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Fool´s gold: The case of multinationals in Venezuela

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Devaluations may have an impact on multinational stock prices depending on the size of the particular country and whether they are anticipated or not. In an efficient market, predictable devaluations on small countries should not impact stock prices of large multinational companies. We analyze cummulative abnormal returns (CAR) to five devaluations in Venezuela within the context of stiff exchange controls. Our event study covers a period of five years and uses daily stock prices for up to 122 multinationals with Venezuelan subsidiaries. We find evidence of significant negative impacts on stock prices on various devaluations, reaching up to -1.75% over the event window. We interpret these results as evidence of market myopia, as they are driven by retained earnings on financial statements being converted into dollars at highly overvalued official rates, in spite of subsidiaries not having access to dollars at these prices for years prior to the devaluations.

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Fool´s gold: The case of multinationals in Venezuela

  1. 1. Fool´s  Gold:  The  case  of  multinationals  in  Venezuela January,  2017 Miguel  Ángel  Santos Instituto  de  Estudios  Superiores  en  Administración  (IESA) Center  for  International  Development,  Harvard  University miguel_santos@hks.harvard.edu Dany Bahar Inter-­‐American  Development  Bank Brookings  Institute Carlos  Molina Instituto  de  Estudios  Superiores  en  Administración  (IESA)
  2. 2. Jan  11,  2010
  3. 3. JAN 11, 2010
  4. 4. JAN 12, 2010
  5. 5. Feb 11, 2013
  6. 6. Feb 14, 2013
  7. 7. Jul  8,  2014
  8. 8. FEB 2, 2015
  9. 9. Feb 11, 2015
  10. 10. Feb 13, 2015
  11. 11. APR 26, 2016
  12. 12. Venezuela  represents  0.42%  of  the  world´s  GDP! 01/13/2017 12Fool´s  gold:  The  case  of  multinationals  in  Venezuela Venezuela´s*Share*of*World´s*Gross*Domestic*Product
  13. 13. 13 • The  paper  within  the  context  of  the  literature • Empirical  analysis:  Are  the  negative  impacts  reported  real? • Robustness  checks:  Peer  groups • What  happened? • Conclusions 1301/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  14. 14. The  paper  within  the  context  of  the  literature:  What  have  others  found? • Ang and  Ghallab (1976): • A  currency  devaluation  in  the  country  of  a  foreign  subsidiary  could  lead  to  a   “balance  sheet  effect”:  net  value  of  assets  of  the  subsidiary  in  foreign  currency  will   be  lower  after  a  devaluation  (one  time  events  – straightforward  to  calculate) • Yet,  there  is  also  an  “income  statement  effect”:  a  decrease  in  the  expected  value  of   the  future  earnings  (in  local  currency)  of  the  subsidiary:  Recurring  impacts  on   financial  statements  and  take  time  to  understand  and  estimate • Glen  (2002)  studies  24  emerging  markets  using  monthly  stock  returns,  and  finds   significant  negative  returns  in  the  months  before,  not  after,  the  devaluation • Patro,  Wald  and  Wu  (2014)  using  data  from  stock  markets  in  27  countries  and  about  85   announcements  of  devaluations,  find  that  devaluations  were  anticipated  by  the  local   stock  markets,  with  significant  negative  abnormal  returns  occurring  even  one  year  prior   to  the  announcement  of  devaluations. 1401/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  15. 15. 15 • The  paper  within  the  context  of  the  literature • Empirical  analysis:  Are  the  negative  impacts  reported  real? • Robustness  checks:  Peer  groups • What  happened? • Conclusions 1501/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  16. 16. Event  study:  Are  there  negative  abnormal  returns  on  stock  prices  of   multinationals  (MNCs)  in  Venezuela  around  the  dates  of  these  devaluations? • We  estimate  a  market  model  to  measure  expected  return  of  the  MNC  stocks  during   the  event  window.  As  in  Mackinlay (1997),  we  estimate  [1],  using  least  squares: R"# = α" + β"R(# + ε"# [1] • Event  window:  (-­‐280,  -­‐30) • Cox  and  Peterson  (1994):  100  days • Carow and  Kane  (2002):  200  days • Mackinlay (1997)  suggests  250  days  for  the  estimation  window  [-­‐280,-­‐30]   We  then  estimate  the  abnormal  return  (AR)  as: AR+ "# = R"# − α-" − β."R(# [2] AR+ "# = 1601/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Actual  Return  -­‐ Expected  return
  17. 17. Data • We  searched  the  ORBIS  database  looking  for: • Companies  trading  at  the  New  York  Stock  Exchange  (NYSE),  NASDAQ  Capital  Market,   or  NASDAQ  National  Market • Companies  declaring  having  a  subsidiary  in  Venezuela,  own  in  more  than  25% • Companies  having  daily  stock  return  data  reported  for  2010-­‐2014 • Results  of  the  query: • 122  multinational  companies  (2-­‐digit  NAICS) • NAICS  33:  37  Primary  Metal,  Fabricated  Metal,  and  Machinery  Manufacturing   • NAICS  32:  36  Paper,  Chemicals,  Plastics  and  Non-­‐metallic  manufacturing • NAICS  51:      8  Information  Technology • NAICS  52:      7  Finance  and  Insurance • NAICS  54:      7  Business,  Professional,  Scientific,  and  Technical  Services • NAICS  31:      6  Food,  Beverages  and  Tobacco • NAICS  42:      6  Wholesale  trade     • NAICS  56:      5  Administrative  Support,  Backoffice /  Waste  Management • NAICS  48:      4  Transport  and  Warehousing • Other  (6) • 29  registered  in  CADIVI 1701/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  18. 18. Distribution  of  the  122  MNCs  by  2-­‐digit  NAICS  code 1801/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Primary,(Fabricated(Metal,( Machinery Paper(and(Chemicals Information(Technology Finance(and(Insurance Professional,( Scientific,(Technical( Services Food,(Beverage(and(Tobacco Wholesale(Trade Administrative(Support(/(Waste( Management Transportation(and(Warehousing Mining,(Quarrying,(Oil(and(Gas Utilities
  19. 19. Distribution  of  the  122  MNCs  by  3-­‐digit  NAICS  code:  Primary  and  Fabricated   Metal,  Machinery  Manufacturing 1901/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Primary,(Fabricated(Metal,( Machinery Paper(and(Chemicals Information(Technology Finance(and(Insurance Professional,( Scientific,(Technical( Services Food,(Beverage(and(Tobacco Wholesale(Trade Administrative(Support(/(Waste( Management Transportation(and(Warehousing Mining,(Quarrying,(Oil(and(Gas Utilities Machinery Fabricated.Metal Computer./.Electronics Transportation Miscellaneous Electrical.Equipment.and. Components Primary.Metal
  20. 20. Distribution  of  the  122  MNCs  by  3-­‐digit  NAICS  code:  Paper  and  Chemicals 2001/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Paper Printing*and*Related Chemical Plastics*and*Rubber Nonmetallic*Mineral Primary,(Fabricated(Metal,( Machinery Paper(and(Chemicals Information(Technology Finance(and(Insurance Professional,( Scientific,(Technical( Services Food,(Beverage(and(Tobacco Wholesale(Trade Administrative(Support(/(Waste( Management Transportation(and(Warehousing Mining,(Quarrying,(Oil(and(Gas Utilities
  21. 21. Five  events:  Five  devaluations  occurring  within  January  2010  and  March  2014 21 Event Date Details 1 Jan  8th,  2010 Dual  exchange  rate  system  implemented: From 2.15  VEF/US$  to  2.50  VEF/US$  and  4.30  VEF/US$ 2 December  30th,  2010 Exchange  rate  unified  to  4.30  VEF/US$ 3 February  8th,  2013 Devaluation  from  4.30  to  6.30  VEF/US$ 4 January  23rd,  2014 Creation  of  SICAD I  starting  at  11.30  VEF/US$ 5 March  10th,  2014 Creation  of  SICAD  II  starting  at  51.86 VEF/US$ 01/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  22. 22. Event [-1,+1] [-2,+2] [-3,+3] [-4,+4] [-5,+5] [-6,+6] [-7,+7] [-8,+8] [-9,+9] [-10,+10] -0.006705** -0.005578 -0.009918** -0.010467** -0.009577* -0.013702** -0.013137** -0.014786*** -0.011713** -0.013871** 0.002886 0.003608 0.003893 0.0048212 0.004973 0.005419 0.005627 0.005576 0.005672 0.005959 0.022 0.125 0.012 0.032 0.056 0.013 0.021 0.009 0.041 0.021 -0.001889 -0.007080*** -0.01359*** -0.012777*** -0.016001*** -0.014068*** -0.012111*** -0.008407* -0.004515 -0.003897 0.001208 0.001621 0.002201 0.002822 0.003845 0.004124 0.004171 0.004757 0.005191 0.005283 0.120 0.000 0.000 0.000 0.000 0.001 0.004 0.079 0.386 0.462 -0.003433** -0.002839 -0.001386 0.004211 0.002915 0.006915 0.004438 -0.001558 -0.002671 -0.003207 0.001367 0.002557 0.003055 0.003541 0.003807 0.004499 0.004724 0.005176 0.00567 0.005707 0.013 0.269 0.651 0.237 0.445 0.127 0.349 0.764 0.638 0.575 -0.007928*** -0.009218*** -0.008240*** -0.008107* -0.011500** -0.007191 -0.00897 -0.008084 -0.008139 -0.009324 0.002248 0.002577 0.002845 0.004131 0.005222 0.005713 0.005955 0.006322 0.006724 0.007343 0.001 0.000 0.004 0.052 0.029 0.210 0.134 0.203 0.228 0.206 -0.004194* -0.00387 -0.006357** -0.005308* -0.007951** -0.007162 -0.008087* -0.006438 -0.001011 -0.003141 0.002338 0.002557 0.002871 0.003139 0.003997 0.004524 0.004718 0.005213 0.005361 0.005222 0.075 0.132 0.028 0.093 0.049 0.116 0.089 0.219 0.851 0.549 Coefficients *++p<0.10+ Robust+Standard+Errors **+p<0.05 P;values ***+p<0.01 Event Window 1 2 3 4 5 Cummulative  abnormal  returns:  From  [-­‐1,+1]  to  [-­‐10,+10]   2201/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  23. 23. Cummulative  abnormal  returns:  From  [-­‐1,+1]  to  [-­‐10,+10]  – All  sample     2301/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Event [-1,+1] [-2,+2] [-3,+3] [-4,+4] [-5,+5] [-6,+6] [-7,+7] [-8,+8] [-9,+9] [-10,+10] -0.006705** -0.005578 -0.009918** -0.010467** -0.009577* -0.013702** -0.013137** -0.014786*** -0.011713** -0.013871** 0.002886 0.003608 0.003893 0.0048212 0.004973 0.005419 0.005627 0.005576 0.005672 0.005959 0.022 0.125 0.012 0.032 0.056 0.013 0.021 0.009 0.041 0.021 -0.001889 -0.007080*** -0.01359*** -0.012777*** -0.016001*** -0.014068*** -0.012111*** -0.008407* -0.004515 -0.003897 0.001208 0.001621 0.002201 0.002822 0.003845 0.004124 0.004171 0.004757 0.005191 0.005283 0.120 0.000 0.000 0.000 0.000 0.001 0.004 0.079 0.386 0.462 -0.003433** -0.002839 -0.001386 0.004211 0.002915 0.006915 0.004438 -0.001558 -0.002671 -0.003207 0.001367 0.002557 0.003055 0.003541 0.003807 0.004499 0.004724 0.005176 0.00567 0.005707 0.013 0.269 0.651 0.237 0.445 0.127 0.349 0.764 0.638 0.575 -0.007928*** -0.009218*** -0.008240*** -0.008107* -0.011500** -0.007191 -0.00897 -0.008084 -0.008139 -0.009324 0.002248 0.002577 0.002845 0.004131 0.005222 0.005713 0.005955 0.006322 0.006724 0.007343 0.001 0.000 0.004 0.052 0.029 0.210 0.134 0.203 0.228 0.206 -0.004194* -0.00387 -0.006357** -0.005308* -0.007951** -0.007162 -0.008087* -0.006438 -0.001011 -0.003141 0.002338 0.002557 0.002871 0.003139 0.003997 0.004524 0.004718 0.005213 0.005361 0.005222 0.075 0.132 0.028 0.093 0.049 0.116 0.089 0.219 0.851 0.549 Coefficients *++p<0.10+ Robust+Standard+Errors **+p<0.05 P;values ***+p<0.01 Event Window 1 2 3 4 5
  24. 24. Companies  registering  the  largest  negative  significant  impacts  are  significantly   large  on  average  (US$8.5  billion)  to  be  impacted  by  a  market  like  Venezuela 2401/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela −.2 −.15 −.1 −.05 0 Cummulative Abnormal Returns MIDDLEBY CORP AVNET INC TUPPERWARE BRANDS CORP LEVEL 3 COMMUNICATIONS INC MERCADOLIBRE INC Event  1,  Window  [-­‐3,+3]   −.08 −.06 −.04 −.02 0 Cummulative Abnormal Returns INTERPUBLIC GROUP COS INC ARVINMERITOR INC TETRA TECHNOLOGIES INC INTERVAL LEISURE GROUP INC BROWN SHOE CO INC NEW Event  2,  Window  [-­‐3,+3]   Average  size:  US$8.5  billion
  25. 25. You  may  find  large  corporations  such  as  Xerox  (market  capitalization  10  billion)   or  Parker  Hannifin  (US$17.6  billion)  ridiculously  his  by  Venezuela  devaluations 2501/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Event  4,  Window  [-­‐3,+3]   Event  5,  Window  [-­‐3,+3]   −.1 −.08 −.06 −.04 −.02 0 Cummulative Abnormal Returns DONNELLEY R R & SONS CO PARKER HANNIFIN CORP BIGLARI HOLDINGS INC HERBALIFE LTD XEROX CORP −.15 −.1 −.05 0 Cummulative Abnormal Returns MERCADOLIBRE INC ACTAVIS PLC PROGRESS SOFTWARE CORP TESCO CORP HERBALIFE LTD
  26. 26. Findings  on  significant  negative  cumulative  abnormal  returns  (SNCAR) All  sample • Event  1  (2.15  devalued  to  2.60  and  4.30) • 9  out  of  10  event  windows  have  SNCAR • SNCAR  ranging  from  -­‐0.67%  to  -­‐1.48%   • Event  2  (2.60  unified  to  4.30) • 7  out  of  10  event  windows  have  SNCAR • Negative  abnormal  returns  ranging  from  -­‐0.71%  to  -­‐1.60% • Event  3  (4.30  devalued  to  6.30) • 1  out  of  10  event  windows  have  SNCAR  (-­‐0.3%) • Event  4  (SICAD  I  created  at  11.30  – first  trading  day) • (First)  5  out  of  10  event  windows  have  SNCAR • SNCAR  ranging  from  0.80%  to  1.15% • Event  5  (SICAD  II  created  at  51.86  – first  trading  day) • 5  out  of  10  event  windows  have  SNCAR • SNCAR  ranging  from  0.40%  to  0.80% 2601/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  27. 27. Cummulative  abnormal  returns:  From  [-­‐1,+1]  to  [-­‐10,+10]  – Non-­‐Oil  companies 2701/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Event [-1,+1] [-2,+2] [-3,+3] [-4,+4] [-5,+5] [-6,+6] [-7,+7] [-8,+8] [-9,+9] [-10,+10] -0.007032** !0.006392* -0.010975*** -0.011860** -0.011420** -0.015052*** -0.013987** -0.016811*** -0.013577** -0.014991** 0.003002 0.003732 0.003837 0.004663 0.004771 0.005206 0.005521 0.00549 0.005678 0.0059 0.021 0.089 0.005 0.012 0.018 0.005 0.013 0.003 0.018 0.012 -0.002733** -0.007559*** -0.014263*** -0.014408*** -0.017218*** -0.015507*** -0.012499*** -0.009203* -0.005396 -0.004331 0.001184 0.001674 0.002179 0.002666 0.003726 0.003983 0.004137 0.004742 0.005252 0.005272 0.023 0.000 0.000 0.000 0.000 0.000 0.003 0.054 0.306 0.413 -0.00335** -0.002478 -0.000268 0.003821 0.002905 0.006554 0.004577 -0.001733 -0.003203 -0.003844 0.001418 0.002659 0.003141 0.003647 0.003903 0.004653 0.004878 0.005373 0.005877 0.005888 0.020 0.353 0.932 0.297 0.458 0.161 0.350 0.748 0.587 0.515 -0.008516*** -0.009827*** -0.008372*** -0.008075* -0.010706** -0.005881 -0.008174 -0.007625 -0.007566 -0.009336 0.002319 0.002649 0.002901 0.004228 0.00536 0.005842 0.006112 0.006474 0.006916 0.00752 0.000 0.000 0.005 0.058 0.048 0.316 0.183 0.241 0.276 0.217 -0.004162* -0.003816 -0.006173** -0.004814 -0.008041* -0.007750* -0.009069* -0.007245 -0.002953 -0.005573 0.00244 0.002669 0.002987 0.003246 0.00414 0.004684 0.0048891 0.005395 0.005518 0.00534 0.091 0.155 0.040 0.141 0.054 0.100 0.066 0.182 0.594 0.299 Coefficients *44p<0.104 Robust4Standard4Errors **4p<0.05 P!values ***4p<0.01 Event Window 1 2 3 4 5
  28. 28. Findings  on  significant  negative  cumulative  abnormal  returns  (SNCAR) Non-­‐oil  companies • Event  1  (2.15  devalued  to  2.60  and  4.30) • 10  out  of  10  event  windows  have  SNCAR • SNCAR  ranging  from  -­‐0.64%  to  -­‐1.68%   • Event  2  (2.60  unified  to  4.30) • 8  out  of  10  event  windows  have  SNCAR • Negative  abnormal  returns  ranging  from  -­‐0.27%  to  -­‐1.72% • Event  3  (4.30  devalued  to  6.30) • 1  out  of  10  event  windows  have  SNCAR  (-­‐0.3%) • Event  4  (SICAD  I  created  at  11.30  – first  trading  day) • (First)  5  out  of  10  event  windows  have  SNCAR • SNCAR  ranging  from  0.80%  to  1.07% • Event  5  (SICAD  II  created  at  51.86  – first  trading  day) • 5  out  of  10  event  windows  have  SNCAR • SNCAR  ranging  from  0.40%  to  0.08% 2801/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  29. 29. Cummulative  abnormal  returns:  From  [-­‐1,+1]  to  [-­‐10,+10]  – CADIVI  registered  (29) 2901/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Event [-1,+1] [-2,+2] [-3,+3] [-4,+4] [-5,+5] [-6,+6] [-7,+7] [-8,+8] [-9,+9] [-10,+10] -0.0041389 0.0038226 -0.0009887 -0.0005574 0.0001599 -0.0003796 -0.0004936 -0.0023567 0.0023577 -0.0025941 0.0041284 0.0044083 0.0045014 0.0051943 0.0056337 0.0057265 0.0068232 0.0071439 0.0080047 0.0079145 0.325 0.393 0.828 0.915 0.978 0.948 0.943 0.744 0.771 0.746 -0.0004607 -0.0041245 * -0.005048 -0.0053949 -0.005313 -0.0084544 -0.010159 -0.0121606 -0.0077907 -0.0109697 0.0018738 0.0022068 0.0040547 0.0046174 0.0058087 0.0076095 0.0082239 0.008593 0.0109184 0.010756 0.808 0.072 0.223 0.252 0.368 0.276 0.227 0.168 0.481 0.317 -0.0000951 0.0072136 0.0092733 0.0126774 0.012535 0.0137528 0.0143063 0.0182959 * 0.0173738 * 0.0180078 * 0.0018724 0.007198 0.0078196 0.0091648 0.0081789 0.0092838 0.0086438 0.0090459 0.0102221 0.0102398 0.960 0.325 0.246 0.178 0.137 0.150 0.109 0.053 0.100 0.090 -0.0116292 * -0.0114415 * -0.0153327 ** -0.0194293 ** -0.0220253 ** -0.0228478 ** -0.0195911 ** -0.0191293 * -0.0156234 -0.0188855 * 0.0062462 0.00586 0.0064258 0.008725 0.0089615 0.009923 0.0088554 0.0103289 0.0098254 0.0098254 0.073 0.061 0.024 0.034 0.020 0.029 0.035 0.075 0.123 0.066 -0.002062 -0.0021827 -0.0035607 -0.0006737 -0.0064991 -0.0064513 -0.00546 -0.010655 -0.0057554 -0.0077288 0.0024542 0.003869 0.0051557 0.0050117 0.0084691 0.0098357 0.0095287 0.0120512 0.0125958 0.011221 0.408 0.577 0.495 0.894 0.449 0.517 0.571 0.384 0.651 0.497 Coefficients *++p<0.10+ Robust+Standard+Errors **+p<0.05 P;values ***+p<0.01 Event Window 1 2 3 4 5
  30. 30. Cummulative  abnormal  returns:  From  [-­‐1,+1]  to  [-­‐10,+10]  – Non-­‐CADIVI  (91) 3001/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Event [-1,+1] [-2,+2] [-3,+3] [-4,+4] [-5,+5] [-6,+6] [-7,+7] [-8,+8] [-9,+9] [-10,+10] -0.007413 ** -0.008174 * -0.012384 * -0.013203 ** -0.012265 ** -0.017381 ** -0.016628 ** -0.01822 *** -0.015599 ** -0.016988 ** 0.003507 0.004417 0.0047907 0.0059672 0.0061391 0.0067 0.006903 0.006813 0.00686 0.007272 0.037 0.067 0.011 0.029 0.048 0.011 0.018 0.009 0.025 0.021 -0.002283 -0.007896 *** -0.015949 *** -0.014816 *** -0.018953 *** -0.015619 *** -0.012650 ** -0.007371 -0.003609 -0.001944 0.001453 0.001974 0.0025372 0.0033506 0.0046086 0.0048314 0.004832 0.005602 0.005921 0.006065 0.119 0.000 0.000 0.000 0.000 0.002 0.010 0.191 0.543 0.749 -0.004355 ** -0.005615 ** -0.00433 0.001872 0.000258 0.005025 0.001713 -0.00704 -0.008207 -0.009069 0.001659 0.002545 0.0032092 0.0037385 0.0042859 0.005143 0.005526 0.006025 0.0065845 0.0066207 0.010 0.030 0.180 0.618 0.952 0.331 0.757 0.245 0.215 0.174 -0.006905 *** -0.008606 *** -0.006281 ** -0.004979 -0.008593 -0.002866 -0.006037 -0.005033 -0.006071 -0.006684 0.002301 0.00288 0.0031577 0.0046638 0.0061776 0.006716 0.0071877 0.007541 0.00815 0.0089707 0.003 0.003 0.049 0.288 0.167 0.670 0.403 0.506 0.458 0.458 -0.004783 -0.004336 -0.007129 ** -0.006587 * -0.008351 * -0.007358 -0.008812 -0.005273 0.0003 -0.001874 0.002908 0.0030904 0.003383 0.0037608 0.004553 0.0051186 0.0054375 0.005787 0.0059199 0.0059223 0.103 0.163 0.037 0.083 0.069 0.154 0.108 0.364 0.960 0.752 Coefficients *++p<0.10+ Robust+Standard+Errors **+p<0.05 P;values ***+p<0.01 Event Window 1 2 3 4 5
  31. 31. Findings • Significant  negative  cumulative  abnormal  returns  for  devaluations  1,  2  and   4;  whose  impact  can  be  as  high  as  -­‐1.72%  on  average 1 03/17/2016 BALAS  Conference  2016:  Most  likely  casualties  of  Dutch  disease 31 • As  expected,  impacts  are  higher  and  more  significant  for  the  non-­‐oil  sample  2 • For  firms  registered  in  CADIVI,  only  devaluation  4  (SICAD  I)  have  significant   negative  abnormal  returns,  although  they  impact  is  higher  -­‐2.20% 3 • For  firms  not-­‐registered  in  CADIVI,  devaluations  1  and  2  are  particularly   significant,  with  significant  negative  abnormal  returns  as  high  as  1.89% 4
  32. 32. 32 • The  paper  within  the  context  of  the  literature • Empirical  analysis:  Are  the  negative  impacts  reported  real? • Robustness  checks:  Peer  groups • What  happened? • Conclusions 3201/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  33. 33. Data • We  paired  each  company  in  our  non-­‐oil  sample  with  a  peer  following: • Firms  not  having  Venezuelan  subsidiary  that  they  own  more  than  25% • Most  similar  NAICS  code  (6-­‐digit,  if  no  peers  moving  back  to  4-­‐digits) • Within  the  range  of  similar  companies,  we  chose  the  one  with  the   market  capitalization  that  is  closer  to  our  sample  firm 3301/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  34. 34. Cummulative  abnormal  returns:  From  [-­‐1,+1]  to  [-­‐10,+10]  – Peer  sample 3401/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela Event [-1,+1] [-2,+2] [-3,+3] [-4,+4] [-5,+5] [-6,+6] [-7,+7] [-8,+8] [-9,+9] [-10,+10] 0.000747 -0.001894 -0.006172 -0.001879 -0.002569 -0.001818 -0.00235 -0.006053 0.001316 0.002223 0.004338 0.004855 0.005564 0.006535 0.006595 0.006865 0.006908 0.006882 0.007348 0.007509 0.863 0.697 0.269 0.774 0.697 0.792 0.734 0.381 0.858 0.768 -0.003694** -0.004455** -0.009809*** -0.004609 -0.009193* -0.010412** -0.007546 -0.003849 -0.000168 0.007598 0.00173 0.002161 0.002988 0.004338 0.004859 0.004686 0.006697 0.007657 0.008372 0.009513 0.035 0.041 0.001 0.290 0.061 0.028 0.262 0.616 0.984 0.426 -0.001696 -0.002421 -0.004153 -0.006061 -0.001946 0.004759 -0.002328 -0.018103* -0.0145302 -0.01008 0.002302 0.002718 0.00493 0.008674 0.007933 0.008131 0.008819 0.010677 0.011509 0.012007 0.740 0.375 0.401 0.486 0.807 0.559 0.792 0.093 0.209 0.403 -0.003495 -0.006964* -0.002864 -0.003541 -0.004419 -0.008114 -0.007095 -0.001444 -0.005832 -0.002503 0.002946 0.003714 0.004268 0.004841 0.005041 0.005397 0.006237 0.006813 0.007832 0.007479 0.238 0.063 0.503 0.466 0.382 0.135 0.258 0.832 0.458 0.738 -0.006578*** -0.007587** -0.003796 0.003125 0.002829 0.000443 0.002254 0.002662 0.000843 -0.006232 0.0022873 0.003167 0.004848 0.005315 0.00639 0.006687 0.006811 0.007382 0.007666 0.007475 0.005 0.018 0.435 0.558 0.659 0.947 0.741 0.719 0.913 0.406 Coefficients *++p<0.10+ Robust+Standard+Errors **+p<0.05 P;values ***+p<0.01 Event Window 1 2 3 4 5
  35. 35. 35 • The  paper  within  the  context  of  the  literature • Empirical  analysis:  Are  the  negative  impacts  reported  real? • Robustness  checks:  Peer  groups • What  happened? • Conclusions 3501/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  36. 36. 36 3601/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 Feb-03 Jun-03 Oct-03 Feb-04 Jun-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Venezuela:;Inflation,;Devaluation;and;Depreciation (Feb;2003=100,;in;logs) Inflation Devaluation Depreciation For  many  years  (2005-­‐2010)  firms  increased  prices,  costs  and  profits  by   inflation,  and  translated  those  profits  at  lagging  official  exchange  ratesLogarithmic  Scale!
  37. 37. 37 3701/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  38. 38. 38 3801/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela CADIVI  ALDs  for  dividend  repatriation  came  to  a  halt  by  2009,  but  profits   continued  to  be  recorded  at  official  rates  – didn’t  need  to  be  in  CADIVI  to  do  this! 0 200 400 600 800 1000 1200 III(2007 IV(2007 I(2008 II(2008 III2008 IV(2008 I(2009 II(2009 III2009 IV(2009 I(2010 II(2010 III2010 IV(2010 I(2011 II(2011 III2011 IV(2011 I(2012 II(2012 III2012 IV(2012 CADIVI:(Total(Authorization(to(Liquidate(Dollars((ALD) (US$(million) Private(External(Debt Foreign(Investment
  39. 39. 39 3901/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela In  the  meantime,  the  parallel  market  started  to  distance  itself  significantly  from  the   official  exchange  rate,  eventually  by  a  factor  of  10  by  2014,  1000  by  2015! 1 10 100 1000 10000 6$23$2010 8$31$2010 11$25$2010 2$21$2011 5$2$2011 7$4$2011 9$4$2011 11$6$2011 1$8$2012 3$11$2012 5$15$2012 7$16$2012 9$19$2012 11$22$2012 1$24$2013 5$23$2013 7$23$2013 9$22$2013 11$22$2013 1$23$2014 3$26$2014 5$26$2014 7$26$2014 9$25$2014 11$25$2014 1$26$2015 3$29$2015 5$29$2015 7$29$2015 9$30$2015 12$1$2015 1$31$2016 4$1$2016 6$1$2016 8$8$2016 10$8$2016 Venezuela:4Multiple4exchange4rates (VEF4per4US$,42010$2016) Black4market4XR4rate Official4XR SICAD4I SICAD4II
  40. 40. 40 • The  paper  within  the  context  of  the  literature • Empirical  analysis:  Are  the  negative  impacts  reported  real? • Robustness  checks:  Peer  groups • What  happened? • Conclusions 4001/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  41. 41. Conclusions • We  find  evidence  of  significant  negative  impacts  on  stock  prices  on  various   Venezuelan  devaluations,  reaching  up  average  across  the  sample  of  2.20%  for   CADIVI-­‐registered  firms,  -­‐1.89%  for  those  not  registered over  the  event  window. • The  fact  that  you  did  not  even  have  to  be  registered  in  CADIVI  to  register  these   negative  returns  is  an  indication  that  profits  of  Venezuelan  subsidiaries  were   largely  overvalued  in  the  balance  sheet  of  MNCs,  when  in  fact  there  was  little  to   no  chance  of  realizing  those  profits  at  those  official  rates • We  find  the  size  of  the  impacts  with  respect  to  the  size  of  the  MNCs  involved,   totally  out  of  proportion  with  respect  to  the  size  of  the  Venezuelan  market,   hinting  large  market  myopia • This  is  not  a  paper  on  window  dressing,  is  a  paper  on  market  myopia 4101/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  42. 42. Work  in  progress • Peer  groups  can  be  fine-­‐tuned  and  defined  by  event,  not  for  the  whole  sample • Why  the  impacts  on  CADIVI-­‐registered  companies  occur  mostly  on  event  4  (SICAD   I),  and  companies  not-­‐registered  in  CADIVI  are  mostly  hit  on  events  1  and  2? • Are  there  any  specific  industry  effects?  Any  evidence  of  some  industries  being   more  affected  than  others?   4201/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela

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