Search

This paper analyzes information opacity and systemic risk for the U.S. Bank Holding Companies (BHCs) in the context of the asset-backed commercial paper (ABCP) between 2001:Q2 and 2012:Q4. Banks which set up costly ABCP conduits might have benefited from the regulatory capital relief and from providing financing alternatives to their clients. However, BHCs faced costs in terms of the increase in information opacity through the provision of the credit enhancements and liquidity lines to their own and third-party sponsored ABCP conduits, which in turn increased BHCs’ systemic risk.

This paper explores the volatility forecasting implications of a model in which the high-frequency market microstructure noise is related to the true underlying volatility. The contribution of this paper is to propose a theoretical framework under which the realized variance, based on the highest frequency to compute returns, may improve volatility forecasting if the noise variance is an affine function of the fundamental volatility. In this new setting, we extend the work of Andersen et al. (2011) and quantify the predictive ability of several measures of integrated variance. We find that the traditional realized variance based on the highest frequency returns outperforms alternative realized measures. We also evaluate the usefulness of our approach by conducting an empirical application and show several improvements resulting from the assumption of time-varying noise variance.

Blockchain technology, and more specifically Bitcoin (one of its foremost applications), have been receiving increasing attention in the scientific community. The first publications with Bitcoin as a topic, can be traced back to 2012. In spite of this short time span, the production magnitude (1162 papers) makes it necessary to make a bibliometric study in order to observe research clusters, emerging topics, and leading scholars. Our paper is aimed at studying the scientific production only around bitcoin, excluding other blockchain applications. Thus, we restricted our search to papers indexed in the Web of Science Core Collection, whose topic is "bitcoin". This database is suitable for such diverse disciplines such as economics, engineering, mathematics, and computer science. This bibliometric study draws the landscape of the current state and trends of Bitcoin-related research in different scientific disciplines.

This paper examines the impact of oil price innovations on emerging market sovereign total bond returns, as measured by the JP Morgan Emerging Market total return bond index, for portfolios of oil exporting and oil importing countries from 2007 to 2015. Globally emerging markets have benefited from investors’ desire for global diversification and search for higher yield returns. This recent wave of investor demand has provided benefits to both investment grade and noninvestment grade countries and has reduced reliance on International Finance Institutional sources. Bond market investors have shifted to shorter investment horizons, and an oil price shock may influence a country’s ability to access international markets for funding during adverse market conditions. Thus, oil price interaction with bond returns and the investor perception of oil price innovations on sovereign credit risk have the capacity to have profound impacts on national economies. This paper finds that oil prices have a statistically significant influence on portfolio total sovereign bond returns for globally focused oil exporters and importers. Exporter and importer total bond portfolio return responses to positive oil price shock conditions were similar, implying that sovereign governments’ bond portfolios are exposed to changes in investor risk perception, but not necessarily in terms of their oil importing and exporting status.

The unquenchable thirst of several sectors to crude oil in the recent years makes a common belief regarding its key role towards the acceleration of the recent economic recession and financial instability. This paper aims to examine the nonlinear impact of oil shocks on the sovereign credit risk for a sample of 38 worldwide oil-producing and oil-consuming countries, over a period ranging from January 2006 to March 2017. In contrast to the existing literature, CDS volatility is employed as a measure for the creditworthiness level, rather than the commonly used CDS spreads first-order moment. The methodological framework used in this paper goes beyond previous studies and takes into account more financial data features (long memory behavior, asymmetric effects and nonlinearities) according to a self-exciting regime switching model. Results reveal some dissimilarities in the explanatory power of the exogenous variables between regimes and across countries. Particularly, restricted evidences of the impact of oil shocks on sovereign CDS volatility are detected during the stable regime, whilst during the risky regime credit volatility becomes more sensitive to oil market conditions for most of the studied countries. Overall, the decline in oil price worsens the public finances tenability whether the country is oil-related or not.

This paper studies the transmission of the monetary policy through the wealth channel in Brazil. Using a structural Bayesian model, we analyze the importance of the different components of wealth in the transmission of the monetary policy in Brazil. The paper finds that the wealth effect works in Brazil only through the evolution of real estate prices. Both, public debt and stock market wealth, play no role in the transmission of monetary policy in Brazil. In the case of public debt, unlike what is argued in the literature, the paper finds that the existence of public debt indexed to the short-term policy rate has no impact in the relevance of the wealth effect of government bonds.

This paper examines the impact of several traditional foreign direct investment (FDI) determinants alongside the impact of economic freedom on FDI inflows in four South European economies (Greece; Italy; Portugal; Spain) for the 1996–2017 period. Results suggest a positive impact of market size and gross capital formation, as well as a negative impact of unit labor costs on FDI inflows. Economic freedom is found to bear a consistently positive impact on FDI inflows. Testing for the impact of the individual economic freedom components, I find that protection of property rights, government integrity, monetary freedom, and financial freedom all have a robustly positive effect on FDI. The paper further investigates the impact of the Eurozone crisis on FDI and documents an asymmetric economic freedom effect within versus outside the crisis that is more pronounced outside the crisis. The findings showcase the institutional factors policy-makers should focus on in order to attract FDI inflows, particularly during economic crises.

The purpose of this paper is to examine the impact of social institutions, firm-specific corporate governance and ownership characteristics on firm performance in the MENA countries. The analysis uses a unique set of financial and governance data from 225 companies listed on the stock exchanges of eleven countries in MENA region for the period 2007–2017. Regression models are used to test the research hypotheses. The results show that the relationship between corporate governance and firm performance depends on the measurement used for firm performance. Some firm-specific governance characteristics, such as board size and insider and institutional ownership, are robust predictors of firm performance in various models of analysis. Investors should be aware of the impact of firm–specific corporate governance and ownership characteristics on firm performance. Furthermore, the differences of economic and non-economic social factors among countries will likely affect the firm performance. Moreover, regularity authorities in the MENA countries should consider the unique features of religion and other social heterogeneity conditions when introducing control mechanisms. The paper adds to the literature on corporate governance by providing interesting new findings, which document that the relationship between corporate governance and firm performance in the MENA region countries differs in accordance with the performance measure used. Most importantly, these new findings document a significant role for social and governance institutions, whose mitigating impact however varies in accordance with the performance measure used.

Graphical Abstract This paper studies the development of bank OBS innovation and bank risk taking from the perspective of new asset management regulations. The analysis finds (1) the rapid development of OBS innovation will increase bank risk taking and (2) the solution to the problem of rigid payment is conducive to reducing the risk taken by Chinese commercial banks when providing OBS innovation., The release of new asset management rules has played a positive role in regulating the asset management business of financial institutions, preventing and controlling financial risk. It has also had an important impact on the management of banks’ off-balance-sheet (OBS) innovation. This paper uses unbalanced panel data on 75 commercial banks in China from 2007 to 2017 and combines a theoretical and an empirical model to study the development of bank OBS innovation and bank risk taking from the perspective of new asset management regulations. The analysis finds (1) the rapid development of OBS innovation will increase bank risk taking and (2) the solution to the problem of rigid payments are conducive to reducing the risk taken by Chinese commercial banks when providing OBS innovation.

The paper examines the relationship between trade credit investment and firm profitability, employing a panel of publicly listed agro-food firms in the United States for the period 2001-2014. Whilst almost all firms in the sample invest in trade credit, there is statistically significant variation in the level of trade credit investment and credit period within the United States public agro-food industry. The pooled ordinary least squares, fixed effects and random effects estimations established a significant positive effect of trade credit investment on firm profitability. Due to endogeneity concerns, an instrumental variable fixed effects model is estimated and the results also confirm a statistically and economically significant positive effect of trade credit investment on firm profitability. The results are robust to different econometric estimation techniques and to the use of non-market based measure (return on assets) and market based measure (Tobin’s q) of firm performance. The paper concludes that investing in trade credit significantly increases profitability of agro-food firms as suggested by the financing, transaction/operation and commercial theories of trade credit. Notwithstanding, firms’ trade credit investment decisions should be guided by cost-benefit tradeoff.

This paper estimates the forward-looking coefficients of risk aversion and the equity risk premia in frontier equity markets in Africa. Applying the Bilinear GARCH (BGARCH) in the consumption-based asset pricing framework, we link the stochastic discount factor to conditional volatility to estimate the predicted equity risk premium using monthly data between January 1998 and June 2016. We find that in addition to accounting for the covariation between the lagged values of the Stochastic Discount Factor and asset returns, it is crucial to account for the time varying estimates of the coefficients of risk aversion to mimic the volatility structure in the different markets. The presence of risk aversion coefficients that take on both positive and negative values at different times provides insight into the different hedging attributes of the African stock markets though the diversification benefits that could arise from such insights are an open question that lay ground for further work in this area. The results presented in this paper provide a framework for conditional asset pricing in African Frontier Markets which is more consistent with the forward-looking approach to risk estimation than the traditional risk premium models.

This paper examines the determinants of the domestic credits in the panel data of 61 developing economies (22 emerging markets and 39 non-emerging developing economies) for the period from 1984 to 2016. The paper finds that the income and the money supply are positively associated with the domestic credits. There also are the negative effects of the current account balance and the interest rate differences on the domestic credits. Further analyses for the subcomponents of the overall political risk measures indicate that the better socioeconomic conditions (i.e. the less poverty, the lower unemployment, and the higher consumer confidence) and the lower corruption positively affect the domestic credits.

Firms with government ownership in transitional economies are normally in advantageous position because they have many political and financial privileges. A question which naturally arises is that whether firms with government ownership need to take more risk to maintain competitive edge and obtain innovation. This paper sheds further light on that question by providing an investigation into the impact of government ownership on the firm’s risk-taking behavior in Vietnam, a successful transitional economy. The study uses a number of econometric techniques of panel data estimation for efficient and consistent results. Overall, the paper reports that firms with higher state ownership tend to take less risk-taking activities. This finding has strong policy implications relating to the privatization strategy in transitional economies.

Recently, the importance of traditional firm-specific determinants of capital structure has been challenged. The paper uses the trade-off theory to investigate the managerial experience of top managers as a determinant of capital structure. The paper applies system-generalized method of moments (GMM) which corrects endogeneity problem. Our results reveal that top managers’ experience is positively related to book value measures of capital structure. As top managers’ (CEOs) experience increases, both the book total debt and long-term debt ratios increase. Our results are robust using both the market total debt and long-term debt ratios. Based on the findings, the results suggest that top managers’ experience is a potential determinant of firms’ capital structure. The findings also suggest that experienced top managers maximize the benefits of debt interest tax-shield; top managers can increase firm value.

In this paper, we analyze the disclosure level of financial instruments provided by companies of the mining industry, located in Latin America region. The sample is comprised of 72 firms from Brazil, Chile, Peru and Mexico. The main results indicate that companies located in Mexico provide the higher levels of disclosure both for IFRS-07 and for IFRS-09 requirements. The size of firms is also a variable that affects disclosure. We also build a panorama regarding some challenges for firms to disclose full information following IFRS-09. Furthermore, the results of this paper indicate that companies should use the potential benefits of Internet and disclosure more information regarding financial instruments.

Any adequate understanding of “modern finance” necessarily requires fundamental understanding of what is “modern”. For this purpose, this paper takes the concept of “modern” and discusses it from four different viewpoints, each of which corresponds to one of the four broad worldviews or basic paradigms: functionalist, interpretive, radical humanist, and radical structuralist. The paper emphasizes that the four views expressed are equally scientific and informative; they look at the phenomenon from their certain paradigmatic viewpoint; and together they provide a more balanced understanding of the phenomenon under consideration, i.e., the “modern” in “modern finance”.

Recent studies have found that investors move from fiat currencies to Bitcoin cryptocurrency in environments with low trust and high uncertainty. This paper investigates the reaction of Bitcoin prices to uncertainty concerning fiat currencies by introducing a complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN)-based event analysis approach. The 2013 Cyprus bailout is used as an event over the uncertainty of fiat currencies. With the proposed approach, the original Bitcoin price series is decomposed into high-frequency, low-frequency, and trend components, thus disentangling the short-, medium-, and long-term effects of the events on Bitcoin prices, respectively. We find that the low-frequency component is dominant and increased because of the event. In addition, the announcement significantly increased the intensity of short-term fluctuations in Bitcoin prices. However, there was no structural change in Bitcoin prices in the long-term trend. This paper provides a way to show the reaction of Bitcoin prices to the uncertainty of fiat currencies at different time scales and suggests that the reaction is mainly captured by the medium-term trend.

The aim of this paper is to examine the predictive power of the term structure of Tunisia bond yields using Probit models with monthly data. The results are consistent with many studies performed in other countries and relatively inconclusive although. The yield curve can be considered as an advanced indicator for growth or recession in Tunisian economy. The paper provides significant evidence to private investors, market participants and policy makers on the usefulness of the spread in forecasting output growth for up to four quarters ahead.

Most of previous studies on stock price informativeness tend to focus on the context of mature stock markets while this issue is more acute in emerging equity markets where regulatory and institutional structure are weak. This paper examines the relationship between foreign ownership and stock price informativeness in Vietnam stock market. We utilize a data set covering firm attributes of non-financial firms listed on the Ho Chi Minh City stock exchange over the period 2007–2015. Employing different estimation techniques for panel data, the empirical results indicate that foreign investors improve stock price informativeness in Vietnam stock market. The finding from this paper confirms the important role of foreign investors in emerging equity markets.

The purpose of this paper is to present the some differences and similarities between corporate governance principles in Islamic banks and conventional banks by paradigmatic diversification. Since Corporate governance in Islamic banks is a social phenomenon in Islamic societies, the paper uses social theory paradigms (functionalist, interpretive, radical humanist and radical structuralist) to compare between corporate governance in Islamic banks and conventional banks. This paper demonstrates that mainstream corporate corporate governance theories are not a law of nature but a social construct.

This paper examines the effect of target CEO age, in association with target corporate governance mechanisms, on the ownership decisions and takeover outcomes in eight East and Southeast Asian countries. The results show that acquirers are more likely to select partial-control acquisitions of target firms managed by older CEOs, and that the impact of target CEO age on the partial-control acquisition propensity is much stronger in emerging markets relative to developed economies. The study further finds that target CEO age leads to a lower probability of obtaining desired equity ownership levels compared to unmatched ownership achievements, controlling for target corporate governance structures. The findings also run robustness checks regarding variations in the compulsory acquisition cut-off in the sample countries. Overall, this paper adds to the growing of mainstream corporate governance literature regarding the relevance of CEO personal characteristics in agency problems for corporate decisions.

The purpose of this paper is to evaluate whether commodities are effective hedges for equity holders. We employ three different methodologies to calculate time varying hedge ratios. First, we examine time-varying hedge ratios and how much portfolio risk can be reduced relative to a long position in the SP second, we estimate a recursive multivariate GARCH (BEKK) model and calculate the hedge ratios from the estimated covariances; and thirdly, we calculate the hedge ratios by estimating recursive OLS regressions. The results of our paper are very clear. First, commodities are not effective hedges for the S&P 500. Equity market investors and asset managers looking for a way to manage and reduce portfolio risk will be well advised to search for alternative hedges for the S&P 500 than commodities. Second, our results do not support the claim that commodities were a good hedge for the equity market during the financial crisis.

HFT firms are neither exactly expected utility maximizers nor profit maximizers. They are averse to both price risk and demand risk. This paper explains the capability theory of how these firms make allocation decisions under uncertainty, and shows how capability maximization is precisely consistent with utility theory. The issue, however, is how these firms actually make allocation decisions in practice. Using the Gioia methodology, this paper presents evidence from interviews with HFT professionals and specialist media that suggests that these firms are capability satisficers. Capability theory is also consistent with bounded rationality and the adaptive markets hypothesis, and defines the point at which these firms reach a satisfactory solution. Thus, capability reconciles mainstream theory and the more realistic, behavioral theories based on observation of industry practice. The methodology developed can be applied to any firm that makes algorithmic decisions under uncertainty.

In this paper, we analyze how the tenure and the number of directorships of independent directors may influence the relationship between board independence and firm performance. Our sample is composed of US listed firms for the period 2008–2012. Several robustness checks and sensitivity analyses are performed and we confirm that the board’s independence positively influences the firm’s performance. Nevertheless, this relationship exists only under certain values of directors’ tenure and external directorships. Our findings show that these variables determine the effectiveness of independent directors. Therefore, this paper highlights the need for a more specific approach, based on the personal characteristics of independent directors, in order to study their influence on corporate decisions, strategy and outcomes. Furthermore, our evidence has direct implications for companies in the selection of board members.

This paper explores the problem of the global financial crisis of 2008–9, using a behavioral perspective to examine in some detail the issue of governance failures. These failures are evident in the inadequate oversight/regulation provided by US financial market regulators, as well as the inability of financial market participants to adequately judge and assign risk measures to key financial instruments. In total, five elements of behavioral finance are shown to characterize the crisis. The paper shows how specific adjustments in government policy (dealing with market structural imperfections) and company governance (dealing mainly with risk management) can respond to the key elements of the crisis. It also points out that future financial crises cannot be avoided, so that mitigation is the only remedy to deal with such phenomena.

The objective of this paper is to evaluate the impact of information demand and supply on stock market trading volume. Few studies have demonstrated the role of Google search data in analyzing trading volume activity. In this study, we employ a proxy for information demand which is derived from weekly internet search volume. The latest is from Google Trends database, for 25 of the largest stocks traded on CAC40 index, between April 2007 and March 2014. We use news headlines as a proxy for information supply. We use Garch model to analyze and predict trading volume. The empirical results present new evidences. First, information supply has an impact on trading volume but information demand's impact is much more important. Secondly, by applying MCA to results found, it could be concluded that the impact of public information on transaction volume is conditioned by two elements: the firm and market news disclosure and the second element relates to the characteristics of the market participants, more precisely their news interpretations and their risk aversion. Thirdly, we used Chow structural break test to verify the stability of our model. We found that for securities with structural changes, information demand is the responsible variable of the change in our model. Finally, we found that information variables have a predictive power on transaction volume. This paper contributes to existing literature by incorporating open source internet-based data into the analysis and prediction of transaction volume. Using internet information about the stock market, which has appeared recently as an interesting research for financial empiricists, computer scientists and practitioners, will have a very important utility because quantifying demand and supply of information becomes possible.

This paper discusses the proposals to limit the size of the banks, also known as tackling the banks’ incentives to become “too big to fail”. I examine how regulations to curb bank size may affect banks’ operating costs. I analyze the relationship between the size of U.S. bank holding companies (BHCs) and their operating costs from 2001:Q2 to 2014:Q1. I find that rules to limit the size of banks could significantly reduce economies of scale. In particular, if large and cost-efficient banks become split into smaller parts, data processing, legal fees, audit and consulting expenses, expenses on premises are likely to increase.\ud \ud The second part of the paper deals with the phenomenon known as “too big to jail” and examines banks’ settlements. I compile a novel dataset on 341 litigation charges and settlements and find evidence that larger banks and banks with a higher credit risk, but not necessarily more systemically risky banks, face litigation charges more frequently. I do however observe that penalties had little effect on BHCs’ profitability, and that some of the largest banks continuously faced litigation charges which may imply that benefits from wrongdoing outweighed the costs or that many large banks relied on the fact they will be considered immune from prosecution due to their sheer size and their influence on the economy.

This paper examines the roles of foreign ownership and home-host country distance in the impact of bank market power on bank liquidity creation in a selected Southeast Asian country (Malaysia) over the period 2001−2017. A key finding is that the impact of market power on liquidity creation is either significantly negative or insignificant for domestic banks, but is significantly positive for foreign banks, irrespective of the liquidity creation measures used. This finding points to evidence of “home-field advantage” of domestic banks as the banks possess greater ability to withstand interest margin compression, while competing with foreign banks in liquidity creation market. Moreover, this paper finds that foreign banks originated from countries with cultural, economic and institutional distance to the host country require greater market power to boost their liquidity creation performance, as compared to their domestic counterparts. Further analysis also indicates that the influence of host-home country distance is more evident among small foreign banks which have lower franchise value. Overall, the findings of this paper suggest that although bank competition policies may promote customer welfare, foreign banks should be granted with some degree of market power in the host country to help alleviating the banks’ operational challenges arising from home-host country distance.

Containing various information, economic policy uncertainty reflects significant rises and declines when facing shocks like financial crisis, oil-price change, and other specific economic or policy events. This paper empirically studies the interaction between oil prices and the newly formulated economic policy uncertainty indices using a time-varying parameter vector autoregression framework. Generally, the results of this study suggest that economic policy uncertainty reveals fluctuating responses to oil price shocks, while the oil price has a negative response to the uncertainty. The findings also reveal that the economic policy uncertainty indices for oil-importers and oil-exporters respond to oil price shocks differently. The oil price shock has a larger fluctuation to the economic policy uncertainty of oil-exporters than that of importers. Moreover, for the oil-exporters, the negative response to the oil price shock is greater than that of the oil-importing countries. This paper also discusses the impact of asymmetric shocks of oil price on economic policy uncertainty. In particular, after two financial crises, positive shocks decrease the uncertainty and vice versa. These findings are robustly verified.

This paper studies the co-integration relationship and volatility spillover effect between China's gold futures and spot prices through the VECM-BEKK-GARCH model. Then, MSGARCH and DCCE-GARCH are applied to study the relationship among China's gold futures market, spot market price volatility and the stabilization effect in uncertain economic environments. This paper enriches the current research, providing gold market participants with hints to address economic uncertainty. The empirical results show that China's gold futures market has a weak stabilization effect on spot price volatility. In scenarios with uncertain economic information and uncertain macroeconomic changes, the correlation between gold futures and spot price volatility is reduced in China, and the role of gold futures in stabilizing the spot price weakens. Furthermore, with economic uncertainty, the fluctuation range of the gold futures price is greater than that of the spot price, with a tendency of more frequent fluctuations. This also means that the effectiveness of the futures market in regulating the spot price will be reduced, and gold market regulators need to stabilize the market through alternative methods to futures.

The paper decomposes the variance of emerging market equity returns to the global market and country specific constituents. The global component is then scaled by the country specific component to determine the relative global sector influence in country equity returns. Additionally, the paper explores contagion by testing for significant shifts in the BEKK-correlations between the emerging markets and the world market around the identified structural breakpints in crisis periods. Using the Quandt test of unknown breakpoint, evidence is provided of significant structural breaks in the relative global effects in all of the markets. Additionally, the identified structural breaks mostly correspond to global effects particularly the 2008 global financial crisis (GFC) and the 2007 global oil shocks (GOS) that heralded the GFC. The findings show that the global effects are time-varying, and that the GFC or GOS led to significant surge in the relative global influence in the emerging markets returns. The evidence indicates a reversion in the rate of change of the global effects to around the pre-GFC or pre-GOs level for all of the markets; however, there is no reversion in the global effects. This suggests that the increase in the global effects resulting from the GFC or the GOS may be permanent. Additionally, the findings infer contagion from the world to the emerging markets around the GFC.

In the mainstream of the academic field of finance, the Modigliani and Miller's (1958) proof of capital structure irrelevance theory, has been praised as the cornerstone of modern scientific finance. However, the capital structure irrelevance theory is based on a set of assumptions, which are both unrealistic and contradictory to the main assumption of the mainstream academic finance. This paper shows that by making more appropriate assumptions, capital structure becomes relevant. The paper, on a foundational ground, argues that since the results of sophisticated mathematical models change as soon as their underlying assumptions are changed, the claim about the scientific nature of the mainstream academic finance becomes questionable.

Our paper studies the impact of activity and geographic diversification on financial institution's performance. These diversification strategies are complementary in generating performance and may provide important implications. Moreover, we investigate the interaction between these two strategies. Our dataset comprises 4532 years observations over the period of 2002 to 2012 and covers 412 French financial institutions. We find a negative relationship between diversification and performance. However, this relationship is significantly positive when institutions implement a dual diversification strategy. In this paper, we propose a classification of French financial institutions. For generalists’ banks and cooperative banks, we find similar results to those of the entire sample. Furthermore, for specialized financial institutions, the relationship is positive and significant. Our findings are robust to the potential endogeneity problem and to measures of diversification and performance.

Does the location of a firm’s headquarter effect ownership concentration? Do stock market participants value ownership concentration differently for firms located at different geographic locations? Using data from India, this paper shows that firms headquartered in Mumbai, the main financial center of a country, have lower ownership concentration than firms headquartered elsewhere. We argue that clustering of firms in the financial center reduce information asymmetries and lower the incentives for concentrated ownership. Our results also show that as the extent of analyst following increase, the difference between ownership concentration of firms headquartered in Mumbai and firms headquartered elsewhere goes up. We argue that higher analyst coverage reduces information asymmetries quicker for firms headquartered in the financial center and results in larger difference between the two groups. In addition, we also show that ownership concentration is value relevant only for firms headquartered in the non-financial centers. We show no relationship between ownership concentration and firm performance and valuation in the financial centers. This paper provides evidence that location of a firm’s headquarter in the financial center can significantly alter its information environment. Reduced information asymmetries lower the incentives for concentrated ownership in the financial centers.

In this paper, an attempt has been made to explore the determinants of credit risk in the banking system with a particular interest toward the Islamic banking industry. We analyze the link between credit risk and a set of bank-specific and macroeconomic along with institutional variables using two complementary approaches. First, we investigate the factors of credit risk using one-step generalized method of moments (GMM) system estimator. Then, we explore the feedback between credit risk and its determinants in a panel vector autoregressive (PVAR) model. We have used a sample of Middle Eastern, North African (MENA) and Asian countries to apply our model. The major purpose of this paper is to find factors that could explain credit risk within the interest-free banking system relative to the interest-based one.

The role of futures contracts on spot prices has been one of the key focus areas of research since the recent surge in commodity prices and increase in the volatility of commodity returns. However, no consensus arises from this literature, and hence it is difficult to link the use of futures contracts in agricultural commodities by non-hedgers and the growing food insecurity within developing countries. The purpose of this paper is to highlight causal relationships from futures contracts to spot prices of underlying assets, namely agricultural commodities. As research that focus on exchange-traded funds do not provide any clear conclusions, we focus on the imbalance between short- and long-open positions, this imbalance being caused by the exchange traded funds’ participation in futures markets. In this paper, we estimate relationships between financial variables including indicators for speculation in futures markets and the returns of cocoa, corn, soybean, wheat, coffee, rice, and sugar on a weekly basis from 1998 to 2013. Significant results lead to Granger-causality tests that in turn validate the hypothesis of a positive impact of speculation in futures markets to returns on the underlying commodities.

This paper empirically assesses the directly contribution of financial development to poverty reduction in 67 low- and middle-income countries over the period 1986–2012. The main goal of the paper is to identify and quantify the channels through which financial development affects poverty. The results obtained suggest the important contribution of financial development to the reduction of poverty, and this, independently of the econometric techniques used. On the other hand, instability related to the financial development would penalize the poor population and would annihilate the positive effects of financial development. The final battery of tests is motivated by the issues of overidentification and weak instruments in system-GMM estimator. The results show the validity of the exclusion restrictions and the absence of instrument proliferation. Also, they may call into question the pro-poor public investment policy in low- and middle-income countries.

Graphical abstract, Using daily data, this paper examines the relationship between the returns of gold and seven sectoral indices in the Bombay Stock Exchange (BSE) for the period from January 2000 to May 2018. Given the importance of gold in India, there are significant issues in a portfolio selection in that country. By addressing the hedged robust portfolio problems, this paper focuses on three vanilla portfolio problems: the maximum return portfolio allocation, the global minimum variance portfolio problem, and the Markowitz portfolio allocation by using various multiple generalized autoregressive conditional heteroskedasticity (GARCH) models. The paper finds that gold returns are significantly independent of the returns of the BSE sectoral indices. Besides, gold returns can help predict the future returns of the Consumer Durables and the Fast-Moving Consumer Goods indices as well as the Oil & Gas equity indices. Finally, the findings also show that gold hedges against the information technology stock index and serves as a robust portfolio diversification tool. With these new results, this paper offers several implications for investors and risk management purposes.

Despite the popularity of Islamic Finance, the effects of Shariah-compliance on non-financial firm operations have never been studied. Shariah-compliance requirements presents unique conditions to examine how firms perform under restricted conditions. This paper seeks to examine the effects of Shariah-compliance on the risk and resilience of non-financial firms. Using a dynamic panel system GMM and a host of firm-specific attributes, and a global sample of 2,160 firms across six geographic regions, the results suggest that Shariah-compliant firms have lower firm risk as measured by total and idiosyncratic risk, and greater firm resilience as measured by the percent deviation from the maximum values of sales, cost of goods sold, operating expenses, and share price. These effects are more profound in the years following the U.S. subprime crisis. Results also show socio-cultural norms to have a moderating effect. Further testing shows firms face stiff penalties for losing their Shariah-compliance status. This paper is the first to study the effects of Shariah-compliance on non-financial firm operations on a global scale. This paper also contributes to the capital structure and corporate governance literature as it provides evidence that suggest resource restraints may be beneficial for a firm. The findings of this paper also provide significant value to firms looking to capitalize on the 1.8 billion-strong Muslim market with further insight on the intricacies of Shariah-compliance.

This paper compares today’s corporate management in developing markets (BRICS countries) vs. developed markets (the OECD countries). The influence of determining a new social corporate management season considering social distancing amid the COVID-19 pandemic on emerging markets' economic growth is ascertained and set apart from corporate management in developing markets. This paper helps clarifying and better understanding the role of corporate social responsibility in the conditions of an economic crisis against the background of the COVID-19 pandemic. This work provides scientific arguments that allow solving critical discussions regarding the advantages (growth of quality of life, an increase of business's competitiveness) and costs (limitation of economic growth, non-commercial use of profit, and increased price for goods and services) of domestic production and consumption. In the long-term, responsible financial practices return all investments and allow countries to better cope with a crisis. The research supplies a new view of corporate social responsibility as a measure of crisis management. It reflects its advantages at a time of social distancing in the conditions of the COVID-19 pandemic. The institutionalization of corporate social responsibility in emerging countries is not predetermined by internal factors (approach to doing business or organizational culture), if not by external factors (market status, state regulation, and consumer awareness). These circumstances prove the high complexity of strengthening corporate social responsibility in developing countries. In the conditions of social distancing – due to the COVID-19 pandemic – corporate social responsibility goes to a new level. In both developing and developed countries, one of the most widespread manifestations of corporate social responsibility is the entrepreneurship's transition to the remote form of activities. This envisages the provision of remote employment for workers and the online purchase of goods and services for consumers.

This paper provides the first empirical examination of the Entrepreneurial Wealth Losses (EWL) theory in explaining the global underpricing difference while simultaneously accounting for various clustering effects on the endogenous underwriter-underpricing relationship. We carefully evaluate the effect of clustering in standard errors within years, industries, countries, and developed versus developing countries. Employed here is a large global dataset comprising 10,212 IPO-issuing firms from 22 developed and developing countries between 1995 and 2016. Our 2SLS results provide strong evidence relating the existence of dispersion in underpricing in the global IPO market to the three dimensions of the EWL theory. When the degree of ex-ante uncertainty surrounding the time of offering is high, results show that in countries with a high level of IPO underpricing, issuers sell less secondary shares, create less primary shares, and employ less reputable underwriters. After adjusting for the clustering effect, the EWL model fails in cross-country settings and in developing stock markets while it succeeds in developed ones. This is due to the failure to capture the endogenous underwriter reputation-underpricing relationship. We show how ignoring one- and two-way clustering effects in the IPO data influences results. The validity of the EWL model particularly the statistical significance of the endogenous underwriter reputation-underpricing relationship vanishes based on the way we cluster our standard errors. Instead, we uncover conclusive evidence supporting the spinning behavior rationale where prestigious underwriters in developing equity markets burden IPO firms with a hefty underwriting fee. Sequentially, they leave big amounts of money on the table for investors to cash it out at the expense of issuers. Entrepreneurs in developing nations appear not to be concerned by this spinning practice, because they care little about their wealth losses in exchange for securing successful offering. Policy-wise, the paper provides several practical contributions.

This paper synthesizes the theoretical underpinnings of tournament models, reviews the extant empirical literature on the determinants and consequences of tournament incentives, critiques the findings and offers suggestions for future research. We synthesize findings from 63 empirical papers and find that several firm-level fundamental and corporate governance variables affect the structure of corporate tournaments. Our review of the consequences of tournament structure reveals that tournaments affect financial reporting and auditing as well as firm-level operational and capital market-based outcomes. This review reveals that the existing accounting and finance literature lacks a strong justification for why one theory rather than another is favored. Moreover, based on potential problems that may exist in empirical models, this review also offers some methodological implications for empirical tournament studies.

This paper discusses beta and sigma convergence of commercial, savings, and cooperative banks in the Eurozone from 1999 to 2012. For this purpose, concepts of the growth and efficiency convergence literature are consulted and GMM, fixed effects models, and OLS are applied. Convergence is analyzed by calculating two efficiency metrics – data envelopment analysis (DEA) and stochastic frontier analysis (SFA) – and two risk metrics – equity to total assets (E/TA or EQTOAS) and Z-scores (ZSCORN). For commercial banks, efficiency convergence of both metrics is found, however, savings banks show no signs of convergence and cooperative banks only show signs of SFA convergence. Banks of all three specializations show E/TA convergence, but only savings banks convergence with respect to Z-scores. Nevertheless, the EU's Single Market Program still has a long way to go to create identical conditions for all member countries’ financial markets. The discovery that there are considerable differences between banks’ specializations, and even more, that there is convergence with respect to E/TA as a risk metric are among the main academic contributions of this paper.

In this paper, we examine the static and dynamic predictive ability of artificial neural networks and random forests for financial time series within a simulation context. Our simulation design, in which we generate data from an AR(1)-GARCH(1,1) model, allows for several degrees of persistence in the mean equation to mimic the behavior of short and long-horizon asset returns. While the true data generating process beats the data mining techniques in terms of static forecasting, the novelty in this paper is to demonstrate that the data mining techniques outperform the true model under a dynamic forecasting scheme for moderate to highly persistent time series. We provide an empirical application using one-day and long-horizon returns on two exchange rates. Our empirical findings corroborate our simulation results in that the data mining models exhibit superior predictive ability for highly persistent time series. We discuss the importance of our findings for asset allocation and portfolio management.

This paper is the first comparative study examining the determinants of stock repurchases during the period of unconventional monetary policy. By constructing a vast firm-level dataset of the U.S. and Japan and conducting multivariate Tobit and probit analyses, this paper presents evidence that during the period of unconventional monetary policy, in both the U.S. and Japan, firms with more free cash flow and lower borrowing costs are more likely to repurchase stock, firms with higher financial leverage are more likely to abstain from stock repurchases, and firms coordinate dividends and stock repurchases to please shareholders. I also find striking contrasts between the results of U.S. and Japanese firms, and show the importance of financial structure in explaining the contrasting results. From a micro perspective, this paper provides new insight and evidence to support the view that financial structure should be thought of as an important factor determining the effects of unconventional monetary policy.

This paper provides a thorough review of the liquidity measures that are used in the empirical literature to measure liquidity. A wide range of papers have emphasized its role and the need to manage and understand this topic, which had hitherto not been deeply explored. Literature on liquidity proposes a wide set of liquidity measures and proxies intended to measure the different characteristics and dimensions that liquidity presents. Early papers analyzing the liquidity issue were based on quotation data or on end-of-month prices, given that databases with widely complete transaction information were not available. The recent availability of high frequency databases has allowed researchers not only to develop new measures but also to adapt to other markets a comprehensive set of existing measures. In this paper, we classify and describe the variety of the existing liquidity measures and proxies depending on the aspect of liquidity that one wants to address.

This paper examines the relationship between the presence of female board members and measures of board independence and director expertise in Europe. We examine public corporations in countries that introduce gender quotas as well as those in a sample of countries without quotas. As shown in earlier papers, the quotas increase the percentage of females on the board; we also find pending quotas are associated with greater female board representation. We find some evidence that female representation is associated with greater board independence in the Nordic countries, but a legislated but not yet enforced quota decreases this positive association. In Southern Europe female representation is positively related to board expertise but the pending gender quota decreases this relationship. The paper provides empirical evidence that the composition of the board varies based on the gender of directors, but not to a great extent. This paper also reveals that pending and required quotas affect board structure.

This paper investigates the impact of uncertainty shocks on REITs returns over a monthly period from 1972:01 to 2015:12, and sub-samples from 1972:01 to 2009:06, and 2009:07 to 2015:12, to accommodate for the possible effects of the Global Financial Crisis (GFC) and unconventional monetary policy decisions. We use the recently-proposed variations in the price of gold, around events associated with unexpected changes in uncertainty as an instrument to identify uncertainty shocks in a proxy Structural Vector Autoregressive (SVAR) model. Moreover, to control for news-related effects associated with these events, uncertainty and news shocks are jointly identified based on a set-identified proxy SVAR, as recently suggested in the VAR literature. Our results show that the uncertainty shock generates a larger negative impact on REITs returns over the post-GFC period to the extent that it also outweighs the impact of the otherwise dominant news (productivity) shocks. In addition, the impulse response dynamics related to the recursively identified uncertainty shock, as is standard in the literature, resembles the effects of a news shock, and somewhat contrary to intuition suggests that the impact of the uncertainty shock on REITs returns were higher during the pre-GFC era.

Graphical abstract, COVID-19 is the first global scale crisis since the inception of Bitcoin. We compare the contagion phenomenon of Bitcoin and other financial markets or assets pre and during the COVID-19 shock in both contemporaneous and non-contemporaneous manner. This paper uses the directed acyclic graph (DAG), spillover index, and network topology to provide strong evidence on the directional contagion outcomes of Bitcoin and other assets. The empirical results show that the contagion effect between Bitcoin and developed markets is strengthened during the COVID-19 crisis. Particularly, European market has a dominant role. Excluding Bitcoin’s own shocks, United State and European markets are the main contagion sources to Bitcoin. European market also works as a intermediary to deliver infectious from United State and market fear. The findings show that gold always has contagion effect with Bitcoin, while gold, US dollar and bond market are the contagion receivers of Bitcoin under the shock of COVID-19. The empirical results further proved the safe haven, hedge and diversifier potential of Bitcoin in economic stable time, but also shows that the sustainability of these properties is undermined during the market turmoil.

To fill the equity gap, several international bodies suggest developing stepping-stone markets. These stock markets aim to nurture the most profitable emerging firms until they get large enough to move to the main markets. This paper investigates the extent that a stepping-stone market can indeed feed a main board with good quality firms. We analyze 209 graduations from the Canadian stepping-stone market benchmarked with 191 initial public offerings (IPOs) on the main Canadian board from 1997 to 2015. Three years before entering the main board, future graduates are significantly less mature than future IPO firms, but ultimately there are as many graduations as IPOs on the main board. There is no significant difference between the quality of graduates and IPOs: investors similarly appraise both categories of firms, which exhibit similar post-listing long-run performance. In Canada, the stepping-stone market thus seems a valuable financing strategy for growth-oriented ventures, apparently fulfilling its role of fostering the development of innovative firms and feeding the senior market.