|
on Corporate Finance |
| By: | Giovanni Ferri; Angelo Leogrande |
| Abstract: | We discuss the literature on the shift from stakeholder to shareholder finance behind the Great Financial Crisis (GFC). Traditional banks generally maximized stakeholder value (STV). But before the GFC also many of them started maximizing shareholder value (SHV). Moving from STV to SHV often meant shifting credit management from Originate-to-Hold (OTH) to Originate-toDistribute (OTD). Moving from STV-OTH to SHV-OTD increased systemic risk damaging the common good of financial stability. STV-oriented banks seemed to weather the GFC relatively better with more heterogeneous systems proving more resilient. Heterogeneity in banking governance-orientations/ownership-structures seems to add value reducing the probability of financial crises. |
| Keywords: | Financial and Banking Crises, Bank Governance, Financial Regulation, Financial Institutions and Organizations |
| JEL: | G0 G01 G14 G15 G18 G21 G20 G24 G28 G30 G32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpeu:1576&r=cfn |
| By: | Tomáš Heryán (Department of Finance and Accounting, School of Business Administration, Silesian University); Panayiotis G. Tzeremes (Department of Economics, University of Thessaly); Roman Matousek (University of Kent, Kent Business School) |
| Abstract: | This study focuses on the bank lending channels and transmission mechanisms of monetary policy in European Union (EU) countries. In accordance with previous empirical studies, we deploy the generalized method of moments (GMM) with pooled annual data. We examine the period from 1999 to 2012. We extend the current research on the transmission mechanisms of monetary policy in the following way: first, we compare the differences between the ‘old’ Economic Monetary Union (EMU) and ‘new’ EU countries. Second, we examine the interaction terms between bank characteristics and both monetary policy indicators. In particular, we examine the impact of short-term interest rates and monetary aggregate M2 on bank behaviour. Assuming a more obvious transmission mechanism, we argue that, in the group of ‘old’ EMU countries, the lending channel is affected by smaller banks that are less liquid or are strongly capitalized. For ‘new’ EU countries, we find similar results, i.e., the lending channel affects smaller banks. However, in terms of liquidity and capital adequacy and assuming a more obvious transmission mechanism, we find an opposing result. Those countries’ lending channel is affected by smaller banks with higher levels of liquidity and lower bank capital. Third, we describe how transmission mechanisms changed during the crises period. |
| Keywords: | lending channel, transmission mechanism, crisis times, old EMU and new EU countries |
| JEL: | C58 G01 G21 G28 |
| Date: | 2016–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:opa:wpaper:0027&r=cfn |
| By: | Nagar, Neerav; Sen, Kaustav |
| Abstract: | Research Question/Issue: We analyze whether cash flow misclassification is likely to be higher in the countries with weak investor protection. We also test whether managers use different strategies to misclassify cash flows. Research Findings/Insights: We focus on an emerging market, India, which is characterized by weak corporate governance and investor protection, and the United States and present evidence that the magnitude of cash flow misclassification is higher for the firms in India. Further, Indian firms in financial distress are more likely to manipulate operating cash flows as compared to the financially distressed firms in the United States by engaging in such misclassification. Managers manipulate operating cash flows by shifting operating cash outflows to investing and financing cash outflows, and investing and financing cash inflows to operating cash inflows. Theoretical/Academic Implications: We present first evidence that the magnitude of cash flow manipulation through misclassification is associated with weak investor protection and governance. We also present an improved methodology to capture the strategies for such misclassification. Practitioner/Policy Implications: Our results indicate that cash flows are as prone to manipulation and misclassification as the earnings. These may be useful to regulators and auditors in India and other countries with weak investor protection, where they need to monitor the cash flow reporting closely. |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:13784&r=cfn |
| By: | Adrian, Tobias (Federal Reserve Bank of New York); Friedman, Evan (Columbia University); Muir, Tyler (Yale School of Management) |
| Abstract: | Standard factor pricing models do not capture well the common time-series or cross-sectional variation in average returns of financial stocks. We propose a five-factor asset pricing model that complements the standard Fama and French (1993) three-factor model with a financial sector ROE factor (FROE) and the spread between the financial sector and the market return (SPREAD). This five-factor model helps to alleviate the pricing anomalies for financial sector stocks and also performs well for nonfinancial sector stocks compared with the Fama and French (2014) five-factor model or the Hou, Xue, and Zhang (2014) four-factor models. We find that the aggregate expected return to financial sector equities correlates negatively with aggregate financial sector ROE, which is puzzling, as ROE is commonly used as a measure of the cost of capital in the financial sector. |
| Keywords: | cost of capital; financial intermediation; asset pricing; capital structure |
| JEL: | G12 G21 G24 G32 |
| Date: | 2015–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:755&r=cfn |
| By: | Anaïs Périlleux; Annabel Vanroose; Bert D'Espallier |
| Abstract: | This paper investigates whether financial cooperatives are crowded out by commercial banks in the process of financial sector development. We use a self-constructed database (1990-2011) of financial cooperatives in 55 developing countries. Our empirical results are threefold. First, financial cooperatives tend to reach more members in countries where the commercial banking sector is weak. This validates their role as a market failure solution. Second, in the process of commercial bank expansion, financial cooperatives run the risk of being crowded out. Third, financial cooperatives seem to benefit from some kind of bank presence, especially as far as savings mobilization is concerned. |
| Keywords: | Financial cooperatives; Microfinance; Competition; Crowding out; Financial Sector Development |
| JEL: | G21 L31 O16 P13 |
| Date: | 2016–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/223569&r=cfn |
| By: | Manuel Buchholz |
| Abstract: | This paper investigates the effect of a macroprudential policy instrument, caps on banks’ leverage, on domestic credit to the private sector since the Global Financial Crisis. Applying a difference-in-differences approach to a panel of 69 advanced and emerging economies over 2002–2014, we show that real credit grew after the crisis at considerably higher rates in countries which had implemented the leverage cap prior to the crisis. This stabilising effect is more pronounced for countries in which banks had a higher pre-crisis capital ratio, which suggests that after the crisis, banks were able to draw on buffers built up prior to the crisis due to the regulation. The results are robust to different choices of subsamples as well as to competing explanations such as standard adjustment to the pre-crisis credit boom |
| Keywords: | macroprudential policies, domestic credit, financial crisis |
| JEL: | E51 E58 G21 G28 |
| Date: | 2015–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2015-7&r=cfn |
| By: | Paula Bustos; Gabriel Garber; Jacopo Ponticelli |
| Abstract: | We study the allocation of capital across sectors. In particular, we assess to what extent growth in agricultural profits can lead to an increase in the supply of credit in industry and services. For this purpose, we identify an exogenous increase in agricultural profits due to the adoption of genetically engineered soy in Brazil. The new agricultural technology had heterogeneous effects in areas with different soil and weather characteristics. We find that regions with larger increases in agricultural profitability experienced increases in local bank deposits. However, there was no increase in local bank lending. Instead, capital was reallocated towards other regions through bank branch networks. Regions with more bank branches receiving funds from soy areas experienced both an increase in credit supply and faster growth of small and medium sized firms |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:414&r=cfn |
| By: | Markus Kinateder (Departamento de Economía, Edificio de Amigos, Universidad de Navarra); Hubert Janos Kiss (Momentum Game Theory Research Group - Institute of Economics - Centre for Economic and Regional Studies - Hungarian Academy of Sciences and Department of Economics, Eötvös Loránd University); Agnes Pinter (Department of Economic Analysis, Universidad Autónoma de Madrid) |
| Abstract: | There is an asymmetry regarding what previous decisions depositors may observe when choosing whether to withdraw or keep the money deposited: it is more likely that withdrawals are observed. We study how decision-making changes if depositors are able to make their decision to keep their funds in the bank visible to subsequent depositors at a cost. We show theoretically in a Diamond-Dybvig setup that without this signaling option multiple equilibria are possible, while signaling makes the no-run outcome the unique equilibrium. We test if the theoretical predicitions hold in a lab experiment. We find that indeed when signaling is available, bank runs are less likely to arise and signaling is extensively used. |
| Keywords: | Bank runs, Asymmetric information, Experimental evidence, Signaling |
| JEL: | C72 C91 D80 G21 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1553&r=cfn |
| By: | Florian Schaffner |
| Abstract: | This study investigates how well weekly Google search volumes track and predict bank failures in the United States between 2007 and 2012, contributing to the expanding literature that exploits internet data for the prediction of events. Different duration models with time-varying covariates are estimated. Higher Google search volumes go hand in hand with higher failure rates, and the coefficients for the Google volume growth index are highly significant. However, Google’s predictive power quickly dissipates for future failure rates. |
| Keywords: | Bank failures, internet, financial crisis, Google, survival analysis |
| JEL: | G17 G18 G19 G21 G28 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:214&r=cfn |
| By: | Karlis, Alexandros (Department of Physics University of Warwick); Galanis, Giorgos (Department of Economics University of Warwick); Terovitis, Spyridon (Department of Economics University of Warwick); Turner, Matthew |
| Abstract: | This paper focuses on the use of interest rates as a tool for hedging against the default risk of heterogeneous hedge funds (HFs) in a leveraged market. We assume that the banks study the HFs survival statistics in order to compute default risk and hence the correct interest rate. The emergent non-trivial (heavy-tailed) statistics observed on the aggregate level, prevents the accurate estimation of risk in a leveraged market with heterogeneous agents. Moreover, we show that heterogeneity leads to the clustering of default events and constitutes thus a source of systemic risk. |
| Keywords: | survival statistics ; interest rate ; leverage ; financial fragility.creation-date: 2015 |
| JEL: | G23 G24 G32 G33 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1084&r=cfn |
| By: | Małgorzata Pawłowska |
| Abstract: | The aim of this study is to examine the impact of banking-sector structure and macroeconomic changes on bank profitability in the Polish banking sector over the past fifteen years (i.e., prior to and during the global financial crisis of 2008). The model developed in this paper incorporates the Structure-Conduct-Performance (SCP) hypothesis, as well as the Relative Market Power (RMP) hypothesis created by Smirlock (1985). Furthermore, this paper also examines the overall effect of financial structure and macroeconomic conditions to determine whether financial development and business cycles affect the profit of Polish banks. Finally, t his paper tests the impact of foreign capital on the profitability of Polish banks and attempts to determine if there is a link between the context of the parent banks and the profitability of their affiliates. Empirical results based on two panel data sets describing both micro-level and the macro-level data are ambiguous, and find evidence of the RMP hypothesis, as well as the traditional SCP, in the Polish banking sector. This paper also finds that increased foreign ownership and intermediation have a positive effect on bank profitability. Furthermore, this paper finds a positive correlation between the context of parent banks and the profitability of their affiliates. Also, the profitability of commercial banks in Poland are contingent upon the business cycle. |
| Keywords: | bank profitability, foreign–owned banks, concentration, market power, market structure, Lerner index, Polish banks, business cycle. |
| JEL: | F36 G2 G21 G34 L1 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:229&r=cfn |
| By: | Cathy Yi-Hsuan Chen; Thomas C. Chiang; Wolfgang Karl Härdle; |
| Abstract: | This paper This paper This paper This paper presents presents presents a fractionally cointegrata fractionally cointegrata fractionally cointegrat a fractionally cointegrata fractionally cointegrata fractionally cointegrat a fractionally cointegrat a fractionally cointegrat a fractionally cointegrata fractionally cointegrata fractionally cointegrata fractionally cointegrat a fractionally cointegrata fractionally cointegrat a fractionally cointegrated vector autoregression ed vector autoregression ed vector autoregression ed vector autoregression ed vector autoregression ed vector autoregression ed vector autoregression ed vector autoregression ed vector autoregression ed vector autoregression ed vector autoregression (FCVAR) (FCVAR) (FCVAR) (FCVAR) model to examine to examine to examine to examine to examine to examine to examine various relations various relations various relations various relations various relations between stock returns and downside risk between stock returns and downside risk between stock returns and downside riskbetween stock returns and downside risk between stock returns and downside risk between stock returns and downside risk between stock returns and downside risk between stock returns and downside riskbetween stock returns and downside risk between stock returns and downside risk between stock returns and downside risk between stock returns and downside risk . Evidence from major advance Evidence from major advance Evidence from major advanceEvidence from major advanceEvidence from major advance Evidence from major advanceEvidence from major advance Evidence from major advance Evidence from major advanceEvidence from major advanceEvidence from major advance Evidence from major advance Evidence from major advanced markets markets markets markets markets supports the supports the notion that notion that notion that downside risk measured by measured by measured by measured by measured by measured by measured by value value value-at -risk ( risk (VaRVaRVaR) has significant information has significant information has significant information has significant information has significant information has significant information has significant information has significant information has significant information has significant information has significant information content content that reflects that reflects that reflects that reflects that reflects lagged long lagged long lagged longlagged long lagged long -run variance and run variance and run variance and run variance and run variance and run variance and run variance and run variance and run variance and higher momentshigher moments higher moments higher moments higher moments higher momentshigher moments of risk for for predict redict ing stock returns. stock returns. stock returns. stock returns. The e The e vidence vidence vidence supports the positive tradeoff hypothesis positive tradeoff hypothesis positive tradeoff hypothesis positive tradeoff hypothesis positive tradeoff hypothesis positive tradeoff hypothesis positive tradeoff hypothesis positive tradeoff hypothesispositive tradeoff hypothesis positive tradeoff hypothesis positive tradeoff hypothesis and and the leverage effect leverage effect leverage effectleverage effectleverage effect leverage effectleverage effectleverage effectleverage effectleverage effect in the long in the long in the long run and and for for some markets in the short run. some markets in the short run. some markets in the short run. some markets in the short run. some markets in the short run. some markets in the short run. some markets in the short run. some markets in the short run.some markets in the short run. We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, We find that US downside risk accounts for 54.36% of price discovery, whereas the whereas the whereas the whereas the own effect from own effect from own effect from own effect from own effect from own effect from own effect from the country itself contributes the country itself contributes the country itself contributes the country itself contributes the country itself contributes the country itself contributes the country itself contributes the country itself contributes the country itself contributes the country itself contributes the country itself contributes only only only 27.06%. 27.06%. |
| Keywords: | Downside risk, Value-at-Risk, long memory, fractional integration, Risk-return |
| JEL: | G11 G12 G15 C24 F30 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2016-001&r=cfn |