Research articles for the 2020-02-08
Capital and Lending Growth of Banking Sector in Indonesia: Study on The BUKU Category
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Mostly, loans are an essential source of income for banks, and capital is used to absorb shocks during default risk. This study examines the effect of bank capital on lending growth in each Commercial Bank based on Business Activities (BUKU) category listed on the Indonesia Stock Exchange (IDX). This research used the fixed effect model. Data obtained from the company’s financial report published in the 2010-2016 period. There is an inconsistency effect of bank capital on lending growth in each category. The results showed that bank capital has a significant positive effect on lending growth at all bank samples, BUKU 1, and BUKU 2. Furthermore, bank capital has a significant negative effect on lending growth at BUKU 3 and BUKU 4. Analysis results showed that behavioral lending differs based on their owned core capital. This study implied that BUKU 1 and BUKU 2 tend to implement aggressive strategies to deal with market competition, while BUKU 3 and BUKU 4 prefer to perform the defensive strategy on lending because they have various sources of income that not only depend on the loan. Finally, these findings are in line with policies that have been made by Financial Services Authority (FSA) regarding the categorization of the bank’s size based on owned core capital.
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Mostly, loans are an essential source of income for banks, and capital is used to absorb shocks during default risk. This study examines the effect of bank capital on lending growth in each Commercial Bank based on Business Activities (BUKU) category listed on the Indonesia Stock Exchange (IDX). This research used the fixed effect model. Data obtained from the company’s financial report published in the 2010-2016 period. There is an inconsistency effect of bank capital on lending growth in each category. The results showed that bank capital has a significant positive effect on lending growth at all bank samples, BUKU 1, and BUKU 2. Furthermore, bank capital has a significant negative effect on lending growth at BUKU 3 and BUKU 4. Analysis results showed that behavioral lending differs based on their owned core capital. This study implied that BUKU 1 and BUKU 2 tend to implement aggressive strategies to deal with market competition, while BUKU 3 and BUKU 4 prefer to perform the defensive strategy on lending because they have various sources of income that not only depend on the loan. Finally, these findings are in line with policies that have been made by Financial Services Authority (FSA) regarding the categorization of the bank’s size based on owned core capital.
Contractual and Tournament Incentives in the Mutual Fund Industry
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I study the impact of contractual incentives on the behaviour of mutual fund managers in annual tournaments. I show that linear contracts as opposed to concave ones induce managers to make larger risk adjustments in response to their relative performance ranks. I argue that contracts with linear fee structure directly translate the convex relationship between past fund returns and fund size into a convex relationship between past performance and managerial pay, whereas concave contracts distort this relationship and make it less convex. I also demonstrate that higher fee rates encourage fund managers to engage into annual tournaments, as they strengthen the connection between fund size and managerial pay in comparison with lower fee rates. The above results are robust to controlling for funds characteristics, such as fund size, age and turnover, as well as year and style-fixed effects.
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I study the impact of contractual incentives on the behaviour of mutual fund managers in annual tournaments. I show that linear contracts as opposed to concave ones induce managers to make larger risk adjustments in response to their relative performance ranks. I argue that contracts with linear fee structure directly translate the convex relationship between past fund returns and fund size into a convex relationship between past performance and managerial pay, whereas concave contracts distort this relationship and make it less convex. I also demonstrate that higher fee rates encourage fund managers to engage into annual tournaments, as they strengthen the connection between fund size and managerial pay in comparison with lower fee rates. The above results are robust to controlling for funds characteristics, such as fund size, age and turnover, as well as year and style-fixed effects.
Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity
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We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms’ expected default â€" the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy.
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We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms’ expected default â€" the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy.
DeepLOB: Deep Convolutional Neural Networks for Limit Order Books
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We develop a large-scale deep learning model to predict price movements from limit order book (LOB) data of cash equities. The architecture utilises convolutional filters to capture the spatial structure of the limit order books as well as LSTM modules to capture longer time dependencies. The proposed network outperforms all existing state-of-the-art algorithms on the benchmark LOB dataset [1]. In a more realistic setting, we test our model by using one year market quotes from the London Stock Exchange and the model delivers a remarkably stable out-of-sample prediction accuracy for a variety of instruments. Importantly, our model translates well to instruments which were not part of the training set, indicating the model's ability to extract universal features. In order to better understand these features and to go beyond a "black box" model, we perform a sensitivity analysis to understand the rationale behind the model predictions and reveal the components of LOBs that are most relevant. The ability to extract robust features which translate well to other instruments is an important property of our model which has many other applications.
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We develop a large-scale deep learning model to predict price movements from limit order book (LOB) data of cash equities. The architecture utilises convolutional filters to capture the spatial structure of the limit order books as well as LSTM modules to capture longer time dependencies. The proposed network outperforms all existing state-of-the-art algorithms on the benchmark LOB dataset [1]. In a more realistic setting, we test our model by using one year market quotes from the London Stock Exchange and the model delivers a remarkably stable out-of-sample prediction accuracy for a variety of instruments. Importantly, our model translates well to instruments which were not part of the training set, indicating the model's ability to extract universal features. In order to better understand these features and to go beyond a "black box" model, we perform a sensitivity analysis to understand the rationale behind the model predictions and reveal the components of LOBs that are most relevant. The ability to extract robust features which translate well to other instruments is an important property of our model which has many other applications.
Determinan Kebijakan Dividen Pada Sektor Nonkeuangan (Determinants of Dividend Policy in the Non-Financial Sector)
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Indonesian Abstract: Dividen yang diperoleh merupakan salah satu alasan investor untuk menanamkan dananya pada suatu perusahaan. Dividen merupakan kebijakan yang penting dalam perusahaan karena menyangkut pemegang saham yang notabene merupakan sumber modal dari perusahaan tersebut. Investor dalam menginvestasikan dananya kedalam instrumen saham tentunya menginginkan return yang tinggi. Penelitian ini bertujuan untuk mengetahui pengaruh size, leverage, growth opportunities, return on on equity, price earning ratio, quick ratio, dan free cash flow terhadap kebijakan dividen pada perusahaan nonkeuangan yang terdaftar di Bursa Efek Indonesia selama periode 2013-2018. Data diperoleh berdasarkan informasi pada laporan keuangan dan tahunan perusahaan. Penelitian ini menggunakan sampel 122 perusahaan dengan jumlah pengamatan sebanyak 732 pengamatan dengan menggunakan metode purposive sampling dan model regresi linier berganda. Penelitian diolah menggunakan SPSS 25 Statistic for Windows. Variabel independen pada penelitian ini adalah size, leverage, growth opportunities, return on on equity, price earning ratio, quick ratio, dan free cash flow. Variabel dependen dalam penelitian ini adalah kebijakan dividen. Berdasarkan hasil analisis dapat disimpulkan bahwa size dan price earning ratio berpengaruh positif signifikan terhadap kebijakan dividen. Quick ratio dan free cash flow berpengaruh positif tidak signifikan terhadap kebijakan dividen. Leverage dan return on on equity berpengaruh negatif tidak signifikan terhadap kebijakan dividen dan growth opportunities berpengaruh negatif signifikan terhadap kebijakan dividen.English Abstract: Obtained dividends are one of the reasons for investors to invest their funds in a company. Dividends are an important policy in a company because it involves shareholders who incidentally are a source of capital from the company. Investors in investing funds into stock instruments certainly want a high return. This study aims to determine the effect of size, leverage, growth opportunities, return on equity, price earning ratio, quick ratio, and free cash flow on dividend policy on non-financial companies listed on the Indonesia Stock Exchange during the 2013-2018 period. Data obtained based on information on the firm's financial and annual reports. This study used a sample of 122 companies with a total of 732 observations using the purposive sampling method and multiple linear regression models. This research was processed using SPSS 25 Statistics for Windows. The independent variables in this study are size, leverage, growth opportunities, return on equity, price earnings ratio, quick ratio, and free cash flow. The dependent variable in this study is dividend policy. Based on the results of the analysis, it can be concluded that the size and price earning ratio have a significant positive effect on dividend policy. Quick ratio and free cash flow have a significant positive effect on dividend policy. Leverage and return on equity do not have a significant negative effect on dividend policy and growth opportunities have a significant negative effect on dividend policy.
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Indonesian Abstract: Dividen yang diperoleh merupakan salah satu alasan investor untuk menanamkan dananya pada suatu perusahaan. Dividen merupakan kebijakan yang penting dalam perusahaan karena menyangkut pemegang saham yang notabene merupakan sumber modal dari perusahaan tersebut. Investor dalam menginvestasikan dananya kedalam instrumen saham tentunya menginginkan return yang tinggi. Penelitian ini bertujuan untuk mengetahui pengaruh size, leverage, growth opportunities, return on on equity, price earning ratio, quick ratio, dan free cash flow terhadap kebijakan dividen pada perusahaan nonkeuangan yang terdaftar di Bursa Efek Indonesia selama periode 2013-2018. Data diperoleh berdasarkan informasi pada laporan keuangan dan tahunan perusahaan. Penelitian ini menggunakan sampel 122 perusahaan dengan jumlah pengamatan sebanyak 732 pengamatan dengan menggunakan metode purposive sampling dan model regresi linier berganda. Penelitian diolah menggunakan SPSS 25 Statistic for Windows. Variabel independen pada penelitian ini adalah size, leverage, growth opportunities, return on on equity, price earning ratio, quick ratio, dan free cash flow. Variabel dependen dalam penelitian ini adalah kebijakan dividen. Berdasarkan hasil analisis dapat disimpulkan bahwa size dan price earning ratio berpengaruh positif signifikan terhadap kebijakan dividen. Quick ratio dan free cash flow berpengaruh positif tidak signifikan terhadap kebijakan dividen. Leverage dan return on on equity berpengaruh negatif tidak signifikan terhadap kebijakan dividen dan growth opportunities berpengaruh negatif signifikan terhadap kebijakan dividen.English Abstract: Obtained dividends are one of the reasons for investors to invest their funds in a company. Dividends are an important policy in a company because it involves shareholders who incidentally are a source of capital from the company. Investors in investing funds into stock instruments certainly want a high return. This study aims to determine the effect of size, leverage, growth opportunities, return on equity, price earning ratio, quick ratio, and free cash flow on dividend policy on non-financial companies listed on the Indonesia Stock Exchange during the 2013-2018 period. Data obtained based on information on the firm's financial and annual reports. This study used a sample of 122 companies with a total of 732 observations using the purposive sampling method and multiple linear regression models. This research was processed using SPSS 25 Statistics for Windows. The independent variables in this study are size, leverage, growth opportunities, return on equity, price earnings ratio, quick ratio, and free cash flow. The dependent variable in this study is dividend policy. Based on the results of the analysis, it can be concluded that the size and price earning ratio have a significant positive effect on dividend policy. Quick ratio and free cash flow have a significant positive effect on dividend policy. Leverage and return on equity do not have a significant negative effect on dividend policy and growth opportunities have a significant negative effect on dividend policy.
Do Bitcoin Stylized Facts Depend on Geopolitical Risk?
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We show that the dynamics of Bitcoin (BTC) price are strongly influenced by the level of global geopolitical risk. Indeed, a number of well established stylized facts about BTC cease to be true when we condition the evolution of BTC returns on the GPR index. In particular, we find that when geopolitical risk is high, BTC is no longer a perfect portfolio diversifier as it correlates strongly with Gold, US treasury yields and negatively with EUR/USD. We also find that BTC price bubbles are much more likely to occur when geopolitical risk is high, i.e. when investors flock to BTC as a digital safe haven or to a lesser extent when geopolitical risk is low and the BTC market behavior is speculative. Conversely, when geopolitical risk is moderate we find that BTC returns are approximately normally distributed and therefore do not seem to foster asset pricing bubbles. These results suggest that investors should adjust their portfolio holdings of BTC while adequately taking into account the amount of geopolitical risk present in the economy. Last, we find that the efficiency (in its weak form) of the BTC market increases with the level of geopolitical risk and that in fact the BTC market is rather efficient for moderate and high GPR.
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We show that the dynamics of Bitcoin (BTC) price are strongly influenced by the level of global geopolitical risk. Indeed, a number of well established stylized facts about BTC cease to be true when we condition the evolution of BTC returns on the GPR index. In particular, we find that when geopolitical risk is high, BTC is no longer a perfect portfolio diversifier as it correlates strongly with Gold, US treasury yields and negatively with EUR/USD. We also find that BTC price bubbles are much more likely to occur when geopolitical risk is high, i.e. when investors flock to BTC as a digital safe haven or to a lesser extent when geopolitical risk is low and the BTC market behavior is speculative. Conversely, when geopolitical risk is moderate we find that BTC returns are approximately normally distributed and therefore do not seem to foster asset pricing bubbles. These results suggest that investors should adjust their portfolio holdings of BTC while adequately taking into account the amount of geopolitical risk present in the economy. Last, we find that the efficiency (in its weak form) of the BTC market increases with the level of geopolitical risk and that in fact the BTC market is rather efficient for moderate and high GPR.
Earnings Announcements, Realized Volatility and its Components
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I suggest and apply methodology for analyzing a consistent and non-parametric estimator of the integrated variance, the realized volatility, around earnings announcements. Modeling expected realized volatility as the out-of-sample forecast from a HAR model, I define the abnormal realized volatility as the difference between the actual and expected realized volatility. I then decompose the realized volatility into a continuous- and jump component to analyze what drives the volatility increase at the earnings announcement. This yields an improvement to the standard proxy for the information effect developed by Beaver (1968). The jump component of volatility is only abnormally high on the day of the earnings announcement and the subsequent day, whereas the continuous component is abnormally high throughout the event period. Missing benchmarks has a relatively larger effect on the jump component of volatility than beating them, and vice versa for the continuous component.
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I suggest and apply methodology for analyzing a consistent and non-parametric estimator of the integrated variance, the realized volatility, around earnings announcements. Modeling expected realized volatility as the out-of-sample forecast from a HAR model, I define the abnormal realized volatility as the difference between the actual and expected realized volatility. I then decompose the realized volatility into a continuous- and jump component to analyze what drives the volatility increase at the earnings announcement. This yields an improvement to the standard proxy for the information effect developed by Beaver (1968). The jump component of volatility is only abnormally high on the day of the earnings announcement and the subsequent day, whereas the continuous component is abnormally high throughout the event period. Missing benchmarks has a relatively larger effect on the jump component of volatility than beating them, and vice versa for the continuous component.
Factorisable Multitask Quantile Regression
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A multivariate quantile regression model with a factor structure is proposed to study data with many responses of interest. The factor structure is allowed to vary with the quantile levels, which makes our framework more flexible than the classical factor models. The model is estimated with the nuclear norm regularization in order to accommodate the high dimensionality of data, but the incurred optimization problem can only be efficiently solved in an approximate manner by off-the-shelf optimization methods. Such a scenario is often seen when the empirical risk is non-smooth or the numerical procedure involves expensive subroutines such as singular value decompo- sition. To ensure that the approximate estimator accurately estimates the model, non-asymptotic bounds on error of the the approximate estimator is established. For implementation, a numerical procedure that provably marginalizes the approximate error is proposed. The merits of our model and the proposed numerical procedures are demonstrated through Monte Carlo experiments and an application to finance involving a large pool of asset returns.
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A multivariate quantile regression model with a factor structure is proposed to study data with many responses of interest. The factor structure is allowed to vary with the quantile levels, which makes our framework more flexible than the classical factor models. The model is estimated with the nuclear norm regularization in order to accommodate the high dimensionality of data, but the incurred optimization problem can only be efficiently solved in an approximate manner by off-the-shelf optimization methods. Such a scenario is often seen when the empirical risk is non-smooth or the numerical procedure involves expensive subroutines such as singular value decompo- sition. To ensure that the approximate estimator accurately estimates the model, non-asymptotic bounds on error of the the approximate estimator is established. For implementation, a numerical procedure that provably marginalizes the approximate error is proposed. The merits of our model and the proposed numerical procedures are demonstrated through Monte Carlo experiments and an application to finance involving a large pool of asset returns.
Financial Technology: Fragmented for Financial Inclusion?
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This study goals to discuss how the financial inclusion progress in Indonesia could be affected by the growing fintech industry. This research comprehensively discusses the current state of the platforms in the country, including the potential benefits and challenges. Such afflictions include the hugely-concentrated deposit market, to begin with, and the discrepancies between regulators and the technological changes, while the high internet and mobile phone penetration are only one of the many advantages the country endowed. The study also aims to highlight the challenges faced in increasing financial inclusion before the fintech platforms begin to flourish and how they differ to the current condition. The novelty and relevant policy recommendations also provided in the latter parts of the discussion.
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This study goals to discuss how the financial inclusion progress in Indonesia could be affected by the growing fintech industry. This research comprehensively discusses the current state of the platforms in the country, including the potential benefits and challenges. Such afflictions include the hugely-concentrated deposit market, to begin with, and the discrepancies between regulators and the technological changes, while the high internet and mobile phone penetration are only one of the many advantages the country endowed. The study also aims to highlight the challenges faced in increasing financial inclusion before the fintech platforms begin to flourish and how they differ to the current condition. The novelty and relevant policy recommendations also provided in the latter parts of the discussion.
GDP Manipulation, Political Incentives, and Earnings Management
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Political decisions often affect macroeconomic activities that might have triggered down effect on corporate decisions. Using satellite night light data as a proxy for economic activity, we find that local provinces in China actively manipulate their gross domestic product (GDP) figures. Furthermore, the magnitude of the manipulation is associated with higher levels of earnings management by local companies, especially local state-owned enterprises. We show that local politicians inflate reported GDP figure to seek career advancement, and to showcase their success as political leaders. They pressure local companies to inflate their earnings and business activities to lift the local GDP. Our findings illustrate how the political agenda and GDP growth at the macro level can affect corporate earnings management at the micro level. Our study may help policy makers and investors better understand the sources of GDP manipulation and the motives for corporate earnings management.
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Political decisions often affect macroeconomic activities that might have triggered down effect on corporate decisions. Using satellite night light data as a proxy for economic activity, we find that local provinces in China actively manipulate their gross domestic product (GDP) figures. Furthermore, the magnitude of the manipulation is associated with higher levels of earnings management by local companies, especially local state-owned enterprises. We show that local politicians inflate reported GDP figure to seek career advancement, and to showcase their success as political leaders. They pressure local companies to inflate their earnings and business activities to lift the local GDP. Our findings illustrate how the political agenda and GDP growth at the macro level can affect corporate earnings management at the micro level. Our study may help policy makers and investors better understand the sources of GDP manipulation and the motives for corporate earnings management.
How Intangible Assets Affect the Corporate Financial Performances and How It Varies from Sector â€" to â€" Sector?
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To explore the varied perspectives of intangible assets and corporate financial performance nexus, this study employs various measures, i.e. Generalized Method of Moments (GMM). Analysis reveals significant variances in different asset classes and in different sectors. The findings provide insights in risk-return paradigm of intangible investments and the successive returns besides helping the policymakers to settle the priority sector to get the expected result in line with the country’s investment policy.
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To explore the varied perspectives of intangible assets and corporate financial performance nexus, this study employs various measures, i.e. Generalized Method of Moments (GMM). Analysis reveals significant variances in different asset classes and in different sectors. The findings provide insights in risk-return paradigm of intangible investments and the successive returns besides helping the policymakers to settle the priority sector to get the expected result in line with the country’s investment policy.
Incentives, Clienteles, and Information Production: New Evidence from Investor-paid and Issuer-Paid Agency Credit Ratings and Equity Analyst Recommendations
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We compare the timeliness of the information signals produced by investor-paid credit rating agencies (Egan and Jones), issuer-paid credit rating agencies (Standard and Poor's), and by sell-side equity analysts, and study the predictive power of this information for the bond and equity markets and for firm investment levels. We conjecture that the three information producing intermediaries differ in two important dimensions: first, in their compensation structure, giving rise to differences in their incentives to produce and transmit timely information signals; and second, in their information consuming clientele, giving rise to differences in the aspects of firms' future cash flow distribution on which they focus. We develop testable hypotheses based on the above two differences. Consistent with our hypotheses, we find the following. First, information signals produced by the investor-paid rating agency are the most timely, and anticipates those produced by the issuer-paid agency and equity analysts. Second, while investor-paid agency rating changes have the greatest predictive power for bond yield spreads, equity analyst recommendations have the greatest predictive power for excess stock returns. Third, credit rating changes by the investor-paid rating agency have the greatest predictive power for firms' investment levels.
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We compare the timeliness of the information signals produced by investor-paid credit rating agencies (Egan and Jones), issuer-paid credit rating agencies (Standard and Poor's), and by sell-side equity analysts, and study the predictive power of this information for the bond and equity markets and for firm investment levels. We conjecture that the three information producing intermediaries differ in two important dimensions: first, in their compensation structure, giving rise to differences in their incentives to produce and transmit timely information signals; and second, in their information consuming clientele, giving rise to differences in the aspects of firms' future cash flow distribution on which they focus. We develop testable hypotheses based on the above two differences. Consistent with our hypotheses, we find the following. First, information signals produced by the investor-paid rating agency are the most timely, and anticipates those produced by the issuer-paid agency and equity analysts. Second, while investor-paid agency rating changes have the greatest predictive power for bond yield spreads, equity analyst recommendations have the greatest predictive power for excess stock returns. Third, credit rating changes by the investor-paid rating agency have the greatest predictive power for firms' investment levels.
Issuer IPO Underpricing and Directed Share Program (DSP)
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The issuer underpricing hypothesis addresses why IPOs with a Directed Share Program (DSP) are substantially more underpriced and why the issuers are not upset over the additional money left on the table. In support of the hypothesis, we find that both the final size and likelihood of DSP adoption are greater when expected IPO underpricing is high. Issuers with a DSP also strategically underprice their IPO through a downward bias in offer price adjustments, but will do so only when the cost is not prohibitive. Finally, the first-day IPO return is relatively higher when directed shares are allocated to customers.
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The issuer underpricing hypothesis addresses why IPOs with a Directed Share Program (DSP) are substantially more underpriced and why the issuers are not upset over the additional money left on the table. In support of the hypothesis, we find that both the final size and likelihood of DSP adoption are greater when expected IPO underpricing is high. Issuers with a DSP also strategically underprice their IPO through a downward bias in offer price adjustments, but will do so only when the cost is not prohibitive. Finally, the first-day IPO return is relatively higher when directed shares are allocated to customers.
Labor Restructuring and Acquisitions: Evidence from State Adoption of the Worker Adjustment and Retraining Notification Act
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We examine whether labor restructuring is an important consideration in making acquisition decisions using U.S. interstate variations in the Worker Adjustment and Retraining Notification Act. We show that the staggered introduction of this labor layoff law has a negative impact both on the aggregated number and value of acquisition activities and on the acquirer’s announcement returns. The decrease in acquirer returns is only due to lower combined synergies, rather than wealth transferred to the target’s shareholders from the acquirer’s shareholders. We also find that the labour restructuring activities are more likely to happen in target companies and the adoption of Mini WARN Act in acquirer headquarters state has no impact on acquisition activities. Overall, our paper suggests that labor restructuring is an important source to generate acquisition operating synergies.
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We examine whether labor restructuring is an important consideration in making acquisition decisions using U.S. interstate variations in the Worker Adjustment and Retraining Notification Act. We show that the staggered introduction of this labor layoff law has a negative impact both on the aggregated number and value of acquisition activities and on the acquirer’s announcement returns. The decrease in acquirer returns is only due to lower combined synergies, rather than wealth transferred to the target’s shareholders from the acquirer’s shareholders. We also find that the labour restructuring activities are more likely to happen in target companies and the adoption of Mini WARN Act in acquirer headquarters state has no impact on acquisition activities. Overall, our paper suggests that labor restructuring is an important source to generate acquisition operating synergies.
Measuring the Disposition Effect
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Despite hundreds of papers confirming the disposition effect, little attention has been devoted to measuring it. Using simulated and empirical data, this paper fills this gap and compares different methods. The results show that Odean's (1998) measure performs better than Weber & Camerer's (1998) approach and that the disposition effect estimates are very sensitive to whether paper gains and losses are counted every day of the sample period or only on days with sales, especially for investors who do not frequently monitor their portfolios.
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Despite hundreds of papers confirming the disposition effect, little attention has been devoted to measuring it. Using simulated and empirical data, this paper fills this gap and compares different methods. The results show that Odean's (1998) measure performs better than Weber & Camerer's (1998) approach and that the disposition effect estimates are very sensitive to whether paper gains and losses are counted every day of the sample period or only on days with sales, especially for investors who do not frequently monitor their portfolios.
Narcissism and the Art Market Performance
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Using a unique auction dataset from artinfo.com, we find that narcissism measured by the signatures of artists is positively associated with the market performance of artworks. The artworks of more narcissistic artists have higher market prices, higher estimates from auction houses, and higher outperformance compared to the art-market index. In support of this narcissistic view of the market performance of art works, we find that the higher recognition by art experts lead to more narcissistic artists having a greater number of solo and group exhibitions, more museum and gallery holdings, and higher art-history rankings. More narcissistic artists also tend to make larger paintings and date their works more frequently.
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Using a unique auction dataset from artinfo.com, we find that narcissism measured by the signatures of artists is positively associated with the market performance of artworks. The artworks of more narcissistic artists have higher market prices, higher estimates from auction houses, and higher outperformance compared to the art-market index. In support of this narcissistic view of the market performance of art works, we find that the higher recognition by art experts lead to more narcissistic artists having a greater number of solo and group exhibitions, more museum and gallery holdings, and higher art-history rankings. More narcissistic artists also tend to make larger paintings and date their works more frequently.
Penguatan Pengaruh Modal Bank Terhadap Pertumbuhan Kredit Melalui Pengelolaan Likuiditas (Strengthening of Bank Capital Effect on Lending Growth through Liquidity Management)
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Indonesian Abstract: Tujuan penelitian ini menguji pengaruh modal bank terhadap pertumbuhan kredit dengan moderasi tingkat likuiditas perusahaan perbankan yang terdaftar di Bursa Efek Indonesia. Penelitian ini menggunakan model regresi linear berganda dan Moderated Regression Analysis (MRA). Data diperoleh dari laporan keuangan perusahaan yang dipublikasikan pada periode 2010-2016. Variabel dependen dalam penelitian ini adalah pertumbuhan kredit yang diproksikan dengan Net Loans Growth. Variabel independen yang digunakan adalah modal bank yang diproksikan dengan Capital Adequacy Ratio (CAR). Variabel moderasi pada penelitian ini menggunakan tingkat likuiditas yang diproksikan dengan rasio likuiditas. Selain itu, variabel kontrol dalam penelitian ini adalah ukuran perusahaan yang diproksikan dengan logaritma dari total aset dan kualitas kredit yang diproksikan dengan Non Performing Loan (NPL). Hasil penelitian menunjukkan bahwa modal bank memiliki pengaruh positif signifikan terhadap pertumbuhan kredit dan tingkat likuiditas memperkuat pengaruh positif modal bank terhadap pertumbuhan kredit. Variabel kontrol ukuran perusahaan memiliki pengaruh positif signifikan terhadap pertumbuhan kredit dan variabel NPL berpengaruh tidak signifikan terhadap pertumbuhan kredit.English Abstract: The purpose of this research is to examine the effect of bank capital on lending growth with moderation of liquidity level of banking companies listed in Indonesian Stock Exchange. This study used multiple linear regression model and Moderated Regression Analysis (MRA). Data obtained from the company’s financial report published in 2010-2016 period. Dependent variable in this research is lending growth proxied with Net Loans Growth. Independent variable used bank capital proxied with Capital Adequacy Ratio (CAR). Moderating variable in this research used liquidity level proxied with liquidity ratio. In addition, controlling variables in this study are firm size proxied with logarithm of total assets and credit quality proxied with Non Performing Loan (NPL). The results showed that bank capital has significant positive effect on lending growth, while the liquidity ratio strengthens positive influence of bank capital on lending growth. Size control variable has significant positive effect on lending growth while NPL variable has no significant effect on lending growth.
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Indonesian Abstract: Tujuan penelitian ini menguji pengaruh modal bank terhadap pertumbuhan kredit dengan moderasi tingkat likuiditas perusahaan perbankan yang terdaftar di Bursa Efek Indonesia. Penelitian ini menggunakan model regresi linear berganda dan Moderated Regression Analysis (MRA). Data diperoleh dari laporan keuangan perusahaan yang dipublikasikan pada periode 2010-2016. Variabel dependen dalam penelitian ini adalah pertumbuhan kredit yang diproksikan dengan Net Loans Growth. Variabel independen yang digunakan adalah modal bank yang diproksikan dengan Capital Adequacy Ratio (CAR). Variabel moderasi pada penelitian ini menggunakan tingkat likuiditas yang diproksikan dengan rasio likuiditas. Selain itu, variabel kontrol dalam penelitian ini adalah ukuran perusahaan yang diproksikan dengan logaritma dari total aset dan kualitas kredit yang diproksikan dengan Non Performing Loan (NPL). Hasil penelitian menunjukkan bahwa modal bank memiliki pengaruh positif signifikan terhadap pertumbuhan kredit dan tingkat likuiditas memperkuat pengaruh positif modal bank terhadap pertumbuhan kredit. Variabel kontrol ukuran perusahaan memiliki pengaruh positif signifikan terhadap pertumbuhan kredit dan variabel NPL berpengaruh tidak signifikan terhadap pertumbuhan kredit.English Abstract: The purpose of this research is to examine the effect of bank capital on lending growth with moderation of liquidity level of banking companies listed in Indonesian Stock Exchange. This study used multiple linear regression model and Moderated Regression Analysis (MRA). Data obtained from the company’s financial report published in 2010-2016 period. Dependent variable in this research is lending growth proxied with Net Loans Growth. Independent variable used bank capital proxied with Capital Adequacy Ratio (CAR). Moderating variable in this research used liquidity level proxied with liquidity ratio. In addition, controlling variables in this study are firm size proxied with logarithm of total assets and credit quality proxied with Non Performing Loan (NPL). The results showed that bank capital has significant positive effect on lending growth, while the liquidity ratio strengthens positive influence of bank capital on lending growth. Size control variable has significant positive effect on lending growth while NPL variable has no significant effect on lending growth.
Searching for the Concentration-Price Effect in the German Movie Theater Industry
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This paper investigates whether a price-concentration relationship can be found on local cinema markets in Germany. First, we test a model of monopolistic pricing using a new set of German micro data and find no significant difference in admission prices on monopoly and oligopoly markets. In a next step, we test whether this can be explained by the existence of local monopolies, but find no hint of that. Implicit or explicit collusion among cinema operators might explain our observations.
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This paper investigates whether a price-concentration relationship can be found on local cinema markets in Germany. First, we test a model of monopolistic pricing using a new set of German micro data and find no significant difference in admission prices on monopoly and oligopoly markets. In a next step, we test whether this can be explained by the existence of local monopolies, but find no hint of that. Implicit or explicit collusion among cinema operators might explain our observations.
Start-Ups and Coworking Spaces: Empirical Evidence from Founding and Funding Activities
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We explore how coworking spaces are involved in the entrepreneurial ecosystem of start-ups contingent on the lifecycle stage of the firm and the coworking space market itself. Our study is based on a hand-collected detailed sample of coworking spaces in the seven largest regions in Germany. We find a hump-shaped relation of coworking space supply and founding activity, reflecting maturity effects of the corresponding coworking space market. In addition, we find a positive relation between the coworking space supply and funding activity of start-ups. A European study with WeWork data supports our findings and a difference-in-differences approach mitigates endogeneity concerns.
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We explore how coworking spaces are involved in the entrepreneurial ecosystem of start-ups contingent on the lifecycle stage of the firm and the coworking space market itself. Our study is based on a hand-collected detailed sample of coworking spaces in the seven largest regions in Germany. We find a hump-shaped relation of coworking space supply and founding activity, reflecting maturity effects of the corresponding coworking space market. In addition, we find a positive relation between the coworking space supply and funding activity of start-ups. A European study with WeWork data supports our findings and a difference-in-differences approach mitigates endogeneity concerns.
The Effect of Information Unshrouding on Financial Product Purchase Decision
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Individuals are often unable to discern different features of financial products and become victims of aggressive and shrouded sales practices. We estimate the impact of an instrument-specific education video on the intention to purchase a sub-optimal insurance product in Delhi, India. The video highlights questions individuals should ask before making a purchase and specific rules of thumb to evaluate the answers to those questions. Our intervention results in a three percentage points increase in the intention of not purchasing the sub-optimal product. Our effects are driven mainly by an increase in product feature knowledge, suggesting that individuals are more informed after watching the rules-of-thumb video, making better choices. A calibration exercise suggests that this impact is sufficient to push the market from a shrouded to an unshrouded equilibrium, suggesting that not all uninformed individuals need to act on financial education to improve information provision in retail product markets.
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Individuals are often unable to discern different features of financial products and become victims of aggressive and shrouded sales practices. We estimate the impact of an instrument-specific education video on the intention to purchase a sub-optimal insurance product in Delhi, India. The video highlights questions individuals should ask before making a purchase and specific rules of thumb to evaluate the answers to those questions. Our intervention results in a three percentage points increase in the intention of not purchasing the sub-optimal product. Our effects are driven mainly by an increase in product feature knowledge, suggesting that individuals are more informed after watching the rules-of-thumb video, making better choices. A calibration exercise suggests that this impact is sufficient to push the market from a shrouded to an unshrouded equilibrium, suggesting that not all uninformed individuals need to act on financial education to improve information provision in retail product markets.
The Impact of Governmental Intervention on the Association Between Initial Public Offering and Future Stock Issuance
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We examine the effect of initial public offering (IPO) characteristics on seasoned equity offering (SEO) decisions in relation to governmental intervention in China. Our results confirm the process of underpriced IPOs in promoting earlier and larger IPOs in the Chinese context. The study examines three channels through which the Chinese government intervenes in equity issuance activities named state ownership, politically connected executives and economic development areas. We find that the connection between IPOs and SEOs becomes less apparent in government-intervened firms. We attribute our results to the conflict between the state and minority shareholders, which leads to high uncertainty and risk in government-intervened firms.
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We examine the effect of initial public offering (IPO) characteristics on seasoned equity offering (SEO) decisions in relation to governmental intervention in China. Our results confirm the process of underpriced IPOs in promoting earlier and larger IPOs in the Chinese context. The study examines three channels through which the Chinese government intervenes in equity issuance activities named state ownership, politically connected executives and economic development areas. We find that the connection between IPOs and SEOs becomes less apparent in government-intervened firms. We attribute our results to the conflict between the state and minority shareholders, which leads to high uncertainty and risk in government-intervened firms.
Understanding the Nexus of R&D Expenditures and Intangible Assets in Different Asset Types: A Quantile Regression Approach
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The financial outcomes of research and development (R&D) expenditures and intangible assets are not instantaneous and straightforward. To explore the varied perspectives of these relationships, quantile regression technique is used to understand whether and how such relationships vary for the firms with different financial strength. The findings provide insights in risk-return paradigm of R&D investment and the successive return, besides helping the policy makers to settle the priority sector, to get the expected result in line with country’s investment policy.
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The financial outcomes of research and development (R&D) expenditures and intangible assets are not instantaneous and straightforward. To explore the varied perspectives of these relationships, quantile regression technique is used to understand whether and how such relationships vary for the firms with different financial strength. The findings provide insights in risk-return paradigm of R&D investment and the successive return, besides helping the policy makers to settle the priority sector, to get the expected result in line with country’s investment policy.
Volatility Ambiguity, Consumption and Asset Prices
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We formulate a stylized model that admits volatility ambiguity to the Lucas framework. The model specifies an economically motivated ambiguity penalty function that makes volatility ambiguity quantifiable with χ2-statistics, and allows for analytical solutions. The addition of volatility ambiguity greatly expands the range of possible equilibrium outcomes of the Lucas model with the well documented empirical regularity being the equilibrium outcome of a range of sensible combination of parameters. The paper shows that while return volatilities are much easier to estimate than expected returns and therefore have lower ambiguity than the ambiguity in mean returns, it nonetheless plays an important role in the equilibrium determination of asset prices.
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We formulate a stylized model that admits volatility ambiguity to the Lucas framework. The model specifies an economically motivated ambiguity penalty function that makes volatility ambiguity quantifiable with χ2-statistics, and allows for analytical solutions. The addition of volatility ambiguity greatly expands the range of possible equilibrium outcomes of the Lucas model with the well documented empirical regularity being the equilibrium outcome of a range of sensible combination of parameters. The paper shows that while return volatilities are much easier to estimate than expected returns and therefore have lower ambiguity than the ambiguity in mean returns, it nonetheless plays an important role in the equilibrium determination of asset prices.
