Pub Date : 2021-03-01DOI: 10.1142/S0219091521500090
Peter T. Chinloy, Matthew Imes, Tilan Tang
Firms with higher book equity relative to market capitalization earn a premium, leading to sorting into value and growth. This sorting implies that any balance sheet additions are risky. This paper provides evidence that what a firm holds on its balance sheet matters, and value occurs with high book-to-market ratios. Each holding relative to firm market capitalization has a risk premium, varying across holdings. Among US firms quarterly for 1980–2016, doubling holdings of cash and receivables relative to market capitalization earn premiums of at least 1%, as does taking on debt. These account for the entire value premium, since physicals, intangibles and payables are not risky. The value premium derives from the composition of the firm’s assets.
{"title":"Where to Find Value on the Balance Sheet","authors":"Peter T. Chinloy, Matthew Imes, Tilan Tang","doi":"10.1142/S0219091521500090","DOIUrl":"https://doi.org/10.1142/S0219091521500090","url":null,"abstract":"Firms with higher book equity relative to market capitalization earn a premium, leading to sorting into value and growth. This sorting implies that any balance sheet additions are risky. This paper provides evidence that what a firm holds on its balance sheet matters, and value occurs with high book-to-market ratios. Each holding relative to firm market capitalization has a risk premium, varying across holdings. Among US firms quarterly for 1980–2016, doubling holdings of cash and receivables relative to market capitalization earn premiums of at least 1%, as does taking on debt. These account for the entire value premium, since physicals, intangibles and payables are not risky. The value premium derives from the composition of the firm’s assets.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"24 1","pages":"2150009"},"PeriodicalIF":0.9,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44099277","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 : 2021-03-01DOI: 10.1142/S0219091521500028
Jifeng Cao, Yiwen Cui
This paper examines the impact of trade credit on the speed of capital structure adjustment toward target leverage using an integrated dynamic partial adjustment model. Trade credit is an important substitute for debt financing and gives firms a low-cost means of adjusting leverage toward the target capital structure in China. We measure trade credit by accounts payable. Using the public listed company data from 1998 to 2016, we find that trade credit accelerates capital structure adjustment. The asymmetric impacts on the capital structure adjustment speed in different situations are also evidenced. The positive impact of trade credit on the speed of capital structure adjustment is more pronounced for over-levered firms. The trade credit also accelerates the speed of capital structure adjustment more quickly for high market share firms. Our results imply that firms use trade credit to save cash flow and restore the leverage level to the target capital structure in China.
{"title":"Trade Credit and Capital Structure Adjustment Speed: Evidence From Chinese Listed Firms","authors":"Jifeng Cao, Yiwen Cui","doi":"10.1142/S0219091521500028","DOIUrl":"https://doi.org/10.1142/S0219091521500028","url":null,"abstract":"This paper examines the impact of trade credit on the speed of capital structure adjustment toward target leverage using an integrated dynamic partial adjustment model. Trade credit is an important substitute for debt financing and gives firms a low-cost means of adjusting leverage toward the target capital structure in China. We measure trade credit by accounts payable. Using the public listed company data from 1998 to 2016, we find that trade credit accelerates capital structure adjustment. The asymmetric impacts on the capital structure adjustment speed in different situations are also evidenced. The positive impact of trade credit on the speed of capital structure adjustment is more pronounced for over-levered firms. The trade credit also accelerates the speed of capital structure adjustment more quickly for high market share firms. Our results imply that firms use trade credit to save cash flow and restore the leverage level to the target capital structure in China.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"24 1","pages":"2150002"},"PeriodicalIF":0.9,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48090060","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 : 2021-03-01DOI: 10.1142/S0219091521500065
L. Liu, Fuming Jiang, Jizhong Li, O. Farooque
While the fund performance management literature has clearly documented that the fund size, fund family size, and net cash flow are important antecedents of equity fund performance, prior empirical studies have revealed mixed results that have not been adequately explained. Through the lens of the contingency perspective, we developed a conceptual model that examines how the expense ratio and management compensation as contextual factors interact with the fund size, fund family size, and net cash flow to affect equity fund performance. The empirical analyses were based on panel data including 690 equity funds in China over a 7-year period from 2009 to 2015. The results show that the expense ratio and management compensation moderate the effects of the fund family size and net cash flow on fund performance, and management compensation also moderates the relationship between the fund size and fund performance.
{"title":"Antecedents of Equity Fund Performance: A Contingency Perspective","authors":"L. Liu, Fuming Jiang, Jizhong Li, O. Farooque","doi":"10.1142/S0219091521500065","DOIUrl":"https://doi.org/10.1142/S0219091521500065","url":null,"abstract":"While the fund performance management literature has clearly documented that the fund size, fund family size, and net cash flow are important antecedents of equity fund performance, prior empirical studies have revealed mixed results that have not been adequately explained. Through the lens of the contingency perspective, we developed a conceptual model that examines how the expense ratio and management compensation as contextual factors interact with the fund size, fund family size, and net cash flow to affect equity fund performance. The empirical analyses were based on panel data including 690 equity funds in China over a 7-year period from 2009 to 2015. The results show that the expense ratio and management compensation moderate the effects of the fund family size and net cash flow on fund performance, and management compensation also moderates the relationship between the fund size and fund performance.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43320340","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 : 2021-03-01DOI: 10.1142/S0219091521500053
K. Lee, Cheng-Few Lee, Gillian Yeo
This paper examines the association between CEO compensation and tangible long-lived assets impairment. We find that the level of CEO compensation is negatively associated with the tangible long-lived assets impairment charges. We also document that in firms with CEOs who have more decision-making power, the negative association between CEO compensation and tangible long-lived assets impairment charges is mitigated. Specifically, the negative association between CEO compensation and tangible long-lived assets impairment charges is less pronounced (1) when CEO chairs the board, (2) when CEO is the founder of the firm, (3) when the CEO is involved in the director selection process, and (4) when overall board independence is low.
{"title":"Does CEO Power Affect the Association Between CEO Compensation and Tangible Assets Impairments?","authors":"K. Lee, Cheng-Few Lee, Gillian Yeo","doi":"10.1142/S0219091521500053","DOIUrl":"https://doi.org/10.1142/S0219091521500053","url":null,"abstract":"This paper examines the association between CEO compensation and tangible long-lived assets impairment. We find that the level of CEO compensation is negatively associated with the tangible long-lived assets impairment charges. We also document that in firms with CEOs who have more decision-making power, the negative association between CEO compensation and tangible long-lived assets impairment charges is mitigated. Specifically, the negative association between CEO compensation and tangible long-lived assets impairment charges is less pronounced (1) when CEO chairs the board, (2) when CEO is the founder of the firm, (3) when the CEO is involved in the director selection process, and (4) when overall board independence is low.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"24 1","pages":"2150005"},"PeriodicalIF":0.9,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47086730","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 : 2021-03-01DOI: 10.1142/S0219091521500016
James Butchers, G. S. Bhabra, Harjeet S. Bhabra, Anindya Sen
We examine the value implications of Jensen’s free cash flow hypothesis for a sample of Australian listed companies. Consistent with the US evidence in Masulis, R, C Wang and F Xie (2009). Agency problems at dual-class companies. Journal of Finance, 64(4), 1697–1727, we find that the marginal value of corporate capital expenditures in Australian listed companies is inversely related to the magnitude of agency conflicts arising out of the use of free cash flows. Our results suggest that firms where managers have a greater ability to extract private benefits and are therefore more likely to maximize their own private benefits rather than shareholder wealth will suffer from a lower perceived valuation of their capital investments. Our findings are robust to alternative proxies for relative cash flows and growth opportunities and also hold over multiple sub-periods and industry groupings.
{"title":"Agency Conflicts and the Marginal Value of Capital Expenditure in Australian Listed Companies","authors":"James Butchers, G. S. Bhabra, Harjeet S. Bhabra, Anindya Sen","doi":"10.1142/S0219091521500016","DOIUrl":"https://doi.org/10.1142/S0219091521500016","url":null,"abstract":"We examine the value implications of Jensen’s free cash flow hypothesis for a sample of Australian listed companies. Consistent with the US evidence in Masulis, R, C Wang and F Xie (2009). Agency problems at dual-class companies. Journal of Finance, 64(4), 1697–1727, we find that the marginal value of corporate capital expenditures in Australian listed companies is inversely related to the magnitude of agency conflicts arising out of the use of free cash flows. Our results suggest that firms where managers have a greater ability to extract private benefits and are therefore more likely to maximize their own private benefits rather than shareholder wealth will suffer from a lower perceived valuation of their capital investments. Our findings are robust to alternative proxies for relative cash flows and growth opportunities and also hold over multiple sub-periods and industry groupings.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"24 1","pages":"2150001"},"PeriodicalIF":0.9,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44604237","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 : 2021-03-01DOI: 10.1142/S021909152150003X
Daphne Wang, R. Houmes, T. Ngo, Omar A. Esqueda
The Capital Purchase Program (CPP) was the first and most significant program under the Troubled Asset Relief Program (TARP) during 2008–2009 financial crisis. This study evaluates the effect of the CPP during this period on the cost of equity of 170 publicly listed banks in the United States that received funding. To control for the potential effects of endogeneity on our results, we use a propensity score matched sample of non-CPP banks. Using this approach, we document robust evidence that the liquidity provided by the government bailout reduced the cost of equity for recipient banks, especially for those banks that repaid their bailout funds in full. This decrease in the cost of equity is particularly significant for banks with high market-to-book ratios, low concentrations of institutional ownership, and those banks with at least one large blockholder. Our findings have important implications for the assessment of government bailout programs and the future regulation of financial institutions.
{"title":"Impact of Government Bailout on Banks’ Cost of Equity: Additional Evidence from the Financial Bailout of 2008–2009","authors":"Daphne Wang, R. Houmes, T. Ngo, Omar A. Esqueda","doi":"10.1142/S021909152150003X","DOIUrl":"https://doi.org/10.1142/S021909152150003X","url":null,"abstract":"The Capital Purchase Program (CPP) was the first and most significant program under the Troubled Asset Relief Program (TARP) during 2008–2009 financial crisis. This study evaluates the effect of the CPP during this period on the cost of equity of 170 publicly listed banks in the United States that received funding. To control for the potential effects of endogeneity on our results, we use a propensity score matched sample of non-CPP banks. Using this approach, we document robust evidence that the liquidity provided by the government bailout reduced the cost of equity for recipient banks, especially for those banks that repaid their bailout funds in full. This decrease in the cost of equity is particularly significant for banks with high market-to-book ratios, low concentrations of institutional ownership, and those banks with at least one large blockholder. Our findings have important implications for the assessment of government bailout programs and the future regulation of financial institutions.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"24 1","pages":"2150003"},"PeriodicalIF":0.9,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44984703","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 : 2021-03-01DOI: 10.1142/S0219091521500077
N. Gopal, Ravi Mateti, D. Nguyen, Gopola Vasudevan
We study the effect of change in the organizational structure from a corporation to a real estate investment trust (REIT) on the firm value. Changing the organizational structure from a corporation to a REIT could result in an increase in the firm value, and some companies may be motivated to change their organizational structure because of this. We examine three possible sources of gains in the firm value from such a change in the organizational structure. They are the potential tax savings, reduction in agency costs of managerial discretion, and increase in the price multiples after the conversion. We examine the changes in the firm value of firms that announce conversion to a REIT during 1990–2016. We find that the announcement period returns are positive and strongly significant. Consistent with the tax hypothesis, the announcement period returns are positively related to the effective tax rate of the sample firms. Consistent with the managerial discretion hypothesis, the announcement period returns are positively related to the level of free cash flow of low growth firms. Consistent with the mis-valuation hypothesis, the announcement period returns are higher when REIT valuations are higher relative to the sample firms.
{"title":"Taxes, Mispricing, or the Agency Cost of Managerial Discretion? Evidence from Corporation to REIT Conversions","authors":"N. Gopal, Ravi Mateti, D. Nguyen, Gopola Vasudevan","doi":"10.1142/S0219091521500077","DOIUrl":"https://doi.org/10.1142/S0219091521500077","url":null,"abstract":"We study the effect of change in the organizational structure from a corporation to a real estate investment trust (REIT) on the firm value. Changing the organizational structure from a corporation to a REIT could result in an increase in the firm value, and some companies may be motivated to change their organizational structure because of this. We examine three possible sources of gains in the firm value from such a change in the organizational structure. They are the potential tax savings, reduction in agency costs of managerial discretion, and increase in the price multiples after the conversion. We examine the changes in the firm value of firms that announce conversion to a REIT during 1990–2016. We find that the announcement period returns are positive and strongly significant. Consistent with the tax hypothesis, the announcement period returns are positively related to the effective tax rate of the sample firms. Consistent with the managerial discretion hypothesis, the announcement period returns are positively related to the level of free cash flow of low growth firms. Consistent with the mis-valuation hypothesis, the announcement period returns are higher when REIT valuations are higher relative to the sample firms.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"24 1","pages":"2150007"},"PeriodicalIF":0.9,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49176468","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 : 2021-03-01DOI: 10.1142/S0219091521500041
Ching-Lung Chen, Han Wang, Hung-Shu Fan, Shiu-Chieh Chiu
This study examines whether negative corporate social responsibility events (NCSRs) signal potential firm misreporting and pending financial reporting restatements. Without formal opinions on the effectiveness of internal controls over financial reporting in Taiwan, we hypothesize NCSRs can represent and/or signal a firm’s internal control weakness, which may in turn result in poor financial reporting. Note that the concern with controlling owners expropriating wealth through ineffective internal controls is given important weight by investors and regulators. We further examine whether the signaling function of NCSRs is more pronounced in contexts with a serious agency problem, such as is found in the high divergence of control and cash flow rights case (denoted as high excess control rights) in Taiwan. Empirical results indicate that, as conjectured, incidence of NCSRs is positively associated with the likelihood of reporting restatements. Further evidence reveals that this result is particularly pronounced in the high divergence of control and cash-flow rights subsample test. We demonstrate several diagnostic tests and show the results are robust in various specifications.
{"title":"Do Negative Corporate Social Responsibility Events Signal Financial Misreporting? — Empirical Finding from Taiwan","authors":"Ching-Lung Chen, Han Wang, Hung-Shu Fan, Shiu-Chieh Chiu","doi":"10.1142/S0219091521500041","DOIUrl":"https://doi.org/10.1142/S0219091521500041","url":null,"abstract":"This study examines whether negative corporate social responsibility events (NCSRs) signal potential firm misreporting and pending financial reporting restatements. Without formal opinions on the effectiveness of internal controls over financial reporting in Taiwan, we hypothesize NCSRs can represent and/or signal a firm’s internal control weakness, which may in turn result in poor financial reporting. Note that the concern with controlling owners expropriating wealth through ineffective internal controls is given important weight by investors and regulators. We further examine whether the signaling function of NCSRs is more pronounced in contexts with a serious agency problem, such as is found in the high divergence of control and cash flow rights case (denoted as high excess control rights) in Taiwan. Empirical results indicate that, as conjectured, incidence of NCSRs is positively associated with the likelihood of reporting restatements. Further evidence reveals that this result is particularly pronounced in the high divergence of control and cash-flow rights subsample test. We demonstrate several diagnostic tests and show the results are robust in various specifications.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"24 1","pages":"2150004"},"PeriodicalIF":0.9,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46532096","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 : 2020-11-02DOI: 10.1142/s0219091520500320
M. L. Nurhakim, Z. Kisman, F. Syihab
The Sukuk (shariah bond) market is developing in Indonesia and potentially will capture the global market in the future. It is an attractive investment product and a hot current issue in the capital market. Especially, the problem of predicting an accurate and trustworthy rating. As the Sukuk market developed, the issue of Sukuk rating emerged. As ordinary investors will have difficulty predicting their ratings going forward, this research will provide solutions to the problems above. The objective of this study is to determine the Indonesian Sukuk rating determinants and comparing the Sukuk rating predictive model. This research uses Artificial Neural Network (ANN) and Multinomial Logistic Regression (MLR) as the predictive analysis model. Data in this study are collected by purposive sampling and employing Sukuk rated by PEFINDO, an Indonesian rating agency. Findings in this study are debt, profitability and firm size significantly affecting Sukuk
{"title":"The Validity of Multinomial Logistic Regression and Artificial Neural Network in Predicting Sukuk Rating: Evidence from Indonesian Stock Exchange","authors":"M. L. Nurhakim, Z. Kisman, F. Syihab","doi":"10.1142/s0219091520500320","DOIUrl":"https://doi.org/10.1142/s0219091520500320","url":null,"abstract":"The Sukuk (shariah bond) market is developing in Indonesia and potentially will capture the global market in the future. It is an attractive investment product and a hot current issue in the capital market. Especially, the problem of predicting an accurate and trustworthy rating. As the Sukuk market developed, the issue of Sukuk rating emerged. As ordinary investors will have difficulty predicting their ratings going forward, this research will provide solutions to the problems above. The objective of this study is to determine the Indonesian Sukuk rating determinants and comparing the Sukuk rating predictive model. This research uses Artificial Neural Network (ANN) and Multinomial Logistic Regression (MLR) as the predictive analysis model. Data in this study are collected by purposive sampling and employing Sukuk rated by PEFINDO, an Indonesian rating agency. Findings in this study are debt, profitability and firm size significantly affecting Sukuk","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"1 1","pages":"2050032"},"PeriodicalIF":0.9,"publicationDate":"2020-11-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46717406","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 : 2020-10-29DOI: 10.1142/s0219091520500289
Gregory Mckee, A. Kagan
The Sarbanes–Oxley Act (SOX) of 2002 and the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act (DFA) were passed to address weaknesses in the internal control environment of the firm. Elements of these Acts reduce risky behavior of financial institutions by reducing informational asymmetry with borrowers. An important element of managing earnings quality in financial institutions is the loss provision, an annual expense set aside for uncollected loan and lease payments. These Acts affect the selection of loss provision expense levels in distinct ways. Using a dataset of community bank financial information observed between 1998 and 2017, it is shown that banks experience a complementary effect between SOX and DFA on loss provision expenses. Improved governance procedures to establish policy responses to nonperforming loans result in reduced expenses, whereas reduced information asymmetry tends to enhance a moral hazard effect. These results show that incentives for firm growth, income, capital, and loan specialization under the SOX and DFA regulatory environments complicate the loan risk management process.
{"title":"The Impact of Sarbanes–Oxley and Dodd–Frank Legislation on Loan Loss Provisioning in US Banks","authors":"Gregory Mckee, A. Kagan","doi":"10.1142/s0219091520500289","DOIUrl":"https://doi.org/10.1142/s0219091520500289","url":null,"abstract":"The Sarbanes–Oxley Act (SOX) of 2002 and the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act (DFA) were passed to address weaknesses in the internal control environment of the firm. Elements of these Acts reduce risky behavior of financial institutions by reducing informational asymmetry with borrowers. An important element of managing earnings quality in financial institutions is the loss provision, an annual expense set aside for uncollected loan and lease payments. These Acts affect the selection of loss provision expense levels in distinct ways. Using a dataset of community bank financial information observed between 1998 and 2017, it is shown that banks experience a complementary effect between SOX and DFA on loss provision expenses. Improved governance procedures to establish policy responses to nonperforming loans result in reduced expenses, whereas reduced information asymmetry tends to enhance a moral hazard effect. These results show that incentives for firm growth, income, capital, and loan specialization under the SOX and DFA regulatory environments complicate the loan risk management process.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"1 1","pages":"2050028"},"PeriodicalIF":0.9,"publicationDate":"2020-10-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1142/s0219091520500289","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47021731","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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