Dobrina Georgieva

International Finance and World Economies

I was born and raised in Bulgaria, Eastern Europe. After completing my degree in engineering in Sofia, Bulgaria, I came to the United States on a full scholarship to study business. I earned an M.B.A. degree from the University of Montana and a Ph.D. degree in finance from the University of Arkansas. I have been teaching at the University of St. Thomas for the last five years.

Growing up in Bulgaria I witnessed the transition from planned to market economy. In the 1990s my country went through a transitional period from communist regime to capitalism. I watched the progression of the development of new institutions, economic development of the country and the integration and interdependence between my country and the rest of the economies around the world. I watched how the attitudes of people changed in response to general economic and political change and found it really fascinating to think about the link between the national culture and economic development in my country and partner countries around the world. I also thought that the new political environment, the new legislature and “rule of law” will definitely have a long term stimulating impact on the economy. It was my interest to discover the link between law and finance not only in the post-communist regimes but in other forms of social organizations around the world. Because I wanted to gain perspective and understanding of the global economy I decided to leave my country and pursue M.B.A. and consecutively a Ph.D. in the United States. My first research stream was based on corporate and international finance, the cross-section between law and finance and the role of culture and legal institutions on economic development.

I started developing my research ideas as a Ph.D. student. Initially, my research was motivated by a recent change in legislature at the time. In 2002, the U.S. Congress enacted in law the Sarbanes-Oxley Act (SOX) in response to several high profile accounting standards. To achieve compliance with SOX, firms have to improve disclosure and accountability, hire independent auditors and assign to the CEO of the firm direct responsibility on the accuracy and reliability of financial reports. As a result U.S. firms faced higher disclosure and compliance requirements that led to higher legal and administrative fees.

Foreign firms that list their shares on U.S. exchanges were affected much more strongly by the new rules of SOX. In order to list shares in U.S. exchanges they had to fully comply with the requirements of SOX. For foreign firms that was more difficult than for U.S. firms because of the difference in legislature in the foreign country. For example firms from countries had to make significant changes in their organizations in order to meet the standards of SOX. For some firms this was too costly and led to subsequent delistings from U.S. capital markets.

These events led my thinking to a much bigger question – I wanted to investigate the link between law and finance around the world. Differences in legal regulations impact economic behavior of market participants. In the Anglo-American common law legal system, decisions of the court are made based on precedence, whereas in the civil law legal system decisions are made based on strictly adhering to rules, some of which were created more than 200 years ago. As a result, in the common law system there is lower standard of proof in legal suites and broader scope of managerial decisions subject to judicial review. Capital markets in common law countries are better developed, provide stronger investor protection and, in general, greater returns on invested capital.

I have several publications on this topic. In our article “Alternative Paths of Convergence Toward U.S. Market and Legal Regulations: Cross-listing vs. Merging with U.S. Bidders” (with Tomas Jandik) we study the factors that determine the path a firm is going to take in order to benefit from converging its operations to the U.S. common law legal system. Firms can do this by cross-listing on U.S. exchanges or by becoming an attractive partner for U.S. acquirers. We found that when faced with these two choices, firms from civil law countries are more likely to cross-list (rather than be acquired). This is likely explained by the need for synchronization of accounting practices between the two legal systems. After SOX we observed the opposite results.

As I was investigating the link between law and finance I observed that national culture also impacts financial transactions differently in countries around the world. This led to the development of the second stream of my research in which I study the role of country culture on propensity of firms to enter cross-border contracts with firms from countries with similar or different cultural characteristics. In my joint work with Mary Daugherty, “Foreign Cultures, Sarbanes–Oxley Act and Cross-delisting,” we show that the national culture of the country of domicile impacts the propensity of foreign firms to delist shares from U.S. exchanges. Pre-SOX, the propensity to delist was lower for firms from countries with cultural similarities to the U.S. and higher for firms from individualistic societies. These trends reversed.

With my research I show that the informal institutions of a country – comprised of national culture, language and religion – as well as the general business environment impact the propensity of foreign firms to enter cross-border joint ventures and cross-border mergers. The findings are published in my co-written paper “The Impact of Laws, Regulations, and Culture on Cross-border Joint Ventures,” with Tomas Jandik and Wayne Lee. Unlike the general expectations, my results show that U.S. firms are more likely to form joint ventures with firms from countries characterized with higher cultural, language, and religious disparity from the United States. It seemed that U.S. firms and foreign firms from countries that were vastly different in their cultural norms would cooperate better and have a higher propensity for joint ventures.

In terms of legal regulations our findings were similar – we show that U.S. firms are more likely to establish cross-border cooperation with firms from civil law countries and countries with overall weaker business environments. In contrast, U.S. firms are more likely to form mergers with firms from countries with stronger investor protection and legal regulation and small cultural differences from the United States. This suggests that the form of cross-border contract (joint venture or merger) may be determined by the legal and cultural differences or similarities.

I also have a research stream based on U.S. corporations in which I investigate several corporate governance issues. I study the role of macro-level liquidity in the United States in choosing the method of acquisitions, comparing the determinants and outcome of acquisitions through a merger versus tender offer. I also study the role of economic profit plans in evaluating managerial performance.

The results of my international stream of research could be used by policy makers and other researchers. Legal regulations impact financial transaction, and it is important for legislators to understand and anticipate the financial consequences of their decisions. Ultimately, my research shows that both formal institutions (legal, regulatory) and informal institutions (culture, language religion) impact the outcome of financial transactions; furthermore, my findings are useful by other researchers who will further expand this field and build on my research.

The results of my research related to the performance and evaluation of U.S. corporations could be used as a guide for practitioners and managers. In my paper “Adoptions and Eliminations of Economic Profit Plans and Internal Capital Markets Efficiency,” co-written with Tomas Jandik and Anil Makhija, we study the effectiveness of the adoption of a specific measure for valuing the performance – Economic Value Added. The use of this measure as a managerial evaluation technique can lead to minimizing the use of debt and at the same time maximizing profit generation, which has been effectively applied to number of businesses so far.

My research provides answers to few strategic questions. My international stream provides the link between law, finance and culture in international contracts. It bridges a gap in my field, connects these three areas and can be used as a foundation for future researchers and policy makers. My research about tender offers can be used by practitioners and merger negotiators as it provides analysis of the outcomes of using different forms of acquisitions. Finally, my research about performance and valuation of corporations can be used by corporate managers in evaluating the performance of each division in a company and choosing the most efficient form of operation.

When we teach finance in the classroom of the modern world, in turn we teach international finance. The world economies are so closely integrated that almost every topic in finance has an international component or perspective in it. I often bring up examples from my own findings as well as findings of other leading researchers in the field.

My research on the applications and effectiveness of Economic Value Added is useful in the evaluation of corporate performance. I have developed my own case study of comparing large U.S. retail companies – Target, Walmart and Costco – based on the metric (Economic Value Added) that I thoroughly studied in my research paper. The use of this case study in the class has led to various interactive exercises that were very beneficial and engaged the students in active learning and therefore greatly enhanced my pedagogy in the classroom.

Throughout my career I have attended several regional, national and international conferences. I am impressed by the degree of cooperation between researchers in my field, both domestically and internationally. Faculty and researchers from different continents often exchange research ideas and help each other improve their research by providing comments and suggestions, and thereby moving the research forward. In fact, it is the international collaboration between academicians that significantly contributed to the development of the current state of cross-border research.

Dobrina Georgieva is assistant professor of finance in the Opus College of Business.

From Exemplars, a publication of the Grants and Research Office.