NEWSLETTER of July 29, 2022

The following content has been added at finexpert:

BlackRock
2022 MIDYEAR OUTLOOK
The Great Moderation, from mid-1980s until 2019 before the Covid-19 pandemic struck, was a remarkable period of stability of both growth and inflation. We were in a demand-driven economy with steadily growing supply. Borrowing binges drove overheating, while collapsing spending drove recessions. Central banks could mitigate both by either raising or cutting rates. That period has ended, in our view. >more

ValueTrust
EUROPEAN CAPITAL MARKET STUDY
ValueTrust is pleased to announce the tenth edition of the European Capital Market Study (due date: June 30, 2022). They analyze the relevant parameters for calculating the cost of capital, determine implied as well as historical market and industry returns and derive the unlevered cost of equity based on 10 different industries. >more

Allen & Overy
M&A INSIGHTS: H1 2022
The value of global M&A transactions dropped 21% when compared to the record high of H1 2021, although deal values still broke USD2 trillion. Global deal volume also decreased by 17%, but a drop from last year’s record levels could perhaps be expected, with macro events such as inflation, interest rates and the Ukraine war creating a more challenging deal market. Even so, this first half was higher in value than any year pre-2018, and was the third highest H1 on record. Interestingly, global M&A value was greater in Q2 than Q1, although volume slowed, and this made Q2 2022 the third highest Q2 on record. >more

PwC
2022 GLOBAL RISK SURVEY
The world is different than it was two years ago and so is the risk environment in which organisations operate. Change is fast and disruptive. The pandemic caused disturbance in the labour market and the supply chain. The current volatile geopolitical environment is further exacerbating supply constraints, heightening cyber risks, introducing rapidly evolving sanctions and putting safety and humanity at the forefront of all decisions. Ransomware attacks are more frequent and more sophisticated, no doubt a driver of cyber’s rise to the top threat to business among CEOs in our 25th Global CEO Survey. >more

Deutsche Bank Research
DEUTSCHLAND-MONITOR BAUFINANZIERUNG Q3 2022
In 2022 as a whole, GDP growth is expected to reach only 1.2% and in 2023 GDP is likely to contract by 1% as the negative effects of the gas crisis persist and, in addition, the US economy could slip into recession. We expect annual average inflation of 8% in 2022 and 6% in 2023, with 5-10 year mortgage rates at 2.45% at year-end 2022 and a further increase to 2.95% by year-end 2023. The supply shortage is likely to be eliminated later than we had calculated in the 2022 Housing Market Outlook. Given the significant rise in mortgage rates since December, affordability has fallen sharply. >more

BUCKING THE TREND: WHY DO IPOS CHOOSE CONTROVERSIAL GOVERNANCE STRUCTURES AND WHY DO INVESTORS LET THEM
Laura Casares Field, and Michelle Lowry
2022
While the percentage of mature firms with classified boards or dual class shares has declined by more than 40% since 1990, the percentage of IPO firms with these structures has doubled over this period. We test whether IPO firms implement these structures optimally or whether they are utilized to allow managers to protect their private benefits of control. Both shareholder voting patterns and changes in firm types going public suggest that the Agency Hypothesis best explains IPO firm’s use of dual class, particularly when there is a large voting-cash flow wedge. In contrast, among firms with high information asymmetry, classified board structures are better explained by the Optimal Governance hypothesis. >more

PREDICTABLY BAD INVESTMENTS: EVIDENCE FROM VENTURE CAPITALISTS
Diag Davenport
2022
Do institutional investors invest efficiently? To study this question I combine a novel dataset of over 16,000 startups (representing over $9 billion in investments) with machine learning methods to evaluate the decisions of early-stage investors. By comparing investor choices to an algorithm’s predictions, I show that approximately half of the investments were predictably bad—based on information known at the time of investment, the predicted return of the investment was less than readily available outside options. The cost of these poor investments is 1000 basis points, totalling over $900 million in my data. I provide suggestive evidence that over-reliance on the founders’ background is one mechanism underlying these choices. Together the results suggest that high stakes and firm sophistication are not sufficient for efficient use of information in capital allocation decisions. >more