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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)
Jan	
  11,	
  2010
JAN 11, 2010
JAN 12, 2010
Feb 11, 2013
Feb 14, 2013
Jul	
  8,	
  2014
FEB 2, 2015
Feb 11, 2015
Feb 13, 2015
APR 26, 2016
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
• 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
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
• 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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
• 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
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
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
• 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
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
3701/13/2017 Fool´s	
  gold:	
  The	
  case	
  of	
  multinationals	
  in	
  Venezuela
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
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
• 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
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
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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Fool´s gold: The case of multinationals in Venezuela

  • 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)
  • 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 • 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. 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 • 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 • 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. 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. 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 • 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 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 3701/13/2017 Fool´s  gold:  The  case  of  multinationals  in  Venezuela
  • 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 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 • 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. 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. 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