This study investigates the impact of excess cash on the liquidity risk faced by investors and their required liquidity premium. It shows that excess cash improves trading continuity and reduces both liquidity risk and the cost of equity capital. These findings are consistent with the view that firms with excess cash attract more traders even when market liquidity dries up. The increase in investors' trading propensity reduces stock price exposure to shocks to market liquidity and the liquidity premium required by investors. We also examine the impact of excess cash on firm value. We show that while the direct effect of excess cash on firm value is negative, its indirect effect through liquidity is significantly positive, indicating that investors are less likely to sanction (or even reward) illiquid firms for holding excess cash. Further analysis suggests that the liquidity benefits of excess cash are greater for financially constrained firms and firms with high growth opportunities. Our results are robust over time, after addressing endogeneity concerns, and to alternative estimation methods and alternative measures of liquidity.

Does gold offer a better protection against sovereign debt crisis than other metals?Article (Accepted Version) http://sro.sussex.ac.uk Agyei-Ampomah, Sam, Gounopoulos, Dimitrios and Mazouz, Khelifa (2014) Does gold offer a better protection against sovereign debt crisis than other metals? Journal of Banking and Finance, This version is available from Sussex Research Online: http://sro.sussex.ac.uk/46962/ This document is made available in accordance with publisher policies and may differ from the published version or from the version of record. If you wish to cite this item you are advised to consult the publisher's version. Please see the URL above for details on accessing the published version. Copyright and reuse:Sussex Research Online is a digital repository of the research output of the University.Copyright and all moral rights to the version of the paper presented here belong to the individual author(s) and/or other copyright owners. To the extent reasonable and practicable, the material made available in SRO has been checked for eligibility before being made available.Copies of full text items generally can be reproduced, displayed or performed and given to third parties in any format or medium for personal research or study, educational, or not-for-profit purposes without prior permission or charge, provided that the authors, title and full bibliographic details are credited, a hyperlink and/or URL is given for the original metadata page and the content is not changed in any way. Journal of Banking and Finance, forthcoming ABSTRACTIt is a commonly held view that gold protects investors' wealth in the event of negative economic conditions. In this study, we test whether other metals offer similar or better investment opportunities in periods of market turmoil. Using a sample of 13 sovereign bonds, we show that other precious metals, palladium in particular, offer investors greater compensation for their bond market losses than gold. We also find that industrial metals, especially copper, tend to outperform gold and other precious metals as hedging vehicles and safe haven assets against losses in sovereign bonds. However, the outcome of the hedge and safe haven properties is not always consistent across the different bonds. Finally, our analysis suggests that copper is the best performing metal in the period immediately after negative bond price shocks. IntroductionThe financial media normally regard gold as a safe haven asset. Its characteristics as a financial asset have also been widely explored in the academic literature. Gold has been a traditional investment vehicle since it serves as a hedge against inflation and a safe haven in periods of market crises (see e.g., Baur and McDermott, 2010; Daskalaki and Skiadopoulos, 2011;Batten et al., 2013). It has also been widely documented that gold protects investors' wealth against fluctuations in the foreign exchange value of the US dollar (Capie et al., 2005; Pukthuanthong and Roll, 2011; Reboredo, 2013 andCiner et al., 2013). The observed increase ...

We use a sample of 269 UK non-financial firms to study the sensitivity of foreign exchange exposure, and its determinants, to the different estimation methods. The standard Jorion's model suggests that 14.93% (30.50%) of the firms in our sample are exposed directly or indirectly to the fluctuations in the TWC (the US$, the Euro or the JP¥). However, the exposure increases substantially to 85.13% (96.65%) when time varying exposure regressions with orthogonalized market returns are used. We also show that the determinants of currency exposure are model-dependent. While the cross-sectional results suggest very little or no relationship between firm-specific factors and currency exposure, the explanatory power of these factors increase when data is pooled across firms and time. JEL Classifications: F31; F23Keywords: Foreign exchange exposure; Currency risk; Panel estimation 2 IntroductionSeveral studies predict that all firms should be subject to foreign exchange exposure as their cash flows are affected, directly or indirectly, by exchange rate movements (Shapiro, 1975;Heckman, 1985;Levi, 1994;Marston, 2001). In the light of this, it is puzzling why most empirical studies show that foreign exchange fluctuations have little or no impact on stock returns (Jorion, 1990;Bartov and Bodnar, 1994;El-Masry et al. 2007;Hutson and Stevenson, 2010).This study uses a sample of 269 UK non-financial firms to investigate whether the weak empirical association between exchange rate changes and stock returns can be attributed to bad model problems. Our analysis makes three important methodological contributions to the literature on the foreign exchange exposure of individual firms. First, we relax Jorion's (1990) assumption that foreign exchange exposure is constant over time.Several studies (Smith and Stulz, 1985;Allayannis and Weston, 2001;Dunne et al., 2004) show that a firm's exposure to exchange rate movements is related to firm-specific factors, such as size, liquidity, hedging activities and growth opportunities, which are expected to vary over time. We use GARCH-based two-factor asset pricing model with time varying coefficients (GARCH-TVC hereafter) to model the time varying nature of firms' exposure to currency movements. 1 Second, Priestley and degaard (2007) argue that the exposure coefficient obtained from Jorion's model does not capture the stock's total exposure to the foreign exchange movements. Instead, it only measures the stock's exposure over and above that of the market portfolio. Priestley and degaard (2007) suggest that orthogonalized, rather than actual, market returns should be used to estimate the exchange rate exposure. We improve on Priestley and degaard's (2007) methodology by allowing the coefficients and the residuals of the orthogonalized regressions to vary over time. Finally, previous studies use cross-sectional analysis to examine the determinants of the foreign exchange exposure.Although some of these determinants, such as industry, vary only across firms, others vary across firms a...

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In this article, we explore what determines the decisions of emerging‐market multinational corporations (MNCs) to invest in Africa and whether this is any different from their counterparts in mature markets, focusing on the HRM context. More specifically, we explore the effect of potential host‐country wages, local capabilities, and the relative rights of owners versus workers on foreign direct investment (FDI) decisions, as well as other relevant factors such as mineral resources and corruption. We found that emerging‐market MNCs were not deterred by relatively weak property owner rights (as indeed, was also the case for their counterparts from mature markets); hence, any weakening of countervailing worker rights is unlikely to unlock significant new FDI. However, emerging‐market MNCs were more likely to invest in low‐wage economies and did not appear to be concerned by local skills gaps; the latter would reflect the relative de facto ease with which even partially skilled expatriate labor can be imported into many African countries. At the same time, a reliance on low‐wage, unskilled labor, coupled with the extensive usage of expatriates, brings with it a wide range of challenges for the HR manager, which a firm committed to cost‐cutting may lack the capabilities to resolve. © 2014 Wiley Periodicals, Inc.