Pub Date : 2022-02-25DOI: 10.1142/s0219091522500059
Yam Wing Siu
Formally, Value at risk (VaR) measures the worst expected loss over a given horizon under normal market conditions at a given confidence level. Very often, daily data are used to compute VaR and scale up to the required time horizon with the square root of time adjustment. This gives rise to an important question when we perform VaR estimation: whether the values of VaR (i.e., “loss”) should be interpreted as (1) exactly on [Formula: see text]th day and (2) within i days. This research attempted to answer the above question using actual data of SPX and HSI. It was found that, in determining the proportionality of the values, (i.e., slopes) of VaR versus the holding period, the slopes for within i days are generally greater than those for exactly on [Formula: see text]th day. This has great implications to risk managers as it would be inappropriate to simply scale up the one-day volatility by multiplying the square root of time (or the number of days) ahead to determine the risk over a longer horizon of [Formula: see text] days. The evolution of log return distribution over time using actual data has also been performed empirically. It provides a better understanding than a series of VaR values. However, the number of samples in actual data is limited. There may not be enough data to draw reliable observation after it has been evolved a few times. Numerical simulation can help solve the problem by generating, say, one million log returns. It has been used to provide many insights as to how the distribution evolves over time and reveals an interesting dynamic of minimum cumulative returns. Numerical simulation is time consuming for performing evolution of distribution. The convolution approach provides an efficient way to analyze the evolution of the whole data distribution that encompasses VaR and others. The convolution approach with modified/scaled input distribution has been developed and it matches the results of numerical simulation perfectly for independent data for both exactly on [Formula: see text]th day and within i days. As the autocorrelation of the single index is mostly close to zero, results show that the convolution approach is able to match empirical results to a large extent.
{"title":"Convolution Approach for Value at Risk Estimation","authors":"Yam Wing Siu","doi":"10.1142/s0219091522500059","DOIUrl":"https://doi.org/10.1142/s0219091522500059","url":null,"abstract":"Formally, Value at risk (VaR) measures the worst expected loss over a given horizon under normal market conditions at a given confidence level. Very often, daily data are used to compute VaR and scale up to the required time horizon with the square root of time adjustment. This gives rise to an important question when we perform VaR estimation: whether the values of VaR (i.e., “loss”) should be interpreted as (1) exactly on [Formula: see text]th day and (2) within i days. This research attempted to answer the above question using actual data of SPX and HSI. It was found that, in determining the proportionality of the values, (i.e., slopes) of VaR versus the holding period, the slopes for within i days are generally greater than those for exactly on [Formula: see text]th day. This has great implications to risk managers as it would be inappropriate to simply scale up the one-day volatility by multiplying the square root of time (or the number of days) ahead to determine the risk over a longer horizon of [Formula: see text] days. The evolution of log return distribution over time using actual data has also been performed empirically. It provides a better understanding than a series of VaR values. However, the number of samples in actual data is limited. There may not be enough data to draw reliable observation after it has been evolved a few times. Numerical simulation can help solve the problem by generating, say, one million log returns. It has been used to provide many insights as to how the distribution evolves over time and reveals an interesting dynamic of minimum cumulative returns. Numerical simulation is time consuming for performing evolution of distribution. The convolution approach provides an efficient way to analyze the evolution of the whole data distribution that encompasses VaR and others. The convolution approach with modified/scaled input distribution has been developed and it matches the results of numerical simulation perfectly for independent data for both exactly on [Formula: see text]th day and within i days. As the autocorrelation of the single index is mostly close to zero, results show that the convolution approach is able to match empirical results to a large extent.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2022-02-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48024460","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 : 2022-02-12DOI: 10.1142/s0219091522500011
Sohyung Kim, Cheol Lee, Santanu Mitra
This study examines how firm-initiated clawback provisions in executive compensation contracts affect firms’ investment efficiency. While existing the literature provides evidence on positive aspects of adopting clawback provisions, the potential impact of clawback adoption on firms’ long-term investment efficiency remains unexplored. Using three investment proxies (i.e., capital expenditure, new investment, and total investment), we find that clawback adopters tend to reduce their long-term investments after the clawback provisions are put in place, compared to nonadopters. In particular, we find evidence that the adoption of clawback policies decreases the investment efficiency in the post-adoption period, especially for the firms whose ex ante probability of underinvestment is high. Our additional analyses reveal that observed reduction in the investment efficiency for the firms that are likely to underinvest is more evident for the firms with financial con straints and the firms that adopt risk-taking and performance-based clawback triggers. In contrast, the clawback adopters that are likely to overinvest do not change their investment behavior in the post-adoption period. Overall, our findings suggest that the impleme ntation of clawback provisions may lead to unintended consequences for firms’ long-term investment practices, resulting in a decrease in the investment efficiency.
{"title":"Other Side of Voluntary Clawback Provisions in Executive Compensation Contracts: Evidence from the Investment Efficiency","authors":"Sohyung Kim, Cheol Lee, Santanu Mitra","doi":"10.1142/s0219091522500011","DOIUrl":"https://doi.org/10.1142/s0219091522500011","url":null,"abstract":"This study examines how firm-initiated clawback provisions in executive compensation contracts affect firms’ investment efficiency. While existing the literature provides evidence on positive aspects of adopting clawback provisions, the potential impact of clawback adoption on firms’ long-term investment efficiency remains unexplored. Using three investment proxies (i.e., capital expenditure, new investment, and total investment), we find that clawback adopters tend to reduce their long-term investments after the clawback provisions are put in place, compared to nonadopters. In particular, we find evidence that the adoption of clawback policies decreases the investment efficiency in the post-adoption period, especially for the firms whose ex ante probability of underinvestment is high. Our additional analyses reveal that observed reduction in the investment efficiency for the firms that are likely to underinvest is more evident for the firms with financial con straints and the firms that adopt risk-taking and performance-based clawback triggers. In contrast, the clawback adopters that are likely to overinvest do not change their investment behavior in the post-adoption period. Overall, our findings suggest that the impleme ntation of clawback provisions may lead to unintended consequences for firms’ long-term investment practices, resulting in a decrease in the investment efficiency.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2022-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48666142","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 : 2022-02-07DOI: 10.1142/s0219091522500023
Ha Kieu Oanh, Christopher Gan
This paper examines the effect of corporate tax avoidance on firm value using a sample of Vietnamese nonfinancial listed firms for the period 2007 to 2018. Using fixed effect, ordinary least square and system generalized method of moment estimation, the results show a positive and statistically significant relationship between corporate tax avoidance and firm value. Our result demonstrates the bright side of corporate tax avoidance at the firm level. Further analysis shows that the positive effect of corporate tax avoidance on firm value can be intensified by the effectiveness of the board of directors in monitoring management.
{"title":"Corporate Tax Avoidance: Evidence from Vietnamese Firms","authors":"Ha Kieu Oanh, Christopher Gan","doi":"10.1142/s0219091522500023","DOIUrl":"https://doi.org/10.1142/s0219091522500023","url":null,"abstract":"This paper examines the effect of corporate tax avoidance on firm value using a sample of Vietnamese nonfinancial listed firms for the period 2007 to 2018. Using fixed effect, ordinary least square and system generalized method of moment estimation, the results show a positive and statistically significant relationship between corporate tax avoidance and firm value. Our result demonstrates the bright side of corporate tax avoidance at the firm level. Further analysis shows that the positive effect of corporate tax avoidance on firm value can be intensified by the effectiveness of the board of directors in monitoring management.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":"39 1","pages":""},"PeriodicalIF":0.9,"publicationDate":"2022-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138532040","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 study is among a very few to investigate the impact of international remittances on bank credit and household investment. Using Fiji as a case study and the most recent available data on Household Income and Expenditure Survey together with applying three distinct econometric techniques, we find that remittances significantly increase the likelihood that households receiving remittances obtain income from investing. Remittances also positively influence the value of bank credit, although this effect is statistically weak.
{"title":"Remittances Vis-à-Vis Bank Credit and Investment: Evidence From Fiji","authors":"Jakhongir Kakhkharov, L. Archer, Matia Tuisawau, Akata Taito, Mitieli Cama, Parmendra Sharma","doi":"10.1142/s0219091522500035","DOIUrl":"https://doi.org/10.1142/s0219091522500035","url":null,"abstract":"This study is among a very few to investigate the impact of international remittances on bank credit and household investment. Using Fiji as a case study and the most recent available data on Household Income and Expenditure Survey together with applying three distinct econometric techniques, we find that remittances significantly increase the likelihood that households receiving remittances obtain income from investing. Remittances also positively influence the value of bank credit, although this effect is statistically weak.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2022-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43816934","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 : 2021-11-27DOI: 10.1142/s0219091521500302
Ehud I. Ronn
This paper considers the response of the equity and oil markets to the onset of crisis conditions after February 15, 2020. Based on derivative markets for equities and WTI (West Texas Intermediate) crude-oil futures contracts, implied equity and oil volatilities quantify the depth of the crisis and contrast it with the previous ones. The estimated Black [(1976) Journal of Financial Economics, 3, 167–179] vol skew and Merton [(1976) Journal of Financial Economics, 3, 125–144] option model parameters are able to discern between demand- and supply-side facets. The time when the futures curve is in contango identifies the beginning and, to date, conclusion of the crisis. Using the CAPM, co-movement of oil and equity prices permits computing forecasts of spot oil prices. In considering these events, we recognize the essential role of prices in financial markets: They are conveyors of information, the “Message from Markets,” in which financial theory proves useful, practical and applicable.
本文考虑了2020年2月15日之后股票和石油市场对危机状况的反应。基于股票衍生品市场和WTI（西德克萨斯中质原油）原油期货合约，隐含的股票和石油波动性量化了危机的深度，并将其与之前的危机进行了对比。估计的Black[（1976）Journal of Financial Economics，3167-179]vol偏斜和Merton[（1976年）Journal ofFinancial Economics（3125-144]期权模型参数能够区分需求和供应方面。期货曲线处于期货溢价的时间标志着危机的开始和结束。使用CAPM，石油和股票价格的共同运动允许计算现货石油价格的预测。在考虑这些事件时，我们认识到价格在金融市场中的重要作用：它们是信息的传递者，即“来自市场的信息”，金融理论在其中被证明是有用、实用和适用的。
{"title":"The Oil Futures and Options Markets in 2020: The “Message from Markets”","authors":"Ehud I. Ronn","doi":"10.1142/s0219091521500302","DOIUrl":"https://doi.org/10.1142/s0219091521500302","url":null,"abstract":"This paper considers the response of the equity and oil markets to the onset of crisis conditions after February 15, 2020. Based on derivative markets for equities and WTI (West Texas Intermediate) crude-oil futures contracts, implied equity and oil volatilities quantify the depth of the crisis and contrast it with the previous ones. The estimated Black [(1976) Journal of Financial Economics, 3, 167–179] vol skew and Merton [(1976) Journal of Financial Economics, 3, 125–144] option model parameters are able to discern between demand- and supply-side facets. The time when the futures curve is in contango identifies the beginning and, to date, conclusion of the crisis. Using the CAPM, co-movement of oil and equity prices permits computing forecasts of spot oil prices. In considering these events, we recognize the essential role of prices in financial markets: They are conveyors of information, the “Message from Markets,” in which financial theory proves useful, practical and applicable.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44229078","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 : 2021-11-26DOI: 10.1142/s0219091521810018
Cheng-Few Lee, Woan-lih Liang
The 28th Annual Conference on Pacific Basin Finance, Economics, Accounting, and Management was held at National Chiao Tung University, Taiwan on January 7 and 8, 2021. The first conference was held at Rutgers University in 1993. Since then, the conference has been held in Hong Kong (1994, 1998), Taipei (1995, 1999. 2003, 2006, 2011, 2016, 2019), Bangkok (2000, 2004, 2009), Rutgers (1996, 2001, 2005, 2012, 2018), Singapore (1997, 2002, 2017), Vietnam (2007, 2015), Australia (2008, 2013), China (2010), and Japan (2014). The program co-directors of the conference were Cheng-Few Lee, Rutgers University, USA, and Woan-lih Liang, National Chiao Tung University, Taiwan.
{"title":"Recap of the 28th Annual Conference on Pacific Basin Finance, Economics, Accounting, and Management & the 14th NCTU International Finance Conference","authors":"Cheng-Few Lee, Woan-lih Liang","doi":"10.1142/s0219091521810018","DOIUrl":"https://doi.org/10.1142/s0219091521810018","url":null,"abstract":"The 28th Annual Conference on Pacific Basin Finance, Economics, Accounting, and Management was held at National Chiao Tung University, Taiwan on January 7 and 8, 2021. The first conference was held at Rutgers University in 1993. Since then, the conference has been held in Hong Kong (1994, 1998), Taipei (1995, 1999. 2003, 2006, 2011, 2016, 2019), Bangkok (2000, 2004, 2009), Rutgers (1996, 2001, 2005, 2012, 2018), Singapore (1997, 2002, 2017), Vietnam (2007, 2015), Australia (2008, 2013), China (2010), and Japan (2014). The program co-directors of the conference were Cheng-Few Lee, Rutgers University, USA, and Woan-lih Liang, National Chiao Tung University, Taiwan.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-11-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45598012","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 : 2021-11-23DOI: 10.1142/s0219091521500326
Ray J. Pfeiffer, Karen Teitel, S. Wahab, M. Wahab
Previous research indicates that analysts’ forecasts are superior to time series models as measures of investors’ earnings expectations. Nevertheless, research also documents predictable patterns in analysts’ forecasts and forecast errors. If investors are aware of these patterns, analysts’ forecast revisions measured using the random walk expectation are an incomplete representation of changes in investors’ earnings expectations. Investors can use knowledge of errors and biases in forecasts to improve upon the simple random walk expectation by incorporating conditioning information. Using data from 2005 to 2015, we compare associations between market-adjusted stock returns and alternative specifications of forecast revisions to determine which best represents changes in investors’ earnings expectations. We find forecast revisions measured using a ‘bandwagon expectations’ specification, which includes two prior analysts’ forecast signals and provides the most improvement over random-walk-based revision measures. Our findings demonstrate benefits to considering information beyond the previously issued analyst forecast when representing investors’ expectations of analysts’ forecasts.
{"title":"Identifying the News in Analysts’ Earnings Forecasts Revisions: An Alternative to the Random Walk Expectation","authors":"Ray J. Pfeiffer, Karen Teitel, S. Wahab, M. Wahab","doi":"10.1142/s0219091521500326","DOIUrl":"https://doi.org/10.1142/s0219091521500326","url":null,"abstract":"Previous research indicates that analysts’ forecasts are superior to time series models as measures of investors’ earnings expectations. Nevertheless, research also documents predictable patterns in analysts’ forecasts and forecast errors. If investors are aware of these patterns, analysts’ forecast revisions measured using the random walk expectation are an incomplete representation of changes in investors’ earnings expectations. Investors can use knowledge of errors and biases in forecasts to improve upon the simple random walk expectation by incorporating conditioning information. Using data from 2005 to 2015, we compare associations between market-adjusted stock returns and alternative specifications of forecast revisions to determine which best represents changes in investors’ earnings expectations. We find forecast revisions measured using a ‘bandwagon expectations’ specification, which includes two prior analysts’ forecast signals and provides the most improvement over random-walk-based revision measures. Our findings demonstrate benefits to considering information beyond the previously issued analyst forecast when representing investors’ expectations of analysts’ forecasts.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-11-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43358653","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 : 2021-11-17DOI: 10.1142/s0219091521500338
F. Hachicha, A. Hachicha, A. Masmoudi
Duration and convexity are important measures in fixed-income portfolio management. In this paper, we analyze this measure of the bonds by applying the beta model. The general usefulness of the beta probability distribution enhances its applicability in a wide range of reliability analyses, especially in the theory and practice of reliability management. We estimate the beta density function of the duration/convexity. This estimate is based on two important and simple models of short rates, namely, Vasicek and CIR (Cox, Ingersoll, and Ross CIR). The models are described and then their sensitivity of the models with respect to changes in the parameters is studied. We generate the stochastic interest rate on the duration and convexity model. The main results show that the beta probability distribution can be applied to model each phase of the risk function. This distribution approved its effectiveness, simplicity and flexibility. In this paper, we are interested in providing a decision-making tool for the manager in order to minimize the portfolio risk. It is helpful to have a model that is reasonably simple and suitable to different maturity of bonds. Also, it is widely used by investors for choosing bond portfolio immunization through the investment strategy. The finding also shows that the probability of risk measured by the reliability function is to highlight the relationship between duration/convexity and different risk levels. With these new results, this paper offers several implications for investors and risk management purposes.
{"title":"Modeling of Risk Measure Bonds Using the Beta Model","authors":"F. Hachicha, A. Hachicha, A. Masmoudi","doi":"10.1142/s0219091521500338","DOIUrl":"https://doi.org/10.1142/s0219091521500338","url":null,"abstract":"Duration and convexity are important measures in fixed-income portfolio management. In this paper, we analyze this measure of the bonds by applying the beta model. The general usefulness of the beta probability distribution enhances its applicability in a wide range of reliability analyses, especially in the theory and practice of reliability management. We estimate the beta density function of the duration/convexity. This estimate is based on two important and simple models of short rates, namely, Vasicek and CIR (Cox, Ingersoll, and Ross CIR). The models are described and then their sensitivity of the models with respect to changes in the parameters is studied. We generate the stochastic interest rate on the duration and convexity model. The main results show that the beta probability distribution can be applied to model each phase of the risk function. This distribution approved its effectiveness, simplicity and flexibility. In this paper, we are interested in providing a decision-making tool for the manager in order to minimize the portfolio risk. It is helpful to have a model that is reasonably simple and suitable to different maturity of bonds. Also, it is widely used by investors for choosing bond portfolio immunization through the investment strategy. The finding also shows that the probability of risk measured by the reliability function is to highlight the relationship between duration/convexity and different risk levels. With these new results, this paper offers several implications for investors and risk management purposes.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-11-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43522068","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 : 2021-11-13DOI: 10.1142/s0219091521500314
Lee-Hsien Pan, Y. Lin, Mengxing Lu, I-Min Lin
Our paper investigates the relationship between corporate governance (internal corporate governance mechanism) and announcement returns of spinoff firms, and examines whether such relationship can be explained by product market competition (external corporate governance mechanism). Using a sample of 269 completed spinoffs between 1983 and 2009, we find a nonlinear U-shaped relationship between corporate governance and the cumulative abnormal return around the announcement period. Moreover, we find that such a nonlinear relationship hinges on the level of competition in the market in which the spinoff firms operate. Specifically, we find that weak governance firms experience higher announcement period return only in highly competitive industries, while strong governance firms exhibit higher announcement period return, but only in moderately competitive industries. Our findings reconcile the mixed results in the literature regarding the relationship between corporate governance and firm value by examining the effect of product market competition on this relationship. Our results highlight the importance of product market competition as a moderator between corporate governance and the announcement period return of the spinoff firms.
{"title":"Corporate Governance, Product Market Competition and Announcement Returns of Spinoff Firms","authors":"Lee-Hsien Pan, Y. Lin, Mengxing Lu, I-Min Lin","doi":"10.1142/s0219091521500314","DOIUrl":"https://doi.org/10.1142/s0219091521500314","url":null,"abstract":"Our paper investigates the relationship between corporate governance (internal corporate governance mechanism) and announcement returns of spinoff firms, and examines whether such relationship can be explained by product market competition (external corporate governance mechanism). Using a sample of 269 completed spinoffs between 1983 and 2009, we find a nonlinear U-shaped relationship between corporate governance and the cumulative abnormal return around the announcement period. Moreover, we find that such a nonlinear relationship hinges on the level of competition in the market in which the spinoff firms operate. Specifically, we find that weak governance firms experience higher announcement period return only in highly competitive industries, while strong governance firms exhibit higher announcement period return, but only in moderately competitive industries. Our findings reconcile the mixed results in the literature regarding the relationship between corporate governance and firm value by examining the effect of product market competition on this relationship. Our results highlight the importance of product market competition as a moderator between corporate governance and the announcement period return of the spinoff firms.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-11-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41817769","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 : 2021-11-11DOI: 10.1142/s0219091521500296
M. Jawad, Munazza Naz, Muhammad Aftab Shamsi
This study investigates the impact of diversification between traditional margin income and nontraditional income (noninterest-based income) on bank risk-taking and bank lending spread for banks operating in Pakistan. Bank risk is measured with the nonperforming loan ratio and bank [Formula: see text]-score. Data of this study is obtained from financial statements, which are an annual publication of State Bank of Pakistan, for the period 2006–2016 for 52 banks in Pakistan. Panel regression with the generalized method of moments (GMM) estimator is employed. The study reveals that an increase in noninterest income increases bank risk-taking (spending on highly risky assets), as noninterest income is riskier than interest income. It is also revealed that banks with greater dependence on noninterest income may grant a loan with lower lending spread. These results have implications for the betterment of the banking system, regulatory authority, and stakeholders as well. From a regulatory perspective, the study provides guidelines for making rules and regulations to control and monitor the dependence on noninterest income as well as on interest income. Pakistan banks regulatory authority should focus on the increase in disclosure of the composition of noninterest income and this disclosure would increase understanding of changing environment of banking in Pakistan.
{"title":"Impact of Noninterest Income on Bank Risk-Taking and Bank Lending Spread","authors":"M. Jawad, Munazza Naz, Muhammad Aftab Shamsi","doi":"10.1142/s0219091521500296","DOIUrl":"https://doi.org/10.1142/s0219091521500296","url":null,"abstract":"This study investigates the impact of diversification between traditional margin income and nontraditional income (noninterest-based income) on bank risk-taking and bank lending spread for banks operating in Pakistan. Bank risk is measured with the nonperforming loan ratio and bank [Formula: see text]-score. Data of this study is obtained from financial statements, which are an annual publication of State Bank of Pakistan, for the period 2006–2016 for 52 banks in Pakistan. Panel regression with the generalized method of moments (GMM) estimator is employed. The study reveals that an increase in noninterest income increases bank risk-taking (spending on highly risky assets), as noninterest income is riskier than interest income. It is also revealed that banks with greater dependence on noninterest income may grant a loan with lower lending spread. These results have implications for the betterment of the banking system, regulatory authority, and stakeholders as well. From a regulatory perspective, the study provides guidelines for making rules and regulations to control and monitor the dependence on noninterest income as well as on interest income. Pakistan banks regulatory authority should focus on the increase in disclosure of the composition of noninterest income and this disclosure would increase understanding of changing environment of banking in Pakistan.","PeriodicalId":45653,"journal":{"name":"Review of Pacific Basin Financial Markets and Policies","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48111834","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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