In 1992 Barnett Bank, one of the top 25 banks in the United States, embarked on a redesign of the direct consumer lending process. The redesign involved moving from 32 to two processing centres, and has reduced processing time from three to less than one day. This case study describes Barnett Bank's approach to BPR and managing the process of redesign itself. [ABSTRACT FROM AUTHOR]
Romain Boulland, Luc Paugam, Gerald J. Lobo, Houston, ESSEC Business School, Essec Business School, HEC Research Paper Series, and Haldemann, Antoine
Subjects
Economics and Econometrics, Economics, Econometrics and Finance (miscellaneous), Accounting, Monetary economics, investor attention, Shareholder, 0502 economics and business, analyst reaction, available-for-sale securities gains and losses, Trading strategy, Business and International Management, Public information, 050208 finance, Earnings, business.industry, 05 social sciences, Equity (finance), 050201 accounting, Banking industry, Available for sale, investor reaction, other comprehensive income, Business, Management and Accounting (miscellaneous), [SHS.GESTION]Humanities and Social Sciences/Business administration, Business, [SHS.GESTION] Humanities and Social Sciences/Business administration, Finance
Abstract
Unrealized gains and losses on available-for-sale securities (AFSGL) are included in Other Comprehensive Income (OCI) and directly affect shareholders’ equity but are not included in earnings. We investigate whether unrealized AFSGL help predict future earnings and whether analysts and investors incorporate the information conveyed by unrealized AFSGL in a timely manner. We conduct our investigation on a sample of banks because unrealized AFSGL are material in the banking industry. First, we show that unrealized AFSGL are material and help in predicting next period realized AFSGL and future earnings change. Second, we document that financial analysts are slow to react to unrealized AFSGL and update their forecasts after AFSGL are realized in earnings. Third, we find that investors are also slow to react to unrealized AFSGL and do so only after AFSGL are included (realized) in earnings and after financial analysts update their forecasts. We document an annual difference of 5% in future abnormal returns between banks in the top and bottom quintiles of past unrealized AFSGL. A zero-cost trading strategy that relies on public information about unrealized AFSGL generates a sizeable monthly alpha that ranges between 1.8% and 1.9%.
Published
2018
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