Essays on International Financial Management: (1) Foreign Investors in Emerging Markets: The Case of Taiwan　(2) Exchange Risk Management: The Case of Taiwan

My Ph.D. dissertation, entitled “Essays on International Financial Management”, includes the following essays: (1) Foreign Investors in Emerging Markets: The Case of Taiwan (2) Exchange Risk Management: The Case of Taiwan In my first essay, I find that foreign investors tend to be momentum traders. The aggregate current net foreign purchases (NFP) have a positive effect on future return, implying that foreign investors, on average, might have an information advantage over local investors. However, when I further investigate the relation at the firm level, the results are mixed. Foreign investors that have an information advantage over local investors are limited to firms based on large size, low B/M stocks, and those that have issued ECBs. They have a tendency toward trading stocks they are familiar with. Furthermore, I document that foreign buys, sells, total trading, and net foreign purchases all increase their conditional volatility. In my second essay, I examine the determinants of hedging exchange risk for Taiwanese firms in 1999 and 2000. To examine the decision to hedge and the decision of the hedging extent separately, I employ a two-step procedure decision suggested by Cragg (1971). In the first equation, the probit model is examined and the response variable is whether to hedge (=1) or not (=0). The likelihood of hedging is related to firm size, the export ratio, and managerial ownership. Larger firms and firms with higher exports, or those with higher managerial ownership, are more likely to manage risks. In the second equation, I conduct conditional regressions on the hedging firms. The dependent variable is the hedging proportion. The hedging extent is found to be related to foreign exposure and compensation structure, and is negatively correlated to firm size. Empirical results show that the decision to hedge is positively associated with foreign exposure, managerial ownership, and economies of scale in hedging costs. The decision of hedging extent is positively correlated to the foreign exposure, compensation structure, and the financial distress costs. The empirical results support the economies of scale hypothesis, the financial distress hypothesis, and the managerial incentive hypothesis, but seem to not support the tax hypothesis