades.

We examine whether the effect of increased creditor rights on corporate borrowing depends on firm's access to internal capital. By exploiting a creditor protection reform in India, empirical outcomes strongly indicate that strengthening of creditor rights leads to increased corporate borrowing among firms that have constrained access to internal capital compared to business group affiliated firms, which have relatively easier access to internal capital. Further, the increased corporate borrowing by firms with constrained access to internal capital, in the post-reform period, is associated with a greater expansion of real investments, improved operational performance, and better market valuation. Taken together, these findings indicate that expanding creditor rights may aid in improving allocative efficiency.

Existing studies suggest that stricter Corporate Governance Reform (CGR) reduces corporate risk-taking, primarily due to higher compliance costs and expanded liabilities of insiders or managers. We revisit the relationship between CGR and risk-taking in an emerging market set-up characterized by weaker market forces of corporate scrutiny and greater insider ownership, which encourages firms to pursue investment conservatism. Using a quasi-natural experiment, we find that stricter CGR leads to greater corporate risk-taking. We further show that risk-taking is an important channel through which CGR enhances firm value. Our findings support the view that stricter CGR can have a positive effect on corporate risk-taking and corporate investment decisions in an evolving regulatory environment.

This study examines whether the heterogeneity among foreign institutional investors (FIIs) matters when investing in socially responsible investee firms. Exploiting a mandated corporate social responsibility (CSR) regulation in India and using manually collected CSR expenditure data, the results of a quasi-natural experiment confirm that firms that comply with the CSR mandate attract greater investment from FIIs. This positive nexus holds for both existing and new FIIs. However, the heterogeneity of FIIs plays a significant moderating role because FIIs from civil law origin countries and those considered independent and long-term investors invest more in mandated CSR firms.