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Major award for business professor’s research


Professor Paul Komiak

By Meaghan Whelan

New research from business Professor Paul Komiak that sheds new light on whether, in this global economy, markets are or are not integrated, has earned a $10,000 award from the Canadian Institute of Chartered Business Valuators (CICBV).

The paper – Control Premiums: Evidence against Market Integration – investigates why, among target firms located in different countries, some control premiums are higher than others, an overarching valuation question. Control premiums, the amount that a buyer is willing to pay over the current market price, should be similar if the markets are fully integrated.
Prof. Komiak’s research is the first to examine whether acquiring firms pay higher relative premiums for firms that have presence in their home country than those that do not.

Prof. Komiak found evidence that suggests home bias may account for the lack of market integration.

“Home bias refers to the phenomenon of investors overweighing their stock portfolios with domestic stocks, despite the gains from cross-border diversification,” he explained. “I found that the target firm location impacts the control premiums offered in acquisition transactions, which is evidence of a home bias.”

There are many reasons why home bias may exist, such as differences in investor protection, cultural characteristics or geographic proximity, but home bias is an anomaly to finding the best possible use for assets. Managers and investors are constantly seeking to use resources in the most efficient manner possible, and Prof. Komiak thinks that creating awareness of incidences of home bias may serve to mitigate its occurrence.

The paper specifically focuses on home bias in the foreign direct investment decisions of acquiring firms in merger and acquisition activities. “As capital markets become more integrated companies are able to carry out acquisitions across national boundaries more easily so that cross-border acquisition activity intensifies relative to domestic acquisition activity,” he said. “The presence of home bias reveals a lack of integration.”

This new knowledge about market integration and the role of home bias could be used in a variety of situations. “There are many applications for research like this. It has academic appeal, but it is also useful to practitioners. Business valuators can use it as a position paper, managers can use it during their merger and acquisitions activity or it may end up before the courts in the litigation cycle as evidence,” Prof. Komiak said.

The paper will be published in a 2010 issue of the Journal of Business Valuation. Prof. Komiak will receive his award at the CIBV recognition reception and dinner in Kelowna, BC, on Sept. 30.
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