ABSTRACT: We examine whether the mandatory introduction of International Financial Reporting Standards leads to an increase in institutional investor demand for equities. Using a large ownership database covering all types of institutional investors from around the world, we find that institutional holdings increase for mandatory IFRS adopters. Changes in holdings are concentrated around first-time annual reporting events. Second, we document that the positive IFRS effects on institutional holdings are concentrated among investors whose orientation and styles suggest they are most likely to benefit from higher quality financial statements, including active, value, and growth investors. These results are consistent with holdings changes being associated with the financial reporting regime change. Finally, we show that increased institutional holdings are concentrated in countries in which enforcement and reporting incentives are strongest, and where the differences between local GAAP and IFRS are relativel...
{"title":"Mandatory IFRS Adoption and Institutional Investment Decisions","authors":"Annita Florou, P. Pope","doi":"10.2139/ssrn.1362564","DOIUrl":"https://doi.org/10.2139/ssrn.1362564","url":null,"abstract":"ABSTRACT: We examine whether the mandatory introduction of International Financial Reporting Standards leads to an increase in institutional investor demand for equities. Using a large ownership database covering all types of institutional investors from around the world, we find that institutional holdings increase for mandatory IFRS adopters. Changes in holdings are concentrated around first-time annual reporting events. Second, we document that the positive IFRS effects on institutional holdings are concentrated among investors whose orientation and styles suggest they are most likely to benefit from higher quality financial statements, including active, value, and growth investors. These results are consistent with holdings changes being associated with the financial reporting regime change. Finally, we show that increased institutional holdings are concentrated in countries in which enforcement and reporting incentives are strongest, and where the differences between local GAAP and IFRS are relativel...","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":"381 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124751509","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}
Market liquidity is impacted by the presence of financial intermediaries that are informed and active participants in both the equity and the syndicated bank loan markets, specifically informationally advantaged lead arrangers of syndicated bank loans that simultaneously act as equity market makers (dual market makers). Employing a two-stage procedure with instrumental variables, we identify the simultaneous equations model of liquidity and dual market maker decisions. We find that the presence of dual market makers improves the liquidity of the more competitive and transparent equity markets, but widens the spread in the less competitive over-the-counter loan market, particularly for small, informationally opaque firms.
{"title":"The Impact of Joint Participation on Liquidity in Equity and Syndicated Bank Loan Markets","authors":"Linda Allen, Aron Gottesman, Lin Peng","doi":"10.2139/ssrn.890149","DOIUrl":"https://doi.org/10.2139/ssrn.890149","url":null,"abstract":"Market liquidity is impacted by the presence of financial intermediaries that are informed and active participants in both the equity and the syndicated bank loan markets, specifically informationally advantaged lead arrangers of syndicated bank loans that simultaneously act as equity market makers (dual market makers). Employing a two-stage procedure with instrumental variables, we identify the simultaneous equations model of liquidity and dual market maker decisions. We find that the presence of dual market makers improves the liquidity of the more competitive and transparent equity markets, but widens the spread in the less competitive over-the-counter loan market, particularly for small, informationally opaque firms.","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":"62 2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-02-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128015475","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}
Many decision problems exhibit structural properties in the sense that the objective function is a composition of different component functions that can be identified using empirical data. We consider the approximation of such objective functions, subject to general monotonicity constraints on the component functions. Using a constrained B-spline approximation, we provide a data-driven robust optimization method for environments that can be sample-sparse. The method, which simultaneously identifies and solves the decision problem, is illustrated for the problem of optimal debt settlement in the credit-card industry.
{"title":"Monotone Approximation of Decision Problems","authors":"Naveed Chehrazi, Thomas A. Weber","doi":"10.2139/ssrn.1324024","DOIUrl":"https://doi.org/10.2139/ssrn.1324024","url":null,"abstract":"Many decision problems exhibit structural properties in the sense that the objective function is a composition of different component functions that can be identified using empirical data. We consider the approximation of such objective functions, subject to general monotonicity constraints on the component functions. Using a constrained B-spline approximation, we provide a data-driven robust optimization method for environments that can be sample-sparse. The method, which simultaneously identifies and solves the decision problem, is illustrated for the problem of optimal debt settlement in the credit-card industry.","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-04-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126641923","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}
In this study I combine the ownership and diversification literature and show that the agency problem varies across traditional, diversified and non-traditional banks. In a sample of European banks, I find that management ownership has a positive impact on profitability in non-traditional banks, whereas board ownership has a positive impact on profitability in traditional banks. These findings indicate that management ownership is important in opaque banks, which are difficult to monitor, whereas board ownership is important in banks where the government guaranteed safety-net reduces the monitoring incentive of depositors, but which are not too complex or opaque for the board to monitor.
{"title":"The Impact of Management and Board Ownership on Profitability in Banks with Different Strategy","authors":"Hanna Westman","doi":"10.2139/ssrn.1342262","DOIUrl":"https://doi.org/10.2139/ssrn.1342262","url":null,"abstract":"In this study I combine the ownership and diversification literature and show that the agency problem varies across traditional, diversified and non-traditional banks. In a sample of European banks, I find that management ownership has a positive impact on profitability in non-traditional banks, whereas board ownership has a positive impact on profitability in traditional banks. These findings indicate that management ownership is important in opaque banks, which are difficult to monitor, whereas board ownership is important in banks where the government guaranteed safety-net reduces the monitoring incentive of depositors, but which are not too complex or opaque for the board to monitor.","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132638912","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}
This paper uses data from the 1983 Survey of Consumer Finances to test the relationship between the banks’ market power and households’ self-reported levels of credit constraints. The 1983 Survey was the last to identify households’ geographic location, making it useful for this analysis. There is evidence that borrowers, and particularly young borrowers, were less credit-constrained in markets where banks enjoyed more market power. Interest rates on consumer borrowing decreased more sharply with age in competitive markets than in concentrated markets. These results are consistent with the Sharpe (1990) and Petersen-Rajan (1995) models of information acquisition in credit markets.
{"title":"Banking Market Concentration and Consumer Credit Constraints: Evidence from the 1983 Survey of Consumer Finances","authors":"Daniel Bergstresser","doi":"10.2139/ssrn.1291354","DOIUrl":"https://doi.org/10.2139/ssrn.1291354","url":null,"abstract":"This paper uses data from the 1983 Survey of Consumer Finances to test the relationship between the banks’ market power and households’ self-reported levels of credit constraints. The 1983 Survey was the last to identify households’ geographic location, making it useful for this analysis. There is evidence that borrowers, and particularly young borrowers, were less credit-constrained in markets where banks enjoyed more market power. Interest rates on consumer borrowing decreased more sharply with age in competitive markets than in concentrated markets. These results are consistent with the Sharpe (1990) and Petersen-Rajan (1995) models of information acquisition in credit markets.","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":" 21","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"113950620","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}
We show that institutions that promote financial development ease borrowing constraints by lowering the collateral spread and shifting the composition of acceptable collateral towards firm‐specific assets. Collateral spread is defined as the difference in collateralization rates between high‐ and low‐risk borrowers. The average collateral spread is large but declines rapidly with improvements in financial development driven by stronger institutions. We also show that the composition of collateralizable assets shifts towards non‐specific assets (e.g., land) with borrower risk. However, the shift is considerably smaller in developed financial markets, enabling risky borrowers to use a larger variety of assets as collateral.
{"title":"Collateral Spread and Financial Development","authors":"J. Liberti, Atif R. Mian","doi":"10.2139/ssrn.1117738","DOIUrl":"https://doi.org/10.2139/ssrn.1117738","url":null,"abstract":"We show that institutions that promote financial development ease borrowing constraints by lowering the collateral spread and shifting the composition of acceptable collateral towards firm‐specific assets. Collateral spread is defined as the difference in collateralization rates between high‐ and low‐risk borrowers. The average collateral spread is large but declines rapidly with improvements in financial development driven by stronger institutions. We also show that the composition of collateralizable assets shifts towards non‐specific assets (e.g., land) with borrower risk. However, the shift is considerably smaller in developed financial markets, enabling risky borrowers to use a larger variety of assets as collateral.","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130495860","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}
This paper puts forward a theory of the lender of last resort policy offered by central banks. We model a two-period OLG economy with standard preferences and a single consumption good. Our economy faces an aggregate endowment risk. The lender of last resort policy can be thought of as a line of credit whose credit facility can be exercised only when the aggregate endowment risk facing our economy has realized. We assume the existence of a private insurance market offering our economy a full and fair insurance. A fundamental feature of private insurance contracts is that insurance premiums are payable at the beginning of every period and in all the states of the world. The option to exercise the central bank line of credit will induce a young with a high rate of time preference not to pay fully insuring premium. This will imply that the young will borrow from the central bank in the event of a realization of the endowment loss and repay the debt in addition to paying a higher insurance premium when they are old. Thus our model rationalizes the existence of central banks’ lender of last resort policy and provides an explanation for endogenously incomplete insurance markets.
{"title":"Aggregate Risk, Time Preference and the Lender of Last Resort Policy","authors":"Shubhasis Dey","doi":"10.2139/ssrn.889726","DOIUrl":"https://doi.org/10.2139/ssrn.889726","url":null,"abstract":"This paper puts forward a theory of the lender of last resort policy offered by central banks. We model a two-period OLG economy with standard preferences and a single consumption good. Our economy faces an aggregate endowment risk. The lender of last resort policy can be thought of as a line of credit whose credit facility can be exercised only when the aggregate endowment risk facing our economy has realized. We assume the existence of a private insurance market offering our economy a full and fair insurance. A fundamental feature of private insurance contracts is that insurance premiums are payable at the beginning of every period and in all the states of the world. The option to exercise the central bank line of credit will induce a young with a high rate of time preference not to pay fully insuring premium. This will imply that the young will borrow from the central bank in the event of a realization of the endowment loss and repay the debt in addition to paying a higher insurance premium when they are old. Thus our model rationalizes the existence of central banks’ lender of last resort policy and provides an explanation for endogenously incomplete insurance markets.","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-12-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132404807","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}
This paper investigates whether geographic diversification is value-enhancing or value-destroying in the financial services sector, broadly defined. Our dataset comprises approximately 3579 observations over the period from 1985 to 2004 and covers the entire range of U.S. financial intermediaries — commercial banks, investment banks, insurance companies, asset managers, and financial infrastructure services firms. We use two alternative measures of geographic diversification: (1) a dummy variable whether the firm reports more than one geographic segment and (2) the percentage of sales from non-domestic operations. Our results indicate that geographic diversification is not associated with a significant valuation discount in financial intermediaries. However, when accounting for the firms' main activity-areas, we find evidence of a significant discount associated with geographic diversification in securities firms and a premium in credit intermediaries and insurance companies. All these results are robust after taking into account functional diversification of the firms, a potential endogeneity of both functional and geographic diversification, and a potential value transfer from equity to debt holders by using estimates of the market value of debt.
{"title":"Geographic Diversification and Firm Value in the Financial Services Industry","authors":"Markus Schmid, I. Walter","doi":"10.2139/ssrn.1256642","DOIUrl":"https://doi.org/10.2139/ssrn.1256642","url":null,"abstract":"This paper investigates whether geographic diversification is value-enhancing or value-destroying in the financial services sector, broadly defined. Our dataset comprises approximately 3579 observations over the period from 1985 to 2004 and covers the entire range of U.S. financial intermediaries — commercial banks, investment banks, insurance companies, asset managers, and financial infrastructure services firms. We use two alternative measures of geographic diversification: (1) a dummy variable whether the firm reports more than one geographic segment and (2) the percentage of sales from non-domestic operations. Our results indicate that geographic diversification is not associated with a significant valuation discount in financial intermediaries. However, when accounting for the firms' main activity-areas, we find evidence of a significant discount associated with geographic diversification in securities firms and a premium in credit intermediaries and insurance companies. All these results are robust after taking into account functional diversification of the firms, a potential endogeneity of both functional and geographic diversification, and a potential value transfer from equity to debt holders by using estimates of the market value of debt.","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-10-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129029543","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}
The following article examines a stochastic, log-normal model for the continuously compounding yield-to-maturity and a corresponding price model for default-free zero coupon bonds. This article sets conditions for the validity of the model and goes on to show that this model is a special case of the Heath, Jarrow and Morton (HJM) model for forward interest rates, and it examines the conditions for the equivalence. We show that given these conditions, the HJM model and the continuously compounding yield-to-maturity model have the same market price of risk and thus, must satisfy identical conditions for the existence and uniqueness of a risk-neutral measure.
下面的文章研究了连续复利到期收益率的随机对数正态模型和无违约零息债券的相应价格模型。本文设定了模型的有效性条件，并进一步证明了该模型是远期利率的Heath, Jarrow and Morton (HJM)模型的特例，并检验了模型的等价条件。在这些条件下，我们证明了HJM模型与连续复利到期收益率模型具有相同的市场风险价格，因此，风险中性测度的存在性和唯一性必须满足相同的条件。
{"title":"A Stochastic Model for Default-Free Bond Prices and Continuously Compounding Yield-to-Maturity","authors":"Partho Sarathi Bhowmick","doi":"10.2139/ssrn.1485925","DOIUrl":"https://doi.org/10.2139/ssrn.1485925","url":null,"abstract":"The following article examines a stochastic, log-normal model for the continuously compounding yield-to-maturity and a corresponding price model for default-free zero coupon bonds. This article sets conditions for the validity of the model and goes on to show that this model is a special case of the Heath, Jarrow and Morton (HJM) model for forward interest rates, and it examines the conditions for the equivalence. We show that given these conditions, the HJM model and the continuously compounding yield-to-maturity model have the same market price of risk and thus, must satisfy identical conditions for the existence and uniqueness of a risk-neutral measure.","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128426948","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}
There are significant effects of changing demographics on economic indicators: growth in GDP especially, but also the current account balance and gross capital formation. The 15-24 age group appears to be one of the key age groups in these effects, with increases in that age group exerting strong positive effects on GDP growth, and negative effects on the CAB and GCF. There have been major shifts in the share of the population aged 15-24 during the past half century or more, many of which correspond closely to periods of institutional turmoil. The hypothesis presented in this paper is that increases in the share of the 15-24 age group lead producers to ratchet up their production expectations and take out loans to expand production capacity; but then reductions in that share – or even declining rates of increase – confound these expectations and precipitate a downward spiral of missed loan payments and even defaults and bankruptcies, putting pressure on central banks and causing foreign investors to withdraw funds and speculators to unload the local currency. This appears to have been the pattern not only during the 1996-98 crisis with the Asian Tigers, but also during the "Tequila" crisis of the early 1990s, the crises that occurred in the early 1980s among developed as well as developing nations, and the economic problems Japan has experienced since about 1990. The effect appears to be even more pronounced for the current 2008-2009 period.
{"title":"The Role of Demographics in Precipitating Crises in Financial Institutions","authors":"D. Macunovich","doi":"10.2139/ssrn.1489259","DOIUrl":"https://doi.org/10.2139/ssrn.1489259","url":null,"abstract":"There are significant effects of changing demographics on economic indicators: growth in GDP especially, but also the current account balance and gross capital formation. The 15-24 age group appears to be one of the key age groups in these effects, with increases in that age group exerting strong positive effects on GDP growth, and negative effects on the CAB and GCF. There have been major shifts in the share of the population aged 15-24 during the past half century or more, many of which correspond closely to periods of institutional turmoil. The hypothesis presented in this paper is that increases in the share of the 15-24 age group lead producers to ratchet up their production expectations and take out loans to expand production capacity; but then reductions in that share – or even declining rates of increase – confound these expectations and precipitate a downward spiral of missed loan payments and even defaults and bankruptcies, putting pressure on central banks and causing foreign investors to withdraw funds and speculators to unload the local currency. This appears to have been the pattern not only during the 1996-98 crisis with the Asian Tigers, but also during the \"Tequila\" crisis of the early 1990s, the crises that occurred in the early 1980s among developed as well as developing nations, and the economic problems Japan has experienced since about 1990. The effect appears to be even more pronounced for the current 2008-2009 period.","PeriodicalId":315176,"journal":{"name":"Banking & Insurance","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134096801","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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