Emerging Markets Finance March 9–11, 2005

Thursday, March 10, 2005 7:00 a.m. Breakfast Abbott Center Dining Room 8:00 a.m. Welcome Classroom 50 Robert S. Harris, Dean, The Darden School Are Emerging Markets Cheap?

C. Hayes Miller, Senior Vice President—Global Equities, Baring Asset Management, Inc. Hayes Miller is a member of both the Global Equity Group and the Strategic Policy Group at Baring Asset Management, and is the portfolio manager responsible for North American clients. He has developed quantitative models for Global and EAFE equity products and has been instrumental in creating a successful Active/Passive EAFE Equity product. Miller joined Baring Asset Management in 1994 as a portfolio manager with responsibility for global equities. In 2000 he became a member of the Strategic Policy Group, a five-member team which forms country, sector, asset, and currency strategy for Baring’s global client base. Miller has a B.A. in economics and political science from Vanderbilt University, and received his C.F.A. designation in 1989. He has spoken at numerous conferences, and has written numerous research pieces, including co-authoring a manuscript on the relative importance of country, sector, and company factors for the CFA Institute Research Foundation.

8:45 a.m. Refreshment Break 9:15 a.m. Market Synchronicity Classroom 50

Moderator: Campbell Harvey, Fuqua School of Business, Duke University Campbell Harvey is the J. Paul Sticht Professor of International Business at the Fuqua School of Business, Duke University. He is also a research associate of the National Bureau of Economic Research in Cambridge, Massachusetts. Harvey obtained his doctorate at the University of Chicago in business finance. His undergraduate studies in economics were conducted at the University of Toronto. He has served on the faculties of the Stockholm School of Economics, the Helsinki School of Economics, and the Graduate School of Business at the University of Chicago. He has also been a visiting scholar at the Board of Governors of the Federal Reserve System. He was recently awarded an honorary doctorate from Svenska Handelshögskolan in Helsinki. Harvey is an internationally recognized expert in portfolio management and global risk management.

Stock Price Synchronicity and Analyst Coverage in Emerging

Markets

Allaudeen Hameed, National University of Singapore Allaudeen Hameed is an associate professor of finance at the Business School of the National University of Singapore (NUS). He is currently the head of department of finance and accounting. Hameed received his Ph.D. in finance from the University of North Carolina at Chapel Hill (UNC). He has taught in the undergraduate and graduate programs at NUS and UNC as well as in executive education programs. His research interests include return-based trading strategies, role of financial analysts, and emerging stock markets. He has published papers in leading finance journals such as The Journal of Finance, The Journal of Financial and Quantitative Analysis, and The Journal of Business. He is an editorial board member of the Pacific-Basin Finance Journal and serves on the executive board of the Asian Finance Association. Abstract: This paper examines the relationship between the stock price synchronicity and analyst activity in emerging markets. Contrary to the conventional wisdom that security analysts specialize in the production of firm-specific information, we find that securities which are covered by more analysts incorporate greater (lesser) market-wide (firm-specific) information. Using the R-square statistics of the market model as a measure of the synchronicity of stock price movements, we find that more analyst coverage leads to an increase in stock price synchronicity. Furthermore, after controlling for the influence of firm size on the lead-lag relation, we find that the returns on a high analyst-following portfolio lead returns on a low analyst-following portfolio more than vice versa. We also find that the aggregate changes in the earnings forecast of the high analyst-following portfolio affect the aggregate returns of the portfolio itself as well as those of the low analyst-following portfolio, whereas the aggregate changes in the earnings forecasts of the low analyst-following portfolio have no predictive ability. Finally, when the forecast dispersion is high, the effect of analyst coverage on stock price synchronicity is reduced.

R-Squared around the World: New Theory and New Tests

Li Jin, Harvard Business School Li Jin is an assistant professor in the finance area at the Harvard Business School. He currently teaches the required finance course in the first year M.B.A. program. His primary research interest is in empirical and theoretical corporate finance and asset pricing. His research studies the efficiency of stock markets in aggregating firm information, the compensation policy of chief executive officers, the trading behavior of institutional investors and their price impacts, and the impact of taxation on investor trading behaviors, asset pricing, and corporate finance. Jin received his Ph.D. in finance from the MIT Sloan School of Management in 2001, and a bachelor's degree in economics from Fudan University in 1992. He has been a full time faculty member at Fudan University, and has worked as a part time consultant in the Investment Banking Division of Shanghai International Securities Co. Ltd.

Li Jin (continued) Abstract: Morck, Yeung, and Yu (2000) show that R2 and other measures of stock market synchronicity are higher in countries with less developed financial systems and poorer corporate governance. We develop a model that explains these results and generates additional testable hypotheses. The model shows how control rights and information affect the division of risk bearing between inside managers and outside investors. Insiders capture part of the firm’s operating cash flows. The limits to capture are based on outside investors’ perception of the value of the firm. The firm is not completely transparent, however. Lack of transparency shifts firm-specific risk to insiders and reduces the amount of firm-specific risk absorbed by outside investors. Our model also predicts that “opaque” stocks are more likely to crash, that is, to deliver large negative returns. Crashes occur when insiders have to absorb too much firm-specific bad news and decide to give up. We test these predictions using stock returns from 40 stock markets from 1990 to 2001. We find strong positive relations between R2 and several measures of opaqueness. These measures also explain the frequency and magnitude of large negative returns.

11:00 a.m. Market Efficiency Classroom 50

Moderator: Darius Miller, Kelley School of Business, Indiana University Darius Miller is an assistant professor of finance and Daimler-Chrysler Faculty Fellow at the Kelley School of Business, Indiana University. He holds a B.S. in electrical engineering from Tulane University, an M.B.A. from Loyola University, and a Ph.D. in finance from the University of California, Irvine. His research focuses on the effects of international security offerings on investors and corporations. Miller's research has been published in journals such as the Journal of Financial Economics, Journal of Accounting Research, and the Journal of Financial and Quantitative Analysis. He has taught courses in international finance, investments, and financial engineering at the undergraduate, M.B.A., executive M.B.A., and Ph.D. level, and has received the Kelly School M.B.A. teaching excellence award. He also has developed finance courses for international professional programs.

Liquidity and Expected Returns: Lessons from Emerging

Markets

Christian Lundblad, Indiana University Christian Lundblad is an assistant professor of finance at Indiana University's Kelley School of Business. He joined Indiana University in 2001 after serving as a financial economist at the Federal Reserve Board in Washington, D.C., where he advised the Board of Governors on international financial market developments. Lundblad completed his Ph.D. at Duke University. His research focuses on empirical asset pricing issues, with particular attention to the determination of fundamental values, asset volatility and correlation, and cross-sectional variation in risk premia. Recent research in international finance has investigated the relationships between equity market liberalization and economic growth. Abstract: Given the cross-sectional and temporal variation in their liquidity, emerging equity markets provide an ideal setting to examine the

Christian Lundblad (continued)

impact of liquidity on expected returns. Our measure of liquidity is the proportion of zero daily firm returns, averaged over the month. We find that this liquidity measure significantly predicts future returns, whereas alternative measures such as turnover do not. Consistent with liquidity being a priced factor, unexpected liquidity shocks are positively correlated with return shocks and negatively correlated with shocks to the dividend yield. Equity market liberalization significantly improves the level of liquidity, but has no significant effect on the relationship between liquidity and future returns. We consider a simple asset pricing model with liquidity and the market portfolio as risk factors, differentiating between integrated and segmented countries and periods. Models with local liquidity risks outperform all others models.

Uninformed Trading and Asset Prices

Mark Seasholes, Haas School of Business, University of California—Berkeley Mark Seasholes is an assistant professor of finance at the Haas School. His research focuses on empirical studies of international asset pricing. Seasholes’ current research interests continue to involve international, financial markets. Besides studying equity markets, he has recently completed an empirical study of portfolio tilting (bias). Seasholes studied physics at Wesleyan University. After college, he worked on Wall Street and in the emerging markets of Eastern and Central Europe. He has completed a valuation project in Honduras, helped with the Lloyds of London restructuring, and given a series of lectures in the People's Republic of China. Abstract: This paper examines the relationship between uninformed trading and asset prices. We outline a simple market clearing model in which some traders have demands shocks that are uncorrelated with asset fundamentals. We verify the predictions of the model empirically using an untapped dataset that allows ex ante identification of uninformed demand shocks. Our results show pervasive price pressure at a daily, weekly and monthly frequency. A zero-cost portfolio based on past uninformed trades earns up to 171 bp (before transaction costs) over the subsequent three week period. Returns of this zero-cost portfolio cannot be explained by known sources of systematic risk. Within the same modeling framework, we show that uninformed trading is also related to permanent price differences across stocks. Stocks that are subject to more volatile uninformed trading earn higher average returns. Our results provide insights into the limits of arbitrage and a market’s ability to absorb aggregate demand shocks.

12:30 p.m. Lunch Abbott Center Dining Room

1:30 p.m. Classroom 50

What Will Make Emerging Markets of the Future so Different from Emerging Markets in the Past

Antoine W. van Agtmael, President and Chief Investment Officer, Emerging Markets Management L.L.C. Antoine van Agtmael is president and chief investment officer of Emerging Markets Management, L.L.C. and Emerging Markets Investors Corporation, and chairman of its Investment Committee. He is also a director of strategic investment partners, Inc., one of the investment advisory firms that forms part of the Strategic Investment GroupSM. Prior to his current position, van Agtmael was deputy director of the Capital Markets department of the International Finance Corporation (IFC), the private sector oriented affiliate of the World Bank. Previously, he was a division chief in the World Bank's treasury operations, managing director of Thai Investment and Securities Ltd. (TISCO), one of Thailand's leading merchant banks, and vice president and international lending officer at Bankers Trust Company. Antoine van Agtmael's involvement with investing in emerging markets started in 1976 when he oversaw TISCO's trading, brokerage, investment management and underwriting activities in Thailand. He is the author of Emerging Securities Markets (Euromoney, 1984), one of the first publications on emerging markets, and co-editor of The World's Emerging Stock Markets (Probus Publishing, 1992). While at IFC, he founded the IFC emerging markets database and was active in the promotion and structuring of a number of emerging market funds. He has an M.B.A. from New York University, an M.A. from Yale University and a B.A. from the Netherlands School of Economics, Erasmus University. He was an adjunct professor at Georgetown University Law Center and taught at Harvard University’s Institute of Politics and Thammasat University, Bangkok. He has been a frequent guest lecturer at a number of universities. Antoine van Agtmael is a director of the Emerging Markets Strategic Fund, the Africa Emerging Markets Fund, and the Emerging Markets New Economy Fund, PLC. He is a member of the Yale University Council, the Yale President’s Council on International Activities, and Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies (SAIS) Advisory Council. He is also a member of the Board of Trustees of the Washington National Opera, where he also co-chairs the Education Committee. He is treasurer and board member of Global Rights and a member of the Board of Trustees of The National Public Radio (NPR) Foundation. He is a board member and the treasurer of the Institute for War and Peace Reporting. Van Agtmael was also recently appointed as a member of the Board of Trustees of The Brookings Institution and is also chair of their International Advisory Council.

2:15 p.m. Refreshment Break

2:30 p.m. Market Transparency Classroom 50

Moderator: Marc Lang, Kenan-Flagler Business School, University of North Carolina Mark Lang is Thomas W. Hudson, Jr./Deloitte and Touche L.L.P. Distinguished Professor of Accounting. He teaches and conducts research in financial accounting. Lang's research interests include stock market valuation of accounting information; international accounting and analysis; employee stock option valuation, taxation and exercise behavior; causes and effects of voluntary disclosure; and multinational tax strategy. He serves on the International Accounting Standards Board's Share-Based Payment Advisory Group and the American Institute of CPAs Blockage Factor Task Force. He received his Ph.D. and M.B.A. from the University of Chicago and his B.S. from Sioux Falls College.

Disclosure Standards and Market Efficiency: Evidence from

Analysts' Forecasts

Hui Tong, International Finance Division, Bank of England Hui Tong has been in the International finance division of the Bank of England since 2004, after he received his Ph.D. degree in economics from the University of California–Berkeley. His research interests include international finance, trade and market transparency. He has been invited to present at conferences organized by American Finance Association, Econometrics Society, and Royal Economic Society. Abstract: Since the Mexican and Asian crises, there has been a proliferation of international initiatives, including an ambitious standard-setting agenda, to encourage banks, firms and governments to disclose more information about their financial affairs. This paper studies whether and how such transparency standards affect information accuracy and dispersion. I show that the impact of transparency initiatives may be more limited than often thought to the extent that public disclosure crowds out private investments in information. I first develop a theoretical model of the incentive to invest in information and the impact of public disclosure. I then analyze a panel data set of stock market analysts’ forecasts for sixty countries for the period 1990-2002. I find that disclosure standards enhance forecast accuracy directly but at the same time reduce the number of analysts per stock (the variable that serves as my proxy for private investments in information). The net effect of disclosure standards on forecast accuracy and dispersion thus ranges from weak to nonexistent. The implication is that studies that fail to analyze this crowding out effect may exaggerate the impact of disclosure standards on market outcomes.

Sovereign Credit Ratings, Transparency, and International Portfolio Flows

Amar Gande, Owen Graduate School of Management, Vanderbilt University Amar Gande's research focuses on investment banking, commercial banking, and international finance. His research has been published in top-tier finance journals, such as the Review of Financial Studies, and the Journal of Financial Economics. His paper "Bank Entry, Competition, and the Market for Corporate Securities Underwriting," (co-authored with Manju Puri and Anthony Saunders) won the 1999 Fama-DFA first prize for best paper published in the Journal of Financial Economics in the capital markets and asset-pricing category. More recently, his paper "News Spillovers in the Sovereign Debt Market," (co-authored with David Parsley) published in the 2005 Journal of Financial Economics took the top prize in the FMA competitive best paper award in the fixed income category. Gande is also considered an outstanding teacher, having been honored twice with the James A. Webb Jr. Award for teaching excellence by the graduating M.B.A. classes at Vanderbilt in 2001 and 2003. Abstract: We examine the response of equity mutual fund flows to sovereign rating changes in 85 countries from 1996-2002. We find that the response is asymmetric: Sovereign downgrades are strongly associated with outflows of capital from the downgraded country while improvements in a country’s sovereign rating are not associated with discernable changes in equity flows. Greater transparency moderates the response, i.e., highly transparent countries experience smaller outflows around downgrades. Moreover, flows around downgrades are consistent with a flight to quality phenomenon. That is, highly transparent non-event countries are net recipients of capital inflows, and these inflows increase with the severity of the cumulative downgrade abroad. The results remain after controlling for country size, legal traditions, market liquidity, crisis versus non-crisis periods, and are invariant to different assumptions regarding the within month distribution of equity flows, monthly predicted benchmark flows, and persistence of equity flows. Taken together, the results suggest that improving transparency could mitigate some of the perceived negative effects associated with global capital flows.

Sovereign Credit Rating Changes and the Stock Market

Rodolfo Martell, Purdue University Martell's research and teaching interests are in international finance and risk management. His research focuses on the international aspects of equity and debt origination, corporate finance, investments and derivatives. Martell's research has been published in the American Economic Review. He has also served as ad-hoc referee to the Journal of Empirical Finance, the Journal of Business, and the Pacific Basic Finance Journal. In addition to his doctorate in finance (expected), he holds an undergraduate and a masters degrees in economics. He received the Pacesetter Award for Outstanding Achievement from the Fisher College of Business in 2004. Before Purdue, Martell worked with Petroleos Mexicanos and Bancrecer.

Rodolfo Martell (continued) Abstract: This paper studies the effect of sovereign credit rating changes issued by Standard and Poor’s and Moody’s on the cross section of domestically traded stocks. We first establish, consistent with earlier literature that analyzed similar phenomena in the U.S. (e.g. Holthausen and Leftwich, 1986; Goh and Ederington, 1993), that local stock markets react only to news of sovereign credit rating downgrades. Cumulative abnormal returns of stock indices also show that investors react only to rating announcements made by Standard & Poor’s. We then study the cross sectional variation of the abnormal returns of individual firms associated with sovereign credit rating changes. We find that larger firms experience larger stock price drops after a sovereign credit downgrade. Also, firms located in more developed emerging countries experience smaller stock price reductions following sovereign credit downgrades. Finally, we document that firms that had access to international capital markets experience larger abnormal returns than firms that do not have access to international financial markets.

4:30 p.m. Refreshment Break 4:45 p.m. Classroom 50

Keynote Address Capital Controls in Emerging Markets: No Free Lunch

Kristin J. Forbes, Member, White House's Council of Economic Advisers and Associate Professor, Sloan School of Management, MIT Kristin Forbes was confirmed by the U.S. Senate on October 17, 2003 as a member of the White House’s Council of Economic Advisers. She is the youngest person to ever hold this position. Forbes is on leave from the MIT’s Sloan School of Management, where she is the Mitsubishi Career Development Chair and Associate Professor of International Management. During 2001-2002, Forbes worked in the U.S. Treasury Department as the deputy assistant secretary of quantitative policy analysis, Latin American and Caribbean nations. In January of 2005 she was honored as a “Young Global Leader” as part of the World Economic Forum at Davos. Forbes’ research addresses policy-related questions in international finance and development economics. Her recent work uses firm-level data to analyze questions such as the impact of capital controls, currency depreciations and financial crises on company behavior and performance. Forbes has also written extensively on stock market contagion and on the relationship between income inequality and economic growth. She was awarded the Milken Award for Distinguished Economic Research in 2000. Forbes is currently a faculty research fellow at the National Bureau of Economic Research and a term member on the Council on Foreign Relations. She was honored as Sloan School of Management's "Teacher of the Year" in 2001. Prior to joining MIT, Forbes worked in the investment banking division at Morgan Stanley and in the policy research department at the World Bank. Forbes received her Ph.D. in Economics at MIT in 1998, where she won the Solow Prize for excellence in teaching and research. She obtained her BA, summa cum laude with highest honors from Williams College in 1992.

6:15 p.m. Bus Departs from Sponsors Executive Residence Gatehouse 6:30 p.m. Colonnade Club

Reception & Dinner on the University of Virginia’s Historic Central Grounds

9:00 p.m. Pub Open Sponsors Pub

Emerging Markets Finance March 9–11, 2005

Friday, March 11, 2005 7:00 a.m. Breakfast Abbott Center Dining Room 8:00 a.m. When Should an Emerging Markets Manager Close:

A Framework for Analysis Classroom 50

George Hoguet, Emerging Market Strategist, State Street Global Advisors George Hoguet is a principal and the emerging market investment strategist for SSgA. He has been involved with the firm’s active emerging markets strategy over the past six years. Prior to joining the firm in 1998, Hoguet worked in London and Boston with the chief investment officer of Baring Asset Management. He has also worked at the Frank Russell Company, Tacoma, WA, where he consulted to large institutional investors on a wide range of investment topics. Hoguet spent the first part of his career in emerging market and domestic corporate finance at Bankers Trust Company. From 1981-1985 he served at the U.S. Treasury Department, first as U.S. alternate executive director to the World Bank and, subsequently, as principal deputy assistant secretary of the treasury for international affairs. At the treasury department, he worked on a broad range of international monetary issues. He is a graduate of Harvard College and Harvard Business School. He earned the Chartered Financial Analyst designation and is a qualified Financial Risk Manager, as certified by the Global Association of Risk Professionals. His affiliations/directorships include: former president – Boston Economic Club, executive committee of the Boston Committee on Foreign Relations, visiting committee – Weatherhead Center for International Affairs at Harvard, Council on Foreign Relations, New York, New York and the executive advisory board of the Middle East Institute in Washington. His commentaries have appeared in various media, and he has published in various industry journals.

8:45 a.m. Refreshment Break

9:00 a.m. Exogenous Shocks Classroom 50

Moderator: Bill Megginson, Michael F. Price College of Business, The University of Oklahoma Bill Megginson is professor and Rainbolt Chair in Finance at the University of Oklahoma. He is also a voting member of the Italian Ministry of Economics and Finance’s Global Advisory Committee on Privatization. He has published refereed articles in several top academic journals, including the Journal of Economic Literature, the Journal of Finance, the Journal of Financial Economics, the Journal of Financial and Quantitative Analysis, and Foreign Policy. Megginson has a Ph.D. in finance from Florida State University. He has visited 57 countries and has served as a privatization consultant for the New York Stock Exchange, the OECD, the IMF, the World Federation of Exchanges and the World Bank.

Migration, Spillovers, and Trade Diversion: The Impact of

Internationalization on Domestic Stock Market Activity

Sergio Schmukler, The World Bank Sergio Schmukler is a senior economist in development research group of the World Bank. During 2004-2005, he is visiting the IMF research department. He obtained his Ph.D. from the University of California at Berkeley in 1997, when he joined the World Bank research department. Besides his work for the Bank, he has been treasurer of LACEA (Latin America and Caribbean Economic Association) since 2004, was associate editor of the Journal of Development Economics from 2001 to 2004, and visited and taught at the University of Maryland department of economics from 1999 to 2003. Before joining the World Bank, he worked at the Federal Reserve Board, the Inter-American Development Bank, and the Argentine Central Bank. His research area is international finance and international financial markets. He has published various articles in academic journals and edited volumes on emerging markets finance, exchange rate regimes, financial globalization, financial crises and contagion, and financial development. Abstract: What is the impact of firms that cross-list, issue depositary receipts, or raise capital in international stock markets on the trading activity and liquidity of remaining firms in domestic markets? Using a panel of 3,000 firms from 55 emerging economies during 1989-2000, we find that internationalization reduces the trading activity and liquidity of domestic firms through two channels. First, the trading of international firms migrates from domestic to international markets and this migration along with the reduction in domestic trading of international firms has negative spillover effects on domestic firm trading activity and liquidity. Second, there is trade diversion within domestic markets as trading activity shifts out of domestic firms and into international firms.

The Politics of Bank Failures: Evidence from Emerging Markets

Craig Brown, University of Michigan Business School Craig Brown is a doctoral student at the University of Michigan Business School. His research fields are corporate finance, financial intermediation, political economy, and econometrics. His current research interests are financial intermediation in developing countries and conflict of interest in securities issuance. He has received numerous awards for outstanding academic achievement including the 2002 Citigroup Foundation Scholarship. Abstract: This paper studies large private banks in 21 major emerging markets in the 1990s. It first demonstrates that bank failures are very common in these countries: About 25% of these banks failed during the seven-year sample period. The paper also shows that political concerns play a significant role in delaying government interventions to failing banks. Failing banks are much less likely to be taken over by the government or to lose their licenses before elections than after. This result is robust to controlling for macroeconomic and bank-specific factors, a new party in power, outstanding loans from IMF, as well as country-specific, time-independent factors. This finding implies that much of the within-country clustering in emerging market bank failures is directly due to political concerns.

10:30 a.m. Refreshment Break 10:45 a.m. Corporate Control Classroom 50

Moderator: Leora Klapper, Senior Economist, The World Bank Leora Klapper is a senior economist in the finance team of the development research group at the World Bank. Since joining the Bank in 1998 as a Young Economist, her research and operational work has focused on SMEs, corporate finance, bankruptcy and risk management. Prior to coming to the Bank she worked at the Board of Governors of the Federal Reserve System, the Bank of Israel, and Salomon Smith Barney. She holds a Ph.D. in financial economics from New York University Stern School of Business.

The Stock Market Valuation of Corporate Control: Evidence from

Cross Border Mergers and Acquisitions in Emerging Markets Photo not available

Anusha Chari, University of Michigan Business School Anusha Chari’s research focuses on international finance with an emphasis on the study of emerging financial markets. Her recent work on stock market liberalization uncovers new stylized facts about the interaction of real and financial markets using firm-level data. These facts complement a growing body of literature that documents the importance of financial

Anusha Chari (continued) development for economic growth. Her current research includes a study of cross border mergers and acquisitions in Latin America and East Asia. Previously she examined the effects of central bank interventions using tick-by-tick data in the foreign exchange market. She holds a Bachelor’s degree from the Oxford University and a Ph.D. in business economics from the University of California, Los Angeles. She is currently an assistant professor of finance at the University of Michigan and a visiting assistant professor of finance at the Haas School of Business at the University of California, Berkeley. Previously, she was a visiting assistant professor of economics at the Graduate School of Business at the University of Chicago. Abstract: When firms from developed markets acquire firms in emerging markets, market capitalization-weighted monthly joint returns show a statistically significant increase of 1.8%. Panel data estimations suggest that the value gains from cross-border M&A transactions stem from the transfer of majority control from emerging-market targets to developed market acquirers—joint returns range from 5.8% to 7.8% when majority control is acquired. Announcement returns for acquirer and target firms estimate the distribution of gains and, on average, show a statistically significant increase of 2.4% and 6.9%, respectively. The evidence suggests that the stock market anticipates significant value creation from cross-border transactions that involve emerging market targets leading to substantial gains for shareholders of both acquirer and target firms.

Czech Mate: Expropriation and Investor Protection in a Converging

World

Mihir Desai, Harvard Business School Mihir A. Desai is the Rock Center Associate Professor in the Finance and Entrepreneurial Management areas of Harvard Business School. Desai's research focuses on international corporate and public finance. Within international corporate finance, he has investigated the determinants of ownership shares and capital structure choice for multinational affiliates, the advantages afforded by the internal capital markets of multinationals, the determinants of dividend remittance policy for multinationals, and the interaction between domestic and international investment decisions by firms. Within public finance, his research has emphasized the effects of taxation on the export, financing, organizational form, and investment decisions of firms facing multiple tax regimes. Additionally, his work has also addressed the dynamics of international tax competition, the divergence between book income and tax income, the tax avoidance decisions of firms, and the policy choices available to developing countries facing the loss of talent. His academic publications have appeared in several journals including the Journal of Finance, Journal of Financial Economics, Journal of Public Economics, and the National Tax Journal. He is a faculty research fellow in the National Bureau of Economic Research's Public Economics and Corporate Finance Programs, and his research has been cited in The Economist, BusinessWeek, the New York Times, and several other publications.

Mihir Desai (continued) Abstract: This paper examines the expropriation of a foreign investor by a local partner and the subsequent resolution of that case through international arbitration. Ronald Lauder, a U.S. investor, created a media holding company for investments in Eastern Europe that included a once-successful joint venture with Vladimir Zelezny in the Czech Republic. Despite Lauder’s 99% interest in the underlying Czech entity, Zelezny managed to divert the value of the underlying entity for his personal benefit. Subsequent to the expropriation, Lauder employed international agreements and tribunals to recoup 354.9 million USD from the Czech Republic. This clinical examination of an expropriation and its aftermath illustrates how ownership shares can be of secondary importance in determining control, how corporate control is shaped by geography, and how differential access to investor protections in global capital markets can contribute to the persistence of differences, rather than convergence, in investor protections.

12:30 p.m. Risk or Opportunity in China’s Capital Markets? Classroom 50

James R. Hille, CFA, Chief Investment Officer, Teacher Retirement System of Texas Jim Hille was appointed chief investment officer of the Teacher Retirement System of Texas in March 2003. Formerly the director of international equities, he has been with TRS since 1995. From 1992 to 1995 he managed portfolios for the Employees Retirement System of Texas. While earning an MBA from TCU in Fort Worth, from 1990-92 he worked as an assistant international portfolio manager at a major family owned asset management firm. With a B.S. in engineering from the U.S. Naval Academy, class of ’83, he served for six years as a Marine Corps officer. He has served as president of the Austin Society of Financial Analysts, and an adjunct finance professor for the University of Texas’ McCombs School of Business. The Teacher Retirement System of Texas serves active and retired public and higher education employees of the state of Texas. The $91 billion trust fund, presently the fifth largest US state public pension plan, is broadly diversified in domestic and foreign securities and alternative assets. The TRS portfolio has over $13 billion invested internationally including more than $1.8 billion in emerging markets. The fund is internally managed with a staff of 55 investment professionals.

1:15 p.m. Closing Remarks Classroom 50 1:30 p.m. Boxed Lunch Classroom 50