Research articles for the 2019-05-31
50 Years in PEAD Research
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Analysing earning’s predictive power on stock returns was in the heart of academic research since late 60’s. First introduced to academic world in 1967 during seminar “Analysis of Security Prices†by Chicago University Professors Ray Ball and Philip Brown. In the next four decades was extensively analysed by many academics and is now a well-documented anomaly and is referred to as Post Earnings Announcement Drift (PEAD). This phenomenon is still at the centre of academic research because it stands at odds with efficient market hypothesis which assumes that all information is instantaneously reflected in stock prices. Professional investors are also closely looking at PEAD as it implies that it is easy to beat the market average by simply ranking stocks based on their earnings surprise and investing in the top decile, quintile or quartile and shorting the bottom part. Academic evidence shows that this strategy produces an abnormal return of somewhere between 2.6% and 9.37% per quarter, according to various authors.In this paper I will present existing evidence supporting and contradicting “PEADâ€, the history of academic research in that field and various techniques used to verify the phenomenon. The paper is organised as follows: first the history of the PEAD academic research is presented, in the second more recent evidence and research techniques used by authors are presented and finally conclusions and various critics of PEAD are shown.
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Analysing earning’s predictive power on stock returns was in the heart of academic research since late 60’s. First introduced to academic world in 1967 during seminar “Analysis of Security Prices†by Chicago University Professors Ray Ball and Philip Brown. In the next four decades was extensively analysed by many academics and is now a well-documented anomaly and is referred to as Post Earnings Announcement Drift (PEAD). This phenomenon is still at the centre of academic research because it stands at odds with efficient market hypothesis which assumes that all information is instantaneously reflected in stock prices. Professional investors are also closely looking at PEAD as it implies that it is easy to beat the market average by simply ranking stocks based on their earnings surprise and investing in the top decile, quintile or quartile and shorting the bottom part. Academic evidence shows that this strategy produces an abnormal return of somewhere between 2.6% and 9.37% per quarter, according to various authors.In this paper I will present existing evidence supporting and contradicting “PEADâ€, the history of academic research in that field and various techniques used to verify the phenomenon. The paper is organised as follows: first the history of the PEAD academic research is presented, in the second more recent evidence and research techniques used by authors are presented and finally conclusions and various critics of PEAD are shown.
A Study of Punjab State Cooperative Bank Chandigarh with Special Reference to Lending Practices
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The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be classified into two major categories, non-scheduled banks and scheduled banks. Scheduled banks having paid-up capital and reserve of not less than Rs. 50,000,000 are further classified as State co-operative Banks & Commercial Banks. Non-Scheduled Banks are not included in the second schedule of the Banking Regulations Act, 1965. They are further classified as Central co-operative banks and primary credit societies & Commercial Banks. The cooperative banks in India play an important role even today in rural financing. The Businesses of cooperative bank in the urban areas have increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Cooperative Banks in India registered under the Co-operative Societies Act is regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. In this paper an attempt is made to study the lending practices at PUNJAB STATE COOPERATIVE BANK, Sector â€" 34, Chandigarh.
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The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be classified into two major categories, non-scheduled banks and scheduled banks. Scheduled banks having paid-up capital and reserve of not less than Rs. 50,000,000 are further classified as State co-operative Banks & Commercial Banks. Non-Scheduled Banks are not included in the second schedule of the Banking Regulations Act, 1965. They are further classified as Central co-operative banks and primary credit societies & Commercial Banks. The cooperative banks in India play an important role even today in rural financing. The Businesses of cooperative bank in the urban areas have increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Cooperative Banks in India registered under the Co-operative Societies Act is regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. In this paper an attempt is made to study the lending practices at PUNJAB STATE COOPERATIVE BANK, Sector â€" 34, Chandigarh.
Analyst Coverage and Lawsuit Risk
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n this study, we use a unique, hand-collected dataset of employee lawsuits and study the impact of analyst coverage on labour relations. We find that an increase in analyst coverage lowers the work-related litigations. In addition, we show that an increased number of analysts lowers the litigation cost, measured by settlement fees and attorney fees. Our results suggest analysts have an important impact on employee relations. Our research enriches the literature on employment practices and analyst coverage.
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n this study, we use a unique, hand-collected dataset of employee lawsuits and study the impact of analyst coverage on labour relations. We find that an increase in analyst coverage lowers the work-related litigations. In addition, we show that an increased number of analysts lowers the litigation cost, measured by settlement fees and attorney fees. Our results suggest analysts have an important impact on employee relations. Our research enriches the literature on employment practices and analyst coverage.
Are 'Complementary Policies' Substitutes? Evidence from R&D Subsidies in the UK
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Governments subsidies R&D through a mix of interdependent mechanisms, but subsidy interactions are not well understood. This paper provides the first quasi-experimental evaluation of how R&D subsidy interactions impact firm behavior. I use funding rules and policy changes in the UK to show that direct grants and tax credits for R&D are complements for small firms but substitutes for larger firms. An increase in tax credit rates substantially enhances the effect of grants on R&D expenditures for small firms. For larger firms, it cuts the positive effect of grants in half. I explore the mechanisms behind these findings and provide suggestive evidence that complementarity is consistent with easing financial constraints for small firms. Substitution by larger firms is most consistent with the subsidization of infra-marginal R&D expenditures. I rule out some alternative explanations. Subsidy interactions also impact the types of innovation efforts that emerge: with increases in both subsidies, small firms steer efforts increasingly towards developing new goods (i.e., horizontal innovations) as opposed to improving existing goods (i.e., vertical innovations). Accounting for subsidy interactions could substantially improve the effectiveness of public spending on R&D.
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Governments subsidies R&D through a mix of interdependent mechanisms, but subsidy interactions are not well understood. This paper provides the first quasi-experimental evaluation of how R&D subsidy interactions impact firm behavior. I use funding rules and policy changes in the UK to show that direct grants and tax credits for R&D are complements for small firms but substitutes for larger firms. An increase in tax credit rates substantially enhances the effect of grants on R&D expenditures for small firms. For larger firms, it cuts the positive effect of grants in half. I explore the mechanisms behind these findings and provide suggestive evidence that complementarity is consistent with easing financial constraints for small firms. Substitution by larger firms is most consistent with the subsidization of infra-marginal R&D expenditures. I rule out some alternative explanations. Subsidy interactions also impact the types of innovation efforts that emerge: with increases in both subsidies, small firms steer efforts increasingly towards developing new goods (i.e., horizontal innovations) as opposed to improving existing goods (i.e., vertical innovations). Accounting for subsidy interactions could substantially improve the effectiveness of public spending on R&D.
Bad News Bankers: Underwriter Reputation and Contagion in Pre-1914 Sovereign Debt Markets
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This paper uses new data on the timing of sovereign defaults during 1869-1914 to quantify an informational channel of contagion via shared financial intermediaries. Concerns over reputation incentivized Britain’s merchant banks to monitor, advise, and occasionally bail out sovereigns. Default signaled to investors that a merchant bank was not as willing or able to write and support quality issues, suggesting that its other bonds may underperform in the future. In support of this channel, I find that during a debt crisis, a 5% fall in the defaulting bond’s price leads to a 2.19% fall in prices of bonds sharing the defaulter’s bank. This is substantial compared to the 0.24% price drop among bonds with different banks. Information revelation about financial intermediaries can be a powerful source of contagion unrelated to a borrower’s fundamentals. In modern financial markets, third parties such as credit rating agencies, the IMF, or the ECB could similarly spread contagion if news about their actions reveals information about their willingness to monitor risky borrowers or intervene in crises.
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This paper uses new data on the timing of sovereign defaults during 1869-1914 to quantify an informational channel of contagion via shared financial intermediaries. Concerns over reputation incentivized Britain’s merchant banks to monitor, advise, and occasionally bail out sovereigns. Default signaled to investors that a merchant bank was not as willing or able to write and support quality issues, suggesting that its other bonds may underperform in the future. In support of this channel, I find that during a debt crisis, a 5% fall in the defaulting bond’s price leads to a 2.19% fall in prices of bonds sharing the defaulter’s bank. This is substantial compared to the 0.24% price drop among bonds with different banks. Information revelation about financial intermediaries can be a powerful source of contagion unrelated to a borrower’s fundamentals. In modern financial markets, third parties such as credit rating agencies, the IMF, or the ECB could similarly spread contagion if news about their actions reveals information about their willingness to monitor risky borrowers or intervene in crises.
Bankruptcy and Corporate Governance: The Impact of Firm Performance and Macroeconomic Factors
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Corporate governance issues have been having the share of attention from researchers for over three decades owing to the increasing of global economic crisis. Miss management and less practice of corporate governance can cause by both internal and external factors, which is probably due to the inefficient management or breakdowns in internal procedures, human errors and systems failures. It is important for an organization to practice of corporate governance efficiently to avoid the fall of corporate governance and run the company in the best way. The collapse of Northern Rock in 2008 was the first major run on a UK retail bank since 1866. This study addresses the case of Northern Rock bank fraudulent accounting in 2008 and examines its implications for setting accounting standards while considering the linkage between theory and practice, also, this study aims to investigate the influence of the elements of corporate governance factors and macro-economic factors affecting the performance of elements of corporate governance before the scandal years and after scandal years in Northern Rock bank among five years. Moreover, this study used Z-Score bankruptcy model, return on asset and return on equity as control variables. Based on the statistical results, the descriptive statistics illustration that the overall average return on asset (ROA) of the company is high negative with score of -17%. This helps as a benchmark and indicates that Northern Rock bank on average -17% of less profit specially after scandal year. On the other hands, there is a positively significant influenced between Altman Z and equity performance (ROE). Overall, the lower the score, the higher the risk of bankruptcy. For instance, a Z-Score above 0.001 shows financial soundness; underneath 0.10 recommends a high probability of failure.
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Corporate governance issues have been having the share of attention from researchers for over three decades owing to the increasing of global economic crisis. Miss management and less practice of corporate governance can cause by both internal and external factors, which is probably due to the inefficient management or breakdowns in internal procedures, human errors and systems failures. It is important for an organization to practice of corporate governance efficiently to avoid the fall of corporate governance and run the company in the best way. The collapse of Northern Rock in 2008 was the first major run on a UK retail bank since 1866. This study addresses the case of Northern Rock bank fraudulent accounting in 2008 and examines its implications for setting accounting standards while considering the linkage between theory and practice, also, this study aims to investigate the influence of the elements of corporate governance factors and macro-economic factors affecting the performance of elements of corporate governance before the scandal years and after scandal years in Northern Rock bank among five years. Moreover, this study used Z-Score bankruptcy model, return on asset and return on equity as control variables. Based on the statistical results, the descriptive statistics illustration that the overall average return on asset (ROA) of the company is high negative with score of -17%. This helps as a benchmark and indicates that Northern Rock bank on average -17% of less profit specially after scandal year. On the other hands, there is a positively significant influenced between Altman Z and equity performance (ROE). Overall, the lower the score, the higher the risk of bankruptcy. For instance, a Z-Score above 0.001 shows financial soundness; underneath 0.10 recommends a high probability of failure.
Can the Plight of the European Banking Structural Reforms Be a Blessing in Disguise?
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One of the problems perceived to be at the heart of the global financial crisis was an amalgamation of various commercial and investment banking activities under one entity, as well as the interconnectedness of the banking entities with other financial institutions, investment funds, and the shadow banking system. This paper focuses on various measures that aim to structurally separate the banking entities and their core functions from riskier financial activities such as (proprietary) trading or investments in alternative investment funds. Although banking structural reforms in the EU, UK, and the US have taken different forms, their common denominator is the separation of core banking functions from certain trading or securities market activities. Having reviewed the arguments for and against banking structural reforms and their varieties in major jurisdictions, including the EU, UK, US, France, and Germany, the paper argues that a more nuanced approach to introducing such measures at the EU level is warranted. Given the different market structures across the Atlantic and the lack of conclusive evidence on the beneficial impact of banking structural reforms, the paper concludes that the withdrawal of the banking structural reforms proposal by the European Commission has been a prudent move. It seems that in the absence of concrete evidence, experimenting with structural reforms at the Member-State level would be less costly and would provide for opportunities for learning from smaller mistakes that could pave the way for a more optimal approach to introducing banking structural reforms at the European level in the future.
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One of the problems perceived to be at the heart of the global financial crisis was an amalgamation of various commercial and investment banking activities under one entity, as well as the interconnectedness of the banking entities with other financial institutions, investment funds, and the shadow banking system. This paper focuses on various measures that aim to structurally separate the banking entities and their core functions from riskier financial activities such as (proprietary) trading or investments in alternative investment funds. Although banking structural reforms in the EU, UK, and the US have taken different forms, their common denominator is the separation of core banking functions from certain trading or securities market activities. Having reviewed the arguments for and against banking structural reforms and their varieties in major jurisdictions, including the EU, UK, US, France, and Germany, the paper argues that a more nuanced approach to introducing such measures at the EU level is warranted. Given the different market structures across the Atlantic and the lack of conclusive evidence on the beneficial impact of banking structural reforms, the paper concludes that the withdrawal of the banking structural reforms proposal by the European Commission has been a prudent move. It seems that in the absence of concrete evidence, experimenting with structural reforms at the Member-State level would be less costly and would provide for opportunities for learning from smaller mistakes that could pave the way for a more optimal approach to introducing banking structural reforms at the European level in the future.
Contagion Effects of Monetary Policy on the JSE ALSI
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This study will investigate the effect of changes in monetary policy variables on the South African stock market. The component variable under study is the JSE ALSI and its responsiveness to movements in interest rates, money supply and the rand-dollar exchange rates. The Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Model provide a benchmark for setting stock prices. In this paper the aforementioned variables are tested and integrated in these models to determine how much of an effect they have on the stock index. The study will use Granger Causality tests, unit root tests and the standard Ordinary Least Squares (OLS) method to interrogate the hypotheses put forward relating the JSE ALSI and interest rates, money supply and exchange rates. The main argument put forward is that monetary policy does significantly impact stock index movements and hence it is imperative to monitor the relationship so as to control for adverse contagion effects during economic shocks.
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This study will investigate the effect of changes in monetary policy variables on the South African stock market. The component variable under study is the JSE ALSI and its responsiveness to movements in interest rates, money supply and the rand-dollar exchange rates. The Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Model provide a benchmark for setting stock prices. In this paper the aforementioned variables are tested and integrated in these models to determine how much of an effect they have on the stock index. The study will use Granger Causality tests, unit root tests and the standard Ordinary Least Squares (OLS) method to interrogate the hypotheses put forward relating the JSE ALSI and interest rates, money supply and exchange rates. The main argument put forward is that monetary policy does significantly impact stock index movements and hence it is imperative to monitor the relationship so as to control for adverse contagion effects during economic shocks.
Corporate Lobbying, CEO Political Ideology and Firm Performance
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In this paper, we investigate the influence of CEO political orientation on corporate lobbying efforts. Specifically, we study whether CEO political ideology, in terms of manager-level campaign donations, determines the choice and amount of firm lobbying involvement and the impact of lobbying on firm value. We find a generous engagement in lobbying efforts by firms with Republican leaning-managers, which lobby a larger number of bills and have higher lobbying expenditures. However, the cost of lobbying offsets the benefit for firms with Republican CEOs. We report higher agency costs of free cash flow, lower Tobin's Q, and smaller increases in buy and hold abnormal returns following lobbying activities for firms with Republican managers, compared to Democratic and Apolitical rivals. Overall, our results suggest that the effects of lobbying on firm performance vary across firms with different managerial political orientations.
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In this paper, we investigate the influence of CEO political orientation on corporate lobbying efforts. Specifically, we study whether CEO political ideology, in terms of manager-level campaign donations, determines the choice and amount of firm lobbying involvement and the impact of lobbying on firm value. We find a generous engagement in lobbying efforts by firms with Republican leaning-managers, which lobby a larger number of bills and have higher lobbying expenditures. However, the cost of lobbying offsets the benefit for firms with Republican CEOs. We report higher agency costs of free cash flow, lower Tobin's Q, and smaller increases in buy and hold abnormal returns following lobbying activities for firms with Republican managers, compared to Democratic and Apolitical rivals. Overall, our results suggest that the effects of lobbying on firm performance vary across firms with different managerial political orientations.
Corporate Technologies and the Tech Nirvana Fallacy
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This article analyzes the impact of technology, in particular distributed ledgers/blockchains, smart contracts, Big Data analytics and AI/machine learning (collectively referred to as “Corporate Technologiesâ€, or "CorpTech") on the future of corporate boards. We take on an argument often found in the finance, law and tech literature that we dub the "Tech Nirvana Fallacy": the prediction that technology will dominate corporate governance and even replace the board of directors, based on a comparison of perfect machines with failure-prone humans.Contrary to the Tech Nirvana Fallacy, we claim that CorpTech’s impact, while significant, will merely scratch the surface of the perennial problem of corporate governance, namely conflicts of interest among the relevant corporate stakeholders, and chiefly between controllers (managers or controlling shareholders) and shareholders.Even where algorithms are well programmed and effectively replace human judgment, intra-corporate conflicts of interest do not vanish in a tech-dominated corporate environment. The key question, then, becomes: “Is the human being that selects or controls the firm’s CorpTech conflicted?†This article analyzes the new manifestation of the agency problems within corporations and addresses possible market, governance, and regulatory solutions.
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This article analyzes the impact of technology, in particular distributed ledgers/blockchains, smart contracts, Big Data analytics and AI/machine learning (collectively referred to as “Corporate Technologiesâ€, or "CorpTech") on the future of corporate boards. We take on an argument often found in the finance, law and tech literature that we dub the "Tech Nirvana Fallacy": the prediction that technology will dominate corporate governance and even replace the board of directors, based on a comparison of perfect machines with failure-prone humans.Contrary to the Tech Nirvana Fallacy, we claim that CorpTech’s impact, while significant, will merely scratch the surface of the perennial problem of corporate governance, namely conflicts of interest among the relevant corporate stakeholders, and chiefly between controllers (managers or controlling shareholders) and shareholders.Even where algorithms are well programmed and effectively replace human judgment, intra-corporate conflicts of interest do not vanish in a tech-dominated corporate environment. The key question, then, becomes: “Is the human being that selects or controls the firm’s CorpTech conflicted?†This article analyzes the new manifestation of the agency problems within corporations and addresses possible market, governance, and regulatory solutions.
Do Alternative Investments Belong in Pension Fund Portfolios?
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This paper introduces a simple intuitive methodology designed to evaluate the contribution of any investment or asset class to a pension fund's portfolio. We illustrate our methodology by considering an investment decision that involves the choice to allocate to Commodity Trading Advisors (CTAs). We find that a modest 10% allocation to CTA investments improves the funding ratios of the hypothetical pension fund portfolio by 5% to 11% depending on the CTA proxy strongly suggesting that CTA investments belong in pension funds' portfolios. Moreover, our methodology can be applied more broadly to evaluate additional investment decisions that are available to pension funds.
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This paper introduces a simple intuitive methodology designed to evaluate the contribution of any investment or asset class to a pension fund's portfolio. We illustrate our methodology by considering an investment decision that involves the choice to allocate to Commodity Trading Advisors (CTAs). We find that a modest 10% allocation to CTA investments improves the funding ratios of the hypothetical pension fund portfolio by 5% to 11% depending on the CTA proxy strongly suggesting that CTA investments belong in pension funds' portfolios. Moreover, our methodology can be applied more broadly to evaluate additional investment decisions that are available to pension funds.
Does Fair Value Accounting Contribute to Systemic Risk in the Banking Industry?
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I investigate whether fair value accounting can contribute to the banking industry’s systemic risk. I focus on the adoption of SFAS No. 115, which required available-for-sale (AFS) securities to be recognized at fair value with unrealized gains and losses included in equity through accumulated other comprehensive income. SFAS No. 115 increased banks’ regulatory risk because, at the time, calculation of regulatory capital closely conformed with GAAP equity. I find that systemic risk increased following the adoption of SFAS No. 115. Furthermore, following a subsequent regulatory amendmentâ€"which excluded unrealized gains and losses on AFS securities from regulatory capital but did not change their GAAP treatmentâ€"systemic risk decreased. Taken together, the evidence suggests that fair value accounting has the potential to increase systemic risk through the explicit inclusion of volatile fair value estimates in regulatory bank capital adequacy assessments. I do not, however, find evidence of fair value accounting impacting systemic risk in its information role; that is, by providing information to a bank’s external stakeholders about its financial position and performance. I also show that higher fair value volatility of investment securities, lower bank capital, and larger AFS security holdings increase banks’ marginal contribution to systemic risk. My findings should interest regulators and policymakers as recent regulatory changes in light of Basel III recommendations require unrealized gains and losses on AFS securities to be included in regulatory capital for advanced approaches banks.
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I investigate whether fair value accounting can contribute to the banking industry’s systemic risk. I focus on the adoption of SFAS No. 115, which required available-for-sale (AFS) securities to be recognized at fair value with unrealized gains and losses included in equity through accumulated other comprehensive income. SFAS No. 115 increased banks’ regulatory risk because, at the time, calculation of regulatory capital closely conformed with GAAP equity. I find that systemic risk increased following the adoption of SFAS No. 115. Furthermore, following a subsequent regulatory amendmentâ€"which excluded unrealized gains and losses on AFS securities from regulatory capital but did not change their GAAP treatmentâ€"systemic risk decreased. Taken together, the evidence suggests that fair value accounting has the potential to increase systemic risk through the explicit inclusion of volatile fair value estimates in regulatory bank capital adequacy assessments. I do not, however, find evidence of fair value accounting impacting systemic risk in its information role; that is, by providing information to a bank’s external stakeholders about its financial position and performance. I also show that higher fair value volatility of investment securities, lower bank capital, and larger AFS security holdings increase banks’ marginal contribution to systemic risk. My findings should interest regulators and policymakers as recent regulatory changes in light of Basel III recommendations require unrealized gains and losses on AFS securities to be included in regulatory capital for advanced approaches banks.
Employee Lawsuits and Capital Structure
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We examine the effect of litigation on corporate capital structure by using a unique, hand-collected dataset of 30,841 employee disputes (after initial court hearings) between 2000 and 2015. We find that employee lawsuits increase firms’ leverage ratios, and firms with frequent employee allegations maintain high leverage ratios. The positive relationship between employee allegations and leverage also exists when we use other workplace-related violations, inspections, and complaints. Overall, our findings highlight the importance of employee treatment in the workplace environment.
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We examine the effect of litigation on corporate capital structure by using a unique, hand-collected dataset of 30,841 employee disputes (after initial court hearings) between 2000 and 2015. We find that employee lawsuits increase firms’ leverage ratios, and firms with frequent employee allegations maintain high leverage ratios. The positive relationship between employee allegations and leverage also exists when we use other workplace-related violations, inspections, and complaints. Overall, our findings highlight the importance of employee treatment in the workplace environment.
Foreign Direct Investment: A Growth Engine for Tourism
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Foreign direct investment (FDI) is defined as foreign investors stirring their assets into another country where they have control over the management of assets and profits. FDI has the potential to generate employment, raise productivity, enhancing competitiveness of the domestic economy through transfer skills and technology, strengthening infrastructure, enhance exports and contribute to the long-term economic development of the world’s developing countries. With a view to stimulate domestic and international investments in tourism, the government has permitted 100 percent FDI in the automatic route â€" allowing full FDI into all construction development projects including construction of hotels and resorts, recreational facilities, and city and regional level infrastructure. According to the World Tourism Organization, India will be the leader in the tourism industry in South Asia with 8.9 million arrivals by 2020. India is gradually emerging as the second most rapidly increasing (8.8 percent) tourism economy in the world over 2005-14 according to the World Travel & Tourism. Thus an attempt is made in this paper to examine the foreign direct investment in Indian Tourism Industry, its flow in Indian Tourism Industry and its impact on economy of India.
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Foreign direct investment (FDI) is defined as foreign investors stirring their assets into another country where they have control over the management of assets and profits. FDI has the potential to generate employment, raise productivity, enhancing competitiveness of the domestic economy through transfer skills and technology, strengthening infrastructure, enhance exports and contribute to the long-term economic development of the world’s developing countries. With a view to stimulate domestic and international investments in tourism, the government has permitted 100 percent FDI in the automatic route â€" allowing full FDI into all construction development projects including construction of hotels and resorts, recreational facilities, and city and regional level infrastructure. According to the World Tourism Organization, India will be the leader in the tourism industry in South Asia with 8.9 million arrivals by 2020. India is gradually emerging as the second most rapidly increasing (8.8 percent) tourism economy in the world over 2005-14 according to the World Travel & Tourism. Thus an attempt is made in this paper to examine the foreign direct investment in Indian Tourism Industry, its flow in Indian Tourism Industry and its impact on economy of India.
Fostering Savings by Commitment: Evidence from a Quasi-Natural Experiment at the Small Enterprise Foundation in South Africa
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We study the effects of a pilot project that strengthened the saving incentive mechanisms set up by the Small Enterprise Foundation (SEF), a leading microfinance institution based in South Africa. The program aimed at introducing a stimulus to save in the form of the possession of “Goal Card†whereby clients owning this tool were asked to identify a saving goal and to commit to a regular saving amount. The experiment had quasi-natural approach, as it has been implemented by SEF in selected locations starting from May 2015. Difference in differences estimates show an improvement in the savings performance of the SEF customers treated with the program, compared to the counterfactual. Besides the evaluation of the program’s main effects, we investigate the clients’ understanding of the pilot and their attitude towards saving, as well as the quality of the pilot’s administration and its operational challenges, through the administration and analysis of surveys conducted on both the treated and control groups of clients.
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We study the effects of a pilot project that strengthened the saving incentive mechanisms set up by the Small Enterprise Foundation (SEF), a leading microfinance institution based in South Africa. The program aimed at introducing a stimulus to save in the form of the possession of “Goal Card†whereby clients owning this tool were asked to identify a saving goal and to commit to a regular saving amount. The experiment had quasi-natural approach, as it has been implemented by SEF in selected locations starting from May 2015. Difference in differences estimates show an improvement in the savings performance of the SEF customers treated with the program, compared to the counterfactual. Besides the evaluation of the program’s main effects, we investigate the clients’ understanding of the pilot and their attitude towards saving, as well as the quality of the pilot’s administration and its operational challenges, through the administration and analysis of surveys conducted on both the treated and control groups of clients.
Global Systemically Important Bank Classification and its Impact on Private Debt Structure
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Following the classification of large U.S. financial institutions as Global Systemically Important Banks (G-SIBs), I investigate how they respond to stringent requirements imposed both by the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB), mainly on the aspect of bank lending. I find that, compared to the level prior to the designation, G-SIBs tend to demand tighter loan covenants â€" specifically, the number of financial covenants, prepayment covenants, and dividend restrictions â€" to combat the uncertainty about the future state. The increase in the number of covenants is more pronounced among G-SIBs that do not satisfy the capitalization level requirements. Loan size bore by each lead lender is reduced in the period following the classification while maturity does not show significant changes, after controlling for bank/borrower characteristics. The evidence suggests that the new regulation leads banks to institute enhanced measures in an effort to better monitor the borrower’s financials in a more comprehensive fashion, as well as secure repayment if applicable.
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Following the classification of large U.S. financial institutions as Global Systemically Important Banks (G-SIBs), I investigate how they respond to stringent requirements imposed both by the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB), mainly on the aspect of bank lending. I find that, compared to the level prior to the designation, G-SIBs tend to demand tighter loan covenants â€" specifically, the number of financial covenants, prepayment covenants, and dividend restrictions â€" to combat the uncertainty about the future state. The increase in the number of covenants is more pronounced among G-SIBs that do not satisfy the capitalization level requirements. Loan size bore by each lead lender is reduced in the period following the classification while maturity does not show significant changes, after controlling for bank/borrower characteristics. The evidence suggests that the new regulation leads banks to institute enhanced measures in an effort to better monitor the borrower’s financials in a more comprehensive fashion, as well as secure repayment if applicable.
Investigating the Dynamics Between Price Volatility, Price Discovery, and Criminality in Cryptocurrency Markets
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This paper identifies several stylised facts relating to the volatility and price discovery process from eight cryptocurrencies utilising an empirical analysis of intra-day trading data to uncover four main results. First, cryptocurrencies exhibit weekend-volatility effects while intra-day volatility is found to be influenced by international trading times, periods of substantial volatility in the markets for oil, and GBP/USD and cybercrime events. Secondly, a thorough investigation of recent cybercriminality identifies that cryptocurrency hacks are found to increase both the volatility of the currency hacked and the correlations across the hacked currency and other cryptocurrencies. Thirdly, hacks significantly reduce price discovery sourced within the hacked currency relative to other cryptocurrencies. Finally, there are abnormal returns associated with the hacks observed in the hours prior to the actual hacking event, which reverts to zero at the time of the public announcement of the hack.
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This paper identifies several stylised facts relating to the volatility and price discovery process from eight cryptocurrencies utilising an empirical analysis of intra-day trading data to uncover four main results. First, cryptocurrencies exhibit weekend-volatility effects while intra-day volatility is found to be influenced by international trading times, periods of substantial volatility in the markets for oil, and GBP/USD and cybercrime events. Secondly, a thorough investigation of recent cybercriminality identifies that cryptocurrency hacks are found to increase both the volatility of the currency hacked and the correlations across the hacked currency and other cryptocurrencies. Thirdly, hacks significantly reduce price discovery sourced within the hacked currency relative to other cryptocurrencies. Finally, there are abnormal returns associated with the hacks observed in the hours prior to the actual hacking event, which reverts to zero at the time of the public announcement of the hack.
Issuance Activity and Interconnectedness in the CMBS Market
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The purpose of this paper is to provide background information on commercial mortgage backed securities (CMBS) by providing an analysis of issuance volumes, structure and participants. In addition, we analyze concentration and interconnectedness in the CMBS market before and after the global financial crisis.
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The purpose of this paper is to provide background information on commercial mortgage backed securities (CMBS) by providing an analysis of issuance volumes, structure and participants. In addition, we analyze concentration and interconnectedness in the CMBS market before and after the global financial crisis.
Moments of Truth: Forecasting the Mean, Variance, and Skewness of Asset Returns
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Predicting the nature of future returns is fundamentally about what one believes about the future. And the tools we have for forming beliefs are deduction and induction. Rather than naively using historical return moments as our estimates for future moments, we ought to also use these tools. Three examples for how one might do this include (1) broadening the scope of data one considers, (2) being cognizant of the tendency of the central limit theorem, with portfolios of assets, to drive third and higher order moments towards zero, and (3) noticing how certain properties of second and third order moments can affect the first moment because of investors' behavioural biases.
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Predicting the nature of future returns is fundamentally about what one believes about the future. And the tools we have for forming beliefs are deduction and induction. Rather than naively using historical return moments as our estimates for future moments, we ought to also use these tools. Three examples for how one might do this include (1) broadening the scope of data one considers, (2) being cognizant of the tendency of the central limit theorem, with portfolios of assets, to drive third and higher order moments towards zero, and (3) noticing how certain properties of second and third order moments can affect the first moment because of investors' behavioural biases.
On the Adoption and Supply of Bitcoin: An Empirical Analysis
SSRN
We explore the drivers of supply, demand, and price of Bitcoin. With a comprehensive data set we created from multiple sources, we demonstrate that demand is driven by the size of Bitcoin's active user base and technological developments in its open source codebase, which, in the absence of a central authority, may be proxies for trust and confidence. Curiously, transaction fees do not affect demand. A miner's output is driven by competition, while price is governed solely by demand side factors. Though many have alluded to the cryptocurrency phenomenon as madness, we find that there is "a method in (this) madness".
SSRN
We explore the drivers of supply, demand, and price of Bitcoin. With a comprehensive data set we created from multiple sources, we demonstrate that demand is driven by the size of Bitcoin's active user base and technological developments in its open source codebase, which, in the absence of a central authority, may be proxies for trust and confidence. Curiously, transaction fees do not affect demand. A miner's output is driven by competition, while price is governed solely by demand side factors. Though many have alluded to the cryptocurrency phenomenon as madness, we find that there is "a method in (this) madness".
Political Lobbying, Insider Trading, and CEO Compensation
SSRN
In this study, we determine why CEOs from lobbying firms receive higher pay compared to their non-lobbying peers. We investigate whether insider trading can explain high CEO pay. Using hand-collected firm-level lobbying data, we examine whether CEOs from lobbying firms engage in insider trading after sponsored bills are introduced and passed in the U.S. Congress. Our results show that the number of CEO stock transactions from lobbying firms correlates with bills being passed, which yields higher compensation packages. In addition, we find that lobbying benefits firm performance. Lobbying firms receive more government contracts, which increases firm value. Overall, lobbying benefits both CEOs and shareholders.
SSRN
In this study, we determine why CEOs from lobbying firms receive higher pay compared to their non-lobbying peers. We investigate whether insider trading can explain high CEO pay. Using hand-collected firm-level lobbying data, we examine whether CEOs from lobbying firms engage in insider trading after sponsored bills are introduced and passed in the U.S. Congress. Our results show that the number of CEO stock transactions from lobbying firms correlates with bills being passed, which yields higher compensation packages. In addition, we find that lobbying benefits firm performance. Lobbying firms receive more government contracts, which increases firm value. Overall, lobbying benefits both CEOs and shareholders.
Product Recalls and Security Prices: New Evidence From the US Market
SSRN
We examine 1460 product recalls that were announced by U.S Official Agencies between January 1990 and December 2014. Consistent with previous research, we report statistically significant negative abnormal returns during the announcement dates. Moreover, our results suggest two main objectives. First, we find that the effect of product recalls vary for industries in terms of operation and competition. Second, we show that recall announcements cause spillover effect at industry where rival firms receive short term positive abnormal returns during announcement dates. Over post-announcement periods, cumulative abnormal returns (CARs) lose significance and results are robust for both selected market index and estimation method.
SSRN
We examine 1460 product recalls that were announced by U.S Official Agencies between January 1990 and December 2014. Consistent with previous research, we report statistically significant negative abnormal returns during the announcement dates. Moreover, our results suggest two main objectives. First, we find that the effect of product recalls vary for industries in terms of operation and competition. Second, we show that recall announcements cause spillover effect at industry where rival firms receive short term positive abnormal returns during announcement dates. Over post-announcement periods, cumulative abnormal returns (CARs) lose significance and results are robust for both selected market index and estimation method.
Regulatory effects on short-term interest rates
RePEC
We analyse the effects of EMIR and Basel III regulations on short-term interest rates. EMIR requires central clearing houses (CCP) to continually acquire safe assets, thus expanding the lending supply of repurchase agreements (repo). Basel III, in contrast, disincentivises the borrowing demand by tightening banks' balance sheet constraints. Using unique datasets of repo transactions and CCP activity, we find compelling evidence for both supply and demand channels. The overall effects are decreasing short-term rates and increasing market imbalances in various forms, all of which entail unintended consequences originated from the new regulatory framework.
RePEC
We analyse the effects of EMIR and Basel III regulations on short-term interest rates. EMIR requires central clearing houses (CCP) to continually acquire safe assets, thus expanding the lending supply of repurchase agreements (repo). Basel III, in contrast, disincentivises the borrowing demand by tightening banks' balance sheet constraints. Using unique datasets of repo transactions and CCP activity, we find compelling evidence for both supply and demand channels. The overall effects are decreasing short-term rates and increasing market imbalances in various forms, all of which entail unintended consequences originated from the new regulatory framework.
Repo Specialness in the Transmission of Quantitative Easing
SSRN
I show that the repo specialness of sovereign bonds can magnify the transmission of central bank quantitative easing into the real economy. Investors who cannot take advantage of the repo specialness of government bonds substitute for government bonds with riskier assets, such as corporate bonds. The extra demand from this portfolio substitution lowers corporate financing costs. I quantify the magnitude of this repo specialness channel for quantitative easing (QE) transmission in the context of the Public Sector Purchase Program of the Eurosystem.
SSRN
I show that the repo specialness of sovereign bonds can magnify the transmission of central bank quantitative easing into the real economy. Investors who cannot take advantage of the repo specialness of government bonds substitute for government bonds with riskier assets, such as corporate bonds. The extra demand from this portfolio substitution lowers corporate financing costs. I quantify the magnitude of this repo specialness channel for quantitative easing (QE) transmission in the context of the Public Sector Purchase Program of the Eurosystem.
Steering Consumers to Affiliated Financial Services: Evidence from Brokered Housing Transactions
SSRN
We use artificial intelligence to identify financial steering activity in housing transactions. Examining data that allow us to observe private information exchanges between listing and buyer agents, we find that over 16 percent of the homes for sale had negotiation constraints requiring financed buyers to be cross-qualified by an affiliated lender even if they had already been pre-qualified with another lender. Applying a quasi-experiment, we find that affected financed buyers encountered a premium of 3.7 percent (or $5,600) for the average home. Steering also seems to reduce access to credit for African Americans, Hispanics, and women.
SSRN
We use artificial intelligence to identify financial steering activity in housing transactions. Examining data that allow us to observe private information exchanges between listing and buyer agents, we find that over 16 percent of the homes for sale had negotiation constraints requiring financed buyers to be cross-qualified by an affiliated lender even if they had already been pre-qualified with another lender. Applying a quasi-experiment, we find that affected financed buyers encountered a premium of 3.7 percent (or $5,600) for the average home. Steering also seems to reduce access to credit for African Americans, Hispanics, and women.
Substitution between Short Selling and Options Trading in Predicting Aggregate Stock Returns
SSRN
Splitting stocks into groups with and without options trading, we find that only the aggregate short interest index constructed by the stocks without options trading predicts market returns in both in-sample and out-of-sample tests. The return predictability is up to six months and does not revert. Similarly, when splitting stocks into groups based on short selling risks, we find only the aggregate option implied volatility spread constructed by the stocks with higher short selling risks predicts market returns. Overall, our results show that there exists a substitution effect between short selling and options trading in predicting aggregate stock returns. This substitution effect could explain the phenomena that aggregate short interest does not predict market returns in recent years, given the rapid development of the options market.
SSRN
Splitting stocks into groups with and without options trading, we find that only the aggregate short interest index constructed by the stocks without options trading predicts market returns in both in-sample and out-of-sample tests. The return predictability is up to six months and does not revert. Similarly, when splitting stocks into groups based on short selling risks, we find only the aggregate option implied volatility spread constructed by the stocks with higher short selling risks predicts market returns. Overall, our results show that there exists a substitution effect between short selling and options trading in predicting aggregate stock returns. This substitution effect could explain the phenomena that aggregate short interest does not predict market returns in recent years, given the rapid development of the options market.
The Best of Strategies for the Worst of Times: Can Portfolios be Crisis Proofed?
SSRN
In the late stages of long bull markets, a popular question arises: What steps can an investor take to mitigate the impact of the inevitable large equity correction? However, hedging equity portfolios is notoriously difficult and expensive. We analyze the performance of different tools that investors could deploy. For example, continuously holding short-dated S&P 500 put options is the most reliable defensive method but also the most costly strategy. Holding ‘safe-haven’ US Treasury bonds produces a positive carry, but may be an unreliable crisis-hedge strategy, as the post-2000 negative bond-equity correlation is a historical rarity. Long gold and long credit protection portfolios sit in between puts and bonds in terms of both cost and reliability. Dynamic strategies that performed well during past drawdowns include: futures time-series momentum (which benefits from extended equity sell-offs) and a quality strategy that takes long/short positions in the highest/lowest quality company stocks (which benefits from a ‘flight-to-quality’ effect during crises). We examine both large equity drawdowns and recessions. We also provide some out-of-sample evidence of the defensive performance of these strategies relative to an earlier, related paper.
SSRN
In the late stages of long bull markets, a popular question arises: What steps can an investor take to mitigate the impact of the inevitable large equity correction? However, hedging equity portfolios is notoriously difficult and expensive. We analyze the performance of different tools that investors could deploy. For example, continuously holding short-dated S&P 500 put options is the most reliable defensive method but also the most costly strategy. Holding ‘safe-haven’ US Treasury bonds produces a positive carry, but may be an unreliable crisis-hedge strategy, as the post-2000 negative bond-equity correlation is a historical rarity. Long gold and long credit protection portfolios sit in between puts and bonds in terms of both cost and reliability. Dynamic strategies that performed well during past drawdowns include: futures time-series momentum (which benefits from extended equity sell-offs) and a quality strategy that takes long/short positions in the highest/lowest quality company stocks (which benefits from a ‘flight-to-quality’ effect during crises). We examine both large equity drawdowns and recessions. We also provide some out-of-sample evidence of the defensive performance of these strategies relative to an earlier, related paper.
The Causal Effect of Market Transparency on Corporate Disclosure
SSRN
I study how increased market transparency affects firms’ disclosure incentives. For my main tests, I exploit the staggered introduction of TRACE, which made bond transactions and the resulting market prices publicly observable. My main result is that firms provide more guidance when their bonds’ trading becomes observable. I provide evidence that this effect is stronger for firms whose revealed bond trading contains more incremental information, and that the additional disclosures tend to contain bad news. I corroborate my main results using a small, randomized controlled experiment conducted by FINRA. My results are consistent with the notion that investors’ access to market information limits managers’ ability/incentives to withhold information.
SSRN
I study how increased market transparency affects firms’ disclosure incentives. For my main tests, I exploit the staggered introduction of TRACE, which made bond transactions and the resulting market prices publicly observable. My main result is that firms provide more guidance when their bonds’ trading becomes observable. I provide evidence that this effect is stronger for firms whose revealed bond trading contains more incremental information, and that the additional disclosures tend to contain bad news. I corroborate my main results using a small, randomized controlled experiment conducted by FINRA. My results are consistent with the notion that investors’ access to market information limits managers’ ability/incentives to withhold information.
The Chilling Effect of Regulation FD: Evidence from Twitter
SSRN
We use Twitter to examine whether the level playing field requirement of Regulation Fair Disclosure (“Reg-FDâ€) chills the adoption and use of new disclosure technologies. We focus on Twitter because prior studies have established that the corporate use of Twitter generates capital market benefits for the firm. We generate inferences using the unexpected endorsement of social media following an SEC investigation (“Reg-SocMediaâ€). Our analyses indicate that there were substantial changes in the use of Twitter and in the market response to firms’ financial tweets following Reg-SocMedia. We find a non-transitory stock price response of 25 basis points to financial tweets following Reg-SocMedia, compared with no detectable response before Reg-SocMedia. This finding persists on days with no concurrent disclosures, and is stronger for firms with more Twitter followers. We also find a substantial increase in followers for financial tweeting firms, suggesting that investors are responding to changes in firms’ tweeting practices. Collectively, our findings suggest that firms were reluctant to use Twitter for communicating value relevant financial information without SEC guidance related to Reg-FD. This finding is consistent with the notion that Reg-FD has potentially slowed the adoption of valuable new disclosure technologies.
SSRN
We use Twitter to examine whether the level playing field requirement of Regulation Fair Disclosure (“Reg-FDâ€) chills the adoption and use of new disclosure technologies. We focus on Twitter because prior studies have established that the corporate use of Twitter generates capital market benefits for the firm. We generate inferences using the unexpected endorsement of social media following an SEC investigation (“Reg-SocMediaâ€). Our analyses indicate that there were substantial changes in the use of Twitter and in the market response to firms’ financial tweets following Reg-SocMedia. We find a non-transitory stock price response of 25 basis points to financial tweets following Reg-SocMedia, compared with no detectable response before Reg-SocMedia. This finding persists on days with no concurrent disclosures, and is stronger for firms with more Twitter followers. We also find a substantial increase in followers for financial tweeting firms, suggesting that investors are responding to changes in firms’ tweeting practices. Collectively, our findings suggest that firms were reluctant to use Twitter for communicating value relevant financial information without SEC guidance related to Reg-FD. This finding is consistent with the notion that Reg-FD has potentially slowed the adoption of valuable new disclosure technologies.
The Impact of Financial Literacy on Negotiation Behavior
SSRN
This research investigates the role of financial literacy on initiating and achieving a favorable negotiation outcome in an employment context. With a goal of improving long-term financial well-being, extant research examines whether increasing a person’s understanding of basic financial concepts (hereafter “financial literacyâ€) improves his/her financial decision-making. The current research proposes broader effects of financial literacy via negotiation behavior. We follow prior research to measure financial literacy both objectively (as the accurate assessment of basic financial concepts, hereafter “financial knowledgeâ€) and subjectively (as confidence in the application of basic financial skills and concepts, hereafter “financial confidenceâ€). In a series of studies engaging students from undergraduate business courses and adults recruited from an online crowdsourcing service, this research first examines the correlation between these measures of financial literacy and (a) the likelihood of initiating a negotiation and (b) the likely outcome from a negotiation, if initiated. Results suggest that financial confidence impacts participants’ willingness to engage in negotiation, while financial knowledge impacts the level of participants’ first offer. This research then evaluates the causal impact of improvements in financial knowledge via feedback on participants’ own responses to financial literacy questions. The causal nature of the relationship is confirmed with feedback leading to improved measures of financial knowledge, which in turn increase participants’ first offer. These findings suggest financial literacy likely has important implications for career advancement and compensation, as well as the successful management of interpersonal communications, even in fields not traditionally thought of as focusing on numerical reasoning skills.
SSRN
This research investigates the role of financial literacy on initiating and achieving a favorable negotiation outcome in an employment context. With a goal of improving long-term financial well-being, extant research examines whether increasing a person’s understanding of basic financial concepts (hereafter “financial literacyâ€) improves his/her financial decision-making. The current research proposes broader effects of financial literacy via negotiation behavior. We follow prior research to measure financial literacy both objectively (as the accurate assessment of basic financial concepts, hereafter “financial knowledgeâ€) and subjectively (as confidence in the application of basic financial skills and concepts, hereafter “financial confidenceâ€). In a series of studies engaging students from undergraduate business courses and adults recruited from an online crowdsourcing service, this research first examines the correlation between these measures of financial literacy and (a) the likelihood of initiating a negotiation and (b) the likely outcome from a negotiation, if initiated. Results suggest that financial confidence impacts participants’ willingness to engage in negotiation, while financial knowledge impacts the level of participants’ first offer. This research then evaluates the causal impact of improvements in financial knowledge via feedback on participants’ own responses to financial literacy questions. The causal nature of the relationship is confirmed with feedback leading to improved measures of financial knowledge, which in turn increase participants’ first offer. These findings suggest financial literacy likely has important implications for career advancement and compensation, as well as the successful management of interpersonal communications, even in fields not traditionally thought of as focusing on numerical reasoning skills.
The Market Generator
SSRN
We propose to use a special type of generative neural network - a Restricted Boltzmann Machine (RBM) - to build a powerful generator of synthetic market data that can replicate the probability distribution of the original market data. An RBM constructed with stochastic binary activation units in both the hidden and the visible layers (Bernoulli RBM) can learn complex dependence structures while avoiding overfitting. In this paper we consider an efficient data transformation and sampling approach that allows us to operate Bernoulli RBM on real-valued data sets and control the degree of autocorrelation and non-stationarity in the generated time series.
SSRN
We propose to use a special type of generative neural network - a Restricted Boltzmann Machine (RBM) - to build a powerful generator of synthetic market data that can replicate the probability distribution of the original market data. An RBM constructed with stochastic binary activation units in both the hidden and the visible layers (Bernoulli RBM) can learn complex dependence structures while avoiding overfitting. In this paper we consider an efficient data transformation and sampling approach that allows us to operate Bernoulli RBM on real-valued data sets and control the degree of autocorrelation and non-stationarity in the generated time series.
The Rise and Fall of Regulatory Competition in Corporate Insolvency Law in the European Union
SSRN
In this essay, I discuss the rise and fall of regulatory competition in corporate insolvency law in the European Union. The rise is closely associated with the European Insolvency Regulation (EIR, 2002), and it is well-documented. The UK has emerged as the ‘market leader’, especially for corporate restructurings. The fall is about to happen, triggered by a combination of factors: the recasting of the EIR (2017), the European Restructuring Directive (ERD, 2019) and Brexit (2019). The UK will lose its dominant market position. I present evidence to support this hypothesis.
SSRN
In this essay, I discuss the rise and fall of regulatory competition in corporate insolvency law in the European Union. The rise is closely associated with the European Insolvency Regulation (EIR, 2002), and it is well-documented. The UK has emerged as the ‘market leader’, especially for corporate restructurings. The fall is about to happen, triggered by a combination of factors: the recasting of the EIR (2017), the European Restructuring Directive (ERD, 2019) and Brexit (2019). The UK will lose its dominant market position. I present evidence to support this hypothesis.
The cost of clearing fragmentation
RePEC
Fragmenting clearing across multiple central counter-parties (CCPs) is costly. This is because dealers providing liquidity globally, cannot net trades cleared in different CCPs and this increases their collateral costs. These costs are then passed on to their clients through price distortions which take the form of a price differential (basis) when the same products are cleared in different CCPs. Using proprietary data, we document an economically significant CCP basis for dollar swap contracts cleared both at the Chicago Mercantile Exchange (CME) and the London Clearing House (LCH) and provide empirical evidence consistent with a collateral cost explanation of this basis.
RePEC
Fragmenting clearing across multiple central counter-parties (CCPs) is costly. This is because dealers providing liquidity globally, cannot net trades cleared in different CCPs and this increases their collateral costs. These costs are then passed on to their clients through price distortions which take the form of a price differential (basis) when the same products are cleared in different CCPs. Using proprietary data, we document an economically significant CCP basis for dollar swap contracts cleared both at the Chicago Mercantile Exchange (CME) and the London Clearing House (LCH) and provide empirical evidence consistent with a collateral cost explanation of this basis.
Tobin’s Q and Its Determinants: A Study of Market Valuation in MISC Berhad
SSRN
The study examines the impact of Tobin’s Q or market valuation determinants on firm corporate governance of MISC Berhad. Tobin’s Q of the firm represents the ratio of market capitalization plus long-term debt to total assets. This study employs time series regression analysis from 2012 to 2016. The findings show that only internal factors giving significant impact to the market valuation of the firm when it has been tested solely in Model 1 and combined for both internal and external factors in Model 3. Meanwhile, there is no significant result when the external factors were tested solely in Model 2. The multiple linear regression analysis shows that the Altman Z score is the most significant and positively influenced the market valuation of MISC Berhad.
SSRN
The study examines the impact of Tobin’s Q or market valuation determinants on firm corporate governance of MISC Berhad. Tobin’s Q of the firm represents the ratio of market capitalization plus long-term debt to total assets. This study employs time series regression analysis from 2012 to 2016. The findings show that only internal factors giving significant impact to the market valuation of the firm when it has been tested solely in Model 1 and combined for both internal and external factors in Model 3. Meanwhile, there is no significant result when the external factors were tested solely in Model 2. The multiple linear regression analysis shows that the Altman Z score is the most significant and positively influenced the market valuation of MISC Berhad.
Trust and the Cost of Bank Loans: International Evidence
SSRN
This paper analyses the effect of trust on bank loan spreads for a sample of 16,324 loans from 36 countries over the period 2003-2013, considering not just the role of trust but also the interaction between trust and the legal protection of property rights and how its effect is moderated by the economic development of the country. The results show that greater trust tend to reduce the bank loan spreads when the degree of the protection of property rights is weak in line with trust and legal protection being alternative mechanisms for reducing the cost of debt. Regarding with the degree of economic development, the results show that both trust and legal protection have a greater influence in countries with a lower degree of economic development.
SSRN
This paper analyses the effect of trust on bank loan spreads for a sample of 16,324 loans from 36 countries over the period 2003-2013, considering not just the role of trust but also the interaction between trust and the legal protection of property rights and how its effect is moderated by the economic development of the country. The results show that greater trust tend to reduce the bank loan spreads when the degree of the protection of property rights is weak in line with trust and legal protection being alternative mechanisms for reducing the cost of debt. Regarding with the degree of economic development, the results show that both trust and legal protection have a greater influence in countries with a lower degree of economic development.
