Pub Date : 2024-07-18DOI: 10.1108/jrf-09-2023-0240
Imen Ghadhab, Hamza Nizar
PurposeThis paper investigates the effect of political uncertainty on the decision to cross-list in the United States (US).Design/methodology/approachTo reach our paper aim, we use a sample of 589 non-US firms cross-listed in the US for the period from 2000 to 2019. We perform logit regression and use several political uncertainty proxies, including US election presidential years, political voting margin and the political uncertainty index from Baker et al. (2002), as a continuous measure of general political condition (Francis et al., 2021).FindingsWe find the following results. Non-US firms are less likely to cross-list their shares when US political uncertainty is high. We also find that the decision to cross-list is driven by price informativeness as a channel that can explain the role of political uncertainty. Our results are robust to the endogeneity concern. In addition, we find that political administration (Democrats vs Republicans) significantly affects the decision to cross-list. More particularly, we show that firms are more likely to cross-list their shares in the US when Democrats win the elections. Moreover, we find that cross-listed firms exhibit lower valuation compared to their non-cross-listed peers when US political uncertainty is high.Originality/valueUsing a unified framework of non-US firms cross-listed in the US, this paper contributes to different strands of the literature. Our first main contribution adds to the literature on cross-listing by providing, in our knowledge, the first evidence regarding the relation between cross-listing and political uncertainty. We add to the existing literature by showing that US political uncertainty significantly determines the decision to cross-list and value creation for cross-listed firms. Whether and how managers alter their strategic decision behavior in such settings is less clear. Hence, our paper contributes to the literature by documenting how political uncertainty impacts cross-listing decision and shapes management guidance decisions. Second, this study joins a growing body of literature that examines the real impact of economic policy uncertainty (EPU) on economic outcomes. We provide empirical evidence suggesting that cross-listed firms exhibit lower valuation during period of high political uncertainty due to decreased price informativeness.
{"title":"Why do firms list their shares in the US? The role of political uncertainty","authors":"Imen Ghadhab, Hamza Nizar","doi":"10.1108/jrf-09-2023-0240","DOIUrl":"https://doi.org/10.1108/jrf-09-2023-0240","url":null,"abstract":"PurposeThis paper investigates the effect of political uncertainty on the decision to cross-list in the United States (US).Design/methodology/approachTo reach our paper aim, we use a sample of 589 non-US firms cross-listed in the US for the period from 2000 to 2019. We perform logit regression and use several political uncertainty proxies, including US election presidential years, political voting margin and the political uncertainty index from Baker et al. (2002), as a continuous measure of general political condition (Francis et al., 2021).FindingsWe find the following results. Non-US firms are less likely to cross-list their shares when US political uncertainty is high. We also find that the decision to cross-list is driven by price informativeness as a channel that can explain the role of political uncertainty. Our results are robust to the endogeneity concern. In addition, we find that political administration (Democrats vs Republicans) significantly affects the decision to cross-list. More particularly, we show that firms are more likely to cross-list their shares in the US when Democrats win the elections. Moreover, we find that cross-listed firms exhibit lower valuation compared to their non-cross-listed peers when US political uncertainty is high.Originality/valueUsing a unified framework of non-US firms cross-listed in the US, this paper contributes to different strands of the literature. Our first main contribution adds to the literature on cross-listing by providing, in our knowledge, the first evidence regarding the relation between cross-listing and political uncertainty. We add to the existing literature by showing that US political uncertainty significantly determines the decision to cross-list and value creation for cross-listed firms. Whether and how managers alter their strategic decision behavior in such settings is less clear. Hence, our paper contributes to the literature by documenting how political uncertainty impacts cross-listing decision and shapes management guidance decisions. Second, this study joins a growing body of literature that examines the real impact of economic policy uncertainty (EPU) on economic outcomes. We provide empirical evidence suggesting that cross-listed firms exhibit lower valuation during period of high political uncertainty due to decreased price informativeness.","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":" 11","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141824133","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-16DOI: 10.1108/jrf-02-2024-0048
Yang Liu, Kangyin Dong, Kun Wang, Xiaowen Fu, Farhad Taghizadeh-Hesary
PurposeThe purpose of this study is to examine the impact of green bonds on common prosperity in China. Green bonds have gained significant attention as a means to address financial challenges and promote environmental protection. This research aims to investigate the influence of green bonds on common prosperity by utilizing the system-generalized method of moments (SYS-GMM) and analyzing panel data from prefecture-level cities. The study also explores the theoretical mechanisms and heterogeneous relationships between green bonds and common prosperity, providing valuable guidance for advancing economic and social well-being in China.Design/methodology/approachThis study employs a system-generalized method of moments (SYS-GMM) as the methodology to investigate the influence of green bonds on common prosperity in China. Panel data from prefecture-level cities for the period 2014 to 2020 are utilized for analysis. The SYS-GMM approach allows for the examination of dynamic relationships and control of endogeneity issues. By utilizing this methodology, the study aims to provide robust and reliable findings on the impact of green bonds on common prosperity, considering the specific context of China's ecological civilization development and financial challenges faced by energy-saving and environmental protection enterprises.FindingsThe findings of this research indicate several important outcomes. Firstly, common prosperity in China experienced substantial growth between 2014 and 2020. Secondly, green bonds have demonstrated a clear and positive impact on common prosperity. They contribute to the enhancement of common prosperity by driving industrial structure upgrading and fostering green technology innovation. Lastly, the study reveals that the positive influence of green bonds on common prosperity is particularly pronounced in the western region of China. These findings highlight the significance of green bonds in promoting sustainable economic development and societal well-being.Originality/valueThis study contributes to the existing literature by examining the impact of green bonds on common prosperity in China, utilizing the system-generalized method of moments (SYS-GMM) and panel data analysis. The research not only adds to the understanding of the relationship between green bonds and economic well-being but also provides insights into the theoretical mechanisms and heterogeneous relationships involved. The findings showcase the positive influence of green bonds on common prosperity, emphasizing their role in addressing financial challenges, promoting environmental protection, and driving sustainable development. The study's conclusions offer valuable guidance for policymakers, financial institutions, and stakeholders in advancing common prosperity in China.
{"title":"How do green bonds promote common prosperity? Evidence from Chinese prefecture-level cities","authors":"Yang Liu, Kangyin Dong, Kun Wang, Xiaowen Fu, Farhad Taghizadeh-Hesary","doi":"10.1108/jrf-02-2024-0048","DOIUrl":"https://doi.org/10.1108/jrf-02-2024-0048","url":null,"abstract":"PurposeThe purpose of this study is to examine the impact of green bonds on common prosperity in China. Green bonds have gained significant attention as a means to address financial challenges and promote environmental protection. This research aims to investigate the influence of green bonds on common prosperity by utilizing the system-generalized method of moments (SYS-GMM) and analyzing panel data from prefecture-level cities. The study also explores the theoretical mechanisms and heterogeneous relationships between green bonds and common prosperity, providing valuable guidance for advancing economic and social well-being in China.Design/methodology/approachThis study employs a system-generalized method of moments (SYS-GMM) as the methodology to investigate the influence of green bonds on common prosperity in China. Panel data from prefecture-level cities for the period 2014 to 2020 are utilized for analysis. The SYS-GMM approach allows for the examination of dynamic relationships and control of endogeneity issues. By utilizing this methodology, the study aims to provide robust and reliable findings on the impact of green bonds on common prosperity, considering the specific context of China's ecological civilization development and financial challenges faced by energy-saving and environmental protection enterprises.FindingsThe findings of this research indicate several important outcomes. Firstly, common prosperity in China experienced substantial growth between 2014 and 2020. Secondly, green bonds have demonstrated a clear and positive impact on common prosperity. They contribute to the enhancement of common prosperity by driving industrial structure upgrading and fostering green technology innovation. Lastly, the study reveals that the positive influence of green bonds on common prosperity is particularly pronounced in the western region of China. These findings highlight the significance of green bonds in promoting sustainable economic development and societal well-being.Originality/valueThis study contributes to the existing literature by examining the impact of green bonds on common prosperity in China, utilizing the system-generalized method of moments (SYS-GMM) and panel data analysis. The research not only adds to the understanding of the relationship between green bonds and economic well-being but also provides insights into the theoretical mechanisms and heterogeneous relationships involved. The findings showcase the positive influence of green bonds on common prosperity, emphasizing their role in addressing financial challenges, promoting environmental protection, and driving sustainable development. The study's conclusions offer valuable guidance for policymakers, financial institutions, and stakeholders in advancing common prosperity in China.","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":"5 2","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141641344","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-06-11DOI: 10.1108/jrf-10-2023-0243
Nabil Adel, Maryem Naili
PurposeThis study delves into the critical issue of banks' stability and profitability, which are crucial elements for fostering economic growth and preserving depositor confidence. Specifically, we scrutinize the impact of geopolitical risks on the profitability and solvency of banks operating in emerging economies across the Middle East and Africa.Design/methodology/approachEmploying a two-step Generalized Method of Moments (GMM) approach, we analyze a comprehensive dataset comprising 125 banks spanning 13 emerging economies in the Middle East and Africa, covering the period from 2003 to 2019.FindingsOur study reveals a significant sensitivity of Middle Eastern banks to geopolitical risks, wherein effective anticipation or adaptation to these risks positively influences bank performance. Conversely, the impact of geopolitical risk on African banking profitability appears inconclusive and statistically insignificant. These nuanced findings underscore the complex interplay between geopolitical dynamics and financial performance in diverse regional contexts, with implications for policymakers and industry stakeholders.Practical implicationsOur findings underscore the need for nuanced policy responses and risk management strategies tailored to the unique challenges posed by geopolitical dynamics in emerging markets. Furthermore, they highlight the importance of continued research efforts to deepen our understanding of these complex interactions and inform more effective decision-making in the financial sector.Originality/valueAmidst growing recognition of the importance of geopolitical risks in financial markets, empirical studies exploring their precise impact on bank performance remain scarce. This study fills this gap by offering a pioneering investigation into the influence of geopolitical risks on bank profitability and solvency, using advanced econometric techniques and a substantial, diverse sample of banks in emerging economies across the Middle East and Africa.
{"title":"Geopolitical risk and banking performance: evidence from emerging economies","authors":"Nabil Adel, Maryem Naili","doi":"10.1108/jrf-10-2023-0243","DOIUrl":"https://doi.org/10.1108/jrf-10-2023-0243","url":null,"abstract":"PurposeThis study delves into the critical issue of banks' stability and profitability, which are crucial elements for fostering economic growth and preserving depositor confidence. Specifically, we scrutinize the impact of geopolitical risks on the profitability and solvency of banks operating in emerging economies across the Middle East and Africa.Design/methodology/approachEmploying a two-step Generalized Method of Moments (GMM) approach, we analyze a comprehensive dataset comprising 125 banks spanning 13 emerging economies in the Middle East and Africa, covering the period from 2003 to 2019.FindingsOur study reveals a significant sensitivity of Middle Eastern banks to geopolitical risks, wherein effective anticipation or adaptation to these risks positively influences bank performance. Conversely, the impact of geopolitical risk on African banking profitability appears inconclusive and statistically insignificant. These nuanced findings underscore the complex interplay between geopolitical dynamics and financial performance in diverse regional contexts, with implications for policymakers and industry stakeholders.Practical implicationsOur findings underscore the need for nuanced policy responses and risk management strategies tailored to the unique challenges posed by geopolitical dynamics in emerging markets. Furthermore, they highlight the importance of continued research efforts to deepen our understanding of these complex interactions and inform more effective decision-making in the financial sector.Originality/valueAmidst growing recognition of the importance of geopolitical risks in financial markets, empirical studies exploring their precise impact on bank performance remain scarce. This study fills this gap by offering a pioneering investigation into the influence of geopolitical risks on bank profitability and solvency, using advanced econometric techniques and a substantial, diverse sample of banks in emerging economies across the Middle East and Africa.","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":"77 15","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141359637","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-05-21DOI: 10.1108/jrf-09-2023-0226
Dengjun Zhang, N. Wellalage, Viviana Fernandez
PurposeThis study investigates the impact of temporary employment on various forms of financial distress for firms during the COVID-19 pandemic.Design/methodology/approachThe authors apply a logit model to evaluate the differences in the probabilities of experiencing financial distress for firms with or without temporary reemployment and for firms with different intensities of temporary workers. As an additional test, an ordinal logistic model is applied to reflect different degrees of financial distress.FindingsOur main results indicate that firms with temporary employment are more likely to experience financial distress than firms without temporary employment, regardless of the severity of financial distress. Among firms with temporary employment, our analysis suggests that a firm’s likelihood of experiencing financial distress depends on its relative share (quantile) of temporary workers.Practical implicationsOur findings provide valuable insights for evaluating the impact of temporary employment on firms’ vulnerability during the COVID-19 crisis and suggest strategies for firms to enhance resilience to similar future crises.Originality/valueOur study is the first one that explores the relationship between temporary employment and financial distress. Firms around the world have been pursuing flexible labor to improve resilience and firm performance. The pandemic may further ramify this trend, creating a future “new normal” regarding employment relationships, job segmentation and gender equality in the job market. This article adds a new dimension to the evaluation of the new normal, which may help firms evaluate the consequences of temporary employment, especially in times of crisis.
{"title":"Temporary employment and financial distress in times of crisis","authors":"Dengjun Zhang, N. Wellalage, Viviana Fernandez","doi":"10.1108/jrf-09-2023-0226","DOIUrl":"https://doi.org/10.1108/jrf-09-2023-0226","url":null,"abstract":"PurposeThis study investigates the impact of temporary employment on various forms of financial distress for firms during the COVID-19 pandemic.Design/methodology/approachThe authors apply a logit model to evaluate the differences in the probabilities of experiencing financial distress for firms with or without temporary reemployment and for firms with different intensities of temporary workers. As an additional test, an ordinal logistic model is applied to reflect different degrees of financial distress.FindingsOur main results indicate that firms with temporary employment are more likely to experience financial distress than firms without temporary employment, regardless of the severity of financial distress. Among firms with temporary employment, our analysis suggests that a firm’s likelihood of experiencing financial distress depends on its relative share (quantile) of temporary workers.Practical implicationsOur findings provide valuable insights for evaluating the impact of temporary employment on firms’ vulnerability during the COVID-19 crisis and suggest strategies for firms to enhance resilience to similar future crises.Originality/valueOur study is the first one that explores the relationship between temporary employment and financial distress. Firms around the world have been pursuing flexible labor to improve resilience and firm performance. The pandemic may further ramify this trend, creating a future “new normal” regarding employment relationships, job segmentation and gender equality in the job market. This article adds a new dimension to the evaluation of the new normal, which may help firms evaluate the consequences of temporary employment, especially in times of crisis.","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":"46 5","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141113783","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-24DOI: 10.1108/jrf-09-2023-0222
Arushi Jain
PurposeThis study empirically demonstrates a contradiction between pillar 3 of Basel norms III and the designation of Systemically Important Banks (SIBs), also known as Too Big to Fail (TBTF). The objective of this study is threefold, which has been approached in a phased manner. The first is to determine the systemic importance of the banks under study; second, to examine if market discipline exists at different levels of systemic importance of banks and lastly, to examine if the strength of market discipline varies at different levels of systemic importance.Design/methodology/approachThis study is based on all the public and private sector banks operating in the Indian banking sector. The Gaussian Mixture Model algorithm has been utilized to classify banks into distinct levels of systemic importance. Thereafter, market discipline has been observed by analyzing depositors' sentiments toward banks' risk (CAMEL indicators). The analysis has been performed by employing the system Generalized Method of Moments (GMM) to estimate models with different dependent variables.FindingsThe findings affirm the existence of market discipline across all levels of systemic importance. However, the strength of market discipline varies with the systemic importance of the banks, with weak market discipline being a negative externality of the SIBs designation.Originality/valueBy employing the Gaussian Mixture Model algorithm to develop a framework for categorizing banks on the basis of their systemic importance, this study is the first to go beyond the conventional method as outlined by the Reserve Bank of India (RBI).
{"title":"Does the Too-Big-To-Fail status affect depositor’s discipline: a Gaussian mixture model algorithm approach","authors":"Arushi Jain","doi":"10.1108/jrf-09-2023-0222","DOIUrl":"https://doi.org/10.1108/jrf-09-2023-0222","url":null,"abstract":"PurposeThis study empirically demonstrates a contradiction between pillar 3 of Basel norms III and the designation of Systemically Important Banks (SIBs), also known as Too Big to Fail (TBTF). The objective of this study is threefold, which has been approached in a phased manner. The first is to determine the systemic importance of the banks under study; second, to examine if market discipline exists at different levels of systemic importance of banks and lastly, to examine if the strength of market discipline varies at different levels of systemic importance.Design/methodology/approachThis study is based on all the public and private sector banks operating in the Indian banking sector. The Gaussian Mixture Model algorithm has been utilized to classify banks into distinct levels of systemic importance. Thereafter, market discipline has been observed by analyzing depositors' sentiments toward banks' risk (CAMEL indicators). The analysis has been performed by employing the system Generalized Method of Moments (GMM) to estimate models with different dependent variables.FindingsThe findings affirm the existence of market discipline across all levels of systemic importance. However, the strength of market discipline varies with the systemic importance of the banks, with weak market discipline being a negative externality of the SIBs designation.Originality/valueBy employing the Gaussian Mixture Model algorithm to develop a framework for categorizing banks on the basis of their systemic importance, this study is the first to go beyond the conventional method as outlined by the Reserve Bank of India (RBI).","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":"43 2","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140664322","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-24DOI: 10.1108/jrf-11-2023-0273
Isabella Lucut Capras, M. Achim, Eugenia Ramona Mara
PurposeCompanies avoid taxes in a variety of ways and use different methods to do that, one of the most common being earnings management. The purpose of this paper is to investigate whether companies manipulate their financial data in order to reduce taxes paid.Design/methodology/approachWe considered a sample of 63 listed Romanian companies for the period 2016–2021. The Beneish model was used for estimating earnings management, and the effective tax rate was used to measure tax avoidance. The analysis was carried out using regression analysis in Stata13 software.FindingsThe findings of the research indicate a negative and statistically significant association between effective tax rate and earnings management, implying that one of the main reasons why companies manipulate their earnings to reduce tax burden and avoid taxes. Moreover, our results show that return on assets (ROA) has a statistically significant negative influence on the effective tax rate. Furthermore, our analysis reveals that firm size, growth, and Big4 audit have no effect on effective tax rate.Research limitations/implicationsBecause it analyzes concrete cases using financial data and provides some recommendations for addressing the issue of tax avoidance, this work is useful in advancing both quantitative and qualitative research on this topic. This research is relevant for businesses, governments, regulators, audit professionals and investors.Originality/valueThe study, by analyzing concrete cases using reported financial data, contributes in filling the gap within the literature that results from a lack of scientific research on the relationship between tax avoidance and earnings management, and then it clarifies the nature of the causal connection between them. Moreover, it considers a combination of firm related variables including performance, size and also audit quality.
{"title":"Is tax avoidance one of the purposes of financial data manipulation? The case of Romania","authors":"Isabella Lucut Capras, M. Achim, Eugenia Ramona Mara","doi":"10.1108/jrf-11-2023-0273","DOIUrl":"https://doi.org/10.1108/jrf-11-2023-0273","url":null,"abstract":"PurposeCompanies avoid taxes in a variety of ways and use different methods to do that, one of the most common being earnings management. The purpose of this paper is to investigate whether companies manipulate their financial data in order to reduce taxes paid.Design/methodology/approachWe considered a sample of 63 listed Romanian companies for the period 2016–2021. The Beneish model was used for estimating earnings management, and the effective tax rate was used to measure tax avoidance. The analysis was carried out using regression analysis in Stata13 software.FindingsThe findings of the research indicate a negative and statistically significant association between effective tax rate and earnings management, implying that one of the main reasons why companies manipulate their earnings to reduce tax burden and avoid taxes. Moreover, our results show that return on assets (ROA) has a statistically significant negative influence on the effective tax rate. Furthermore, our analysis reveals that firm size, growth, and Big4 audit have no effect on effective tax rate.Research limitations/implicationsBecause it analyzes concrete cases using financial data and provides some recommendations for addressing the issue of tax avoidance, this work is useful in advancing both quantitative and qualitative research on this topic. This research is relevant for businesses, governments, regulators, audit professionals and investors.Originality/valueThe study, by analyzing concrete cases using reported financial data, contributes in filling the gap within the literature that results from a lack of scientific research on the relationship between tax avoidance and earnings management, and then it clarifies the nature of the causal connection between them. Moreover, it considers a combination of firm related variables including performance, size and also audit quality.","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140660631","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-19DOI: 10.1108/jrf-03-2023-0061
Faisal Abbas, Shoaib Ali, M. Suleman
PurposeThis study examined how economic freedom and its related components, such as open markets, regulatory efficiency, rule of law and the size of government, affect bank risk behavior, focusing on the Japanese context.Design/methodology/approachThe study employs a two-step GMM framework on the annual data of Japanese banks ranging from 2005 to 2020 to empirically test the hypotheses. Furthermore, we also use the ordinary least square method to ensure the robustness of our mainline findings.FindingsThe finding suggests that economic freedom increases the banks' risk-taking, thus making them fragile. The results also highlight that out of the four main subcomponents of economic freedom, regulatory efficiency and government size increase bank risk-taking, while the rule of law and open markets decrease banks' risk-taking. Additionally, we examine how the banks' specific characteristics affect the results by creating a subsample based on capitalization and liquidity ratios. Overall, the results are consistent with the baseline findings. Moreover, the results are robust to alternative proxy measures of risk.Practical implicationsThe study's findings have several implications for regulators and policymakers. The results suggest that regulators and policymakers should reconsider their strategies for economic freedom to ensure that they promote stability in the banking system and reduce banks' risk-taking inclinations.Originality/valueAlthough previous studies have examined the impact of economic freedom on bank stability and risk-taking, this study is the first to do so in the Japanese context, contributing to the literature by providing new insights and empirical evidence.
{"title":"Economic freedom and banks' risk-taking in Japan: a tale of two sides","authors":"Faisal Abbas, Shoaib Ali, M. Suleman","doi":"10.1108/jrf-03-2023-0061","DOIUrl":"https://doi.org/10.1108/jrf-03-2023-0061","url":null,"abstract":"PurposeThis study examined how economic freedom and its related components, such as open markets, regulatory efficiency, rule of law and the size of government, affect bank risk behavior, focusing on the Japanese context.Design/methodology/approachThe study employs a two-step GMM framework on the annual data of Japanese banks ranging from 2005 to 2020 to empirically test the hypotheses. Furthermore, we also use the ordinary least square method to ensure the robustness of our mainline findings.FindingsThe finding suggests that economic freedom increases the banks' risk-taking, thus making them fragile. The results also highlight that out of the four main subcomponents of economic freedom, regulatory efficiency and government size increase bank risk-taking, while the rule of law and open markets decrease banks' risk-taking. Additionally, we examine how the banks' specific characteristics affect the results by creating a subsample based on capitalization and liquidity ratios. Overall, the results are consistent with the baseline findings. Moreover, the results are robust to alternative proxy measures of risk.Practical implicationsThe study's findings have several implications for regulators and policymakers. The results suggest that regulators and policymakers should reconsider their strategies for economic freedom to ensure that they promote stability in the banking system and reduce banks' risk-taking inclinations.Originality/valueAlthough previous studies have examined the impact of economic freedom on bank stability and risk-taking, this study is the first to do so in the Japanese context, contributing to the literature by providing new insights and empirical evidence.","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":" 3","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-04-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140685675","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-15DOI: 10.1108/jrf-03-2023-0075
Sarah Herwald, Simone Voigt, André Uhde
PurposeAcademic research has intensively analyzed the relationship between market concentration or market power and banking stability but provides ambiguous results, which are summarized under the concentration-stability/fragility view. We provide empirical evidence that the mixed results are due to the difficulty of identifying reliable variables to measure concentration and market power.Design/methodology/approachUsing data from 3,943 banks operating in the European Union (EU)-15 between 2013 and 2020, we employ linear regression models on panel data. Banking market concentration is measured by the Herfindahl–Hirschman Index (HHI), and market power is estimated by the product-specific Lerner Indices for the loan and deposit market, respectively.FindingsOur analysis reveals a significantly stability-decreasing impact of market concentration (HHI) and a significantly stability-increasing effect of market power (Lerner Indices). In addition, we provide evidence for a weak (or even absent) empirical relationship between the (non)structural measures, challenging the validity of the structure-conduct-performance (SCP) paradigm. Our baseline findings remain robust, especially when controlling for a likely reverse causality.Originality/valueOur results suggest that the HHI may reflect other factors beyond market power that influence banking stability. Thus, banking supervisors and competition authorities should investigate market concentration and market power simultaneously while considering their joint impact on banking stability.
{"title":"The impact of market concentration and market power on banking stability – evidence from Europe","authors":"Sarah Herwald, Simone Voigt, André Uhde","doi":"10.1108/jrf-03-2023-0075","DOIUrl":"https://doi.org/10.1108/jrf-03-2023-0075","url":null,"abstract":"PurposeAcademic research has intensively analyzed the relationship between market concentration or market power and banking stability but provides ambiguous results, which are summarized under the concentration-stability/fragility view. We provide empirical evidence that the mixed results are due to the difficulty of identifying reliable variables to measure concentration and market power.Design/methodology/approachUsing data from 3,943 banks operating in the European Union (EU)-15 between 2013 and 2020, we employ linear regression models on panel data. Banking market concentration is measured by the Herfindahl–Hirschman Index (HHI), and market power is estimated by the product-specific Lerner Indices for the loan and deposit market, respectively.FindingsOur analysis reveals a significantly stability-decreasing impact of market concentration (HHI) and a significantly stability-increasing effect of market power (Lerner Indices). In addition, we provide evidence for a weak (or even absent) empirical relationship between the (non)structural measures, challenging the validity of the structure-conduct-performance (SCP) paradigm. Our baseline findings remain robust, especially when controlling for a likely reverse causality.Originality/valueOur results suggest that the HHI may reflect other factors beyond market power that influence banking stability. Thus, banking supervisors and competition authorities should investigate market concentration and market power simultaneously while considering their joint impact on banking stability.","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":"85 9","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140702797","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-03-26DOI: 10.1108/jrf-09-2023-0217
Hicham Sbai, I. Kahloul, Jocelyn Grira
PurposeThis paper aims to examine the determinants of the dividend distribution policy in a banking setting.Design/methodology/approachUsing a sample of 48 Islamic banks and 94 conventional banks from 15 Islamic countries over a period spanning from 2012 to 2019, we document the effect of board gender diversity, executive director profile and governance mechanisms on dividend payment decisions. We also analyze the moderating effect of Islamic banks on the relationship between gender diversity and dividend policy.FindingsWe find new evidence on the role of women directors in determining dividend distribution policy and confirm the risk aversion hypothesis, hence contributing to the ongoing debate on gender diversity literature. Our results show that the moderating role of Islamic banks is effective only for small banks.Practical implicationsOur findings have practical implications for shareholders, managers and financial analysts as they suggest rationalizing dividend distribution strategies.Originality/valueOur study contributes to the growing body of knowledge on dividend policy, gender diversity and Islamic banks.
{"title":"How do gender diversity and CEO profile impact dividend policy in banking? Evidence from Islamic and conventional banks","authors":"Hicham Sbai, I. Kahloul, Jocelyn Grira","doi":"10.1108/jrf-09-2023-0217","DOIUrl":"https://doi.org/10.1108/jrf-09-2023-0217","url":null,"abstract":"PurposeThis paper aims to examine the determinants of the dividend distribution policy in a banking setting.Design/methodology/approachUsing a sample of 48 Islamic banks and 94 conventional banks from 15 Islamic countries over a period spanning from 2012 to 2019, we document the effect of board gender diversity, executive director profile and governance mechanisms on dividend payment decisions. We also analyze the moderating effect of Islamic banks on the relationship between gender diversity and dividend policy.FindingsWe find new evidence on the role of women directors in determining dividend distribution policy and confirm the risk aversion hypothesis, hence contributing to the ongoing debate on gender diversity literature. Our results show that the moderating role of Islamic banks is effective only for small banks.Practical implicationsOur findings have practical implications for shareholders, managers and financial analysts as they suggest rationalizing dividend distribution strategies.Originality/valueOur study contributes to the growing body of knowledge on dividend policy, gender diversity and Islamic banks.","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":" 42","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-03-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140209911","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-03-22DOI: 10.1108/jrf-07-2023-0157
Amira Said, Chokri Ouerfelli
PurposeThis paper aims to examine the dynamic conditional correlation (DCC) and hedging ratios between Dow Jones markets and oil, gold and bitcoin. Using daily data, including the COVID-19 pandemic and the Russia–Ukraine war. We employ the DCC-generalized autoregressive conditional heteroskedasticity (GARCH) and asymmetric DCC (ADCC)-GARCH models.Design/methodology/approachDCC-GARCH and ADCC-GARCH models.FindingsThe most of DCCs among market pairs are positive during COVID-19 period, implying the existence of volatility spillovers (Contagion-effects). This implies the lack of additional economic gains of diversification. So, COVID-19 represents a systematic risk that resists diversification. However, during the Russia–Ukraine war the DCCs are negative for most pairs that include Oil and Gold, implying investors may benefit from portfolio-diversification. Our hedging analysis carries significant implications for investors seeking higher returns while hedging their Dow Jones portfolios: keeping their portfolios unhedged is better than hedging them. This is because Islamic stocks have the ability to mitigate risks.Originality/valueOur paper may make a valuable contribution to the existing literature by examining the hedging of financial assets, including both conventional and Islamic assets, during periods of stability and crisis, such as the COVID-19 pandemic and the Russia–Ukraine war.
{"title":"Downside risk in Dow Jones equity markets: hedging and portfolio management during COVID-19 pandemic and the Russia–Ukraine war","authors":"Amira Said, Chokri Ouerfelli","doi":"10.1108/jrf-07-2023-0157","DOIUrl":"https://doi.org/10.1108/jrf-07-2023-0157","url":null,"abstract":"PurposeThis paper aims to examine the dynamic conditional correlation (DCC) and hedging ratios between Dow Jones markets and oil, gold and bitcoin. Using daily data, including the COVID-19 pandemic and the Russia–Ukraine war. We employ the DCC-generalized autoregressive conditional heteroskedasticity (GARCH) and asymmetric DCC (ADCC)-GARCH models.Design/methodology/approachDCC-GARCH and ADCC-GARCH models.FindingsThe most of DCCs among market pairs are positive during COVID-19 period, implying the existence of volatility spillovers (Contagion-effects). This implies the lack of additional economic gains of diversification. So, COVID-19 represents a systematic risk that resists diversification. However, during the Russia–Ukraine war the DCCs are negative for most pairs that include Oil and Gold, implying investors may benefit from portfolio-diversification. Our hedging analysis carries significant implications for investors seeking higher returns while hedging their Dow Jones portfolios: keeping their portfolios unhedged is better than hedging them. This is because Islamic stocks have the ability to mitigate risks.Originality/valueOur paper may make a valuable contribution to the existing literature by examining the hedging of financial assets, including both conventional and Islamic assets, during periods of stability and crisis, such as the COVID-19 pandemic and the Russia–Ukraine war.","PeriodicalId":22869,"journal":{"name":"The Journal of Risk Finance","volume":" 11","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140216933","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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